Although the still sluggish economy will continue to challenge most, if not all, businesses, corporate spending on technology is expected to rise this year, according to a Computerworld Philippines survey.
Supporting the rosy forecasts of International Data Corporation (IDC) and other IT think-tanks, the latest CWP IT Spending survey had more than half of its respondents reporting increases in their IT budgets for 2005. Conducted by CWP Research from November 2004 to January this year, the survey covered 100 companies. For the purposes of the survey, a company’s IT budget was defined as consisting of spending allocations for operations (hardware, software, services, training, etc.), staff and overhead expenses.
Based on interviews with the survey respondents, local companies will continue to be prudent in their IT investments as in previous years, but, for 2005, they will spend on technology that will help them run their businesses better and improve their service efficiency.
The reply of an IT officer of one of the country’s leading banks summarized the position of local businesses regarding technology spending this year. He said: “Over the past years, banks had been on a cost-cutting mode and, therefore, we have endeavored to extend as best as we could the life of some of our equipment. But you cannot do this forever. We have now reached the time when we have to replace these equipment and, compared to previous years, this decision will naturally call for higher IT allocations. But whether we like it or not, new equipment is needed and critical to run our day-to-day work.”
The majority of companies which reported budget hikes for this year will implement relatively small percentage increases. Of the survey respondents who have raised their IT budgets, 23 per cent said the increase will range from 10 per cent to 30 per cent, while 10 per cent stated that the expansion will average from 31 per cent to 50 per cent. While 19 per cent disclosed that their spending will go up by less than 10 per cent, only two per cent said that their budgets will grow by more than 100 per cent.
For the 17 per cent of the respondents who expect their budgets to remain unchanged from the previous year’s, the urgency of the company’s other, non-IT requirements and the need to adopt a more cautious strategy to counteract the uncertainties that continue to cloud business conditions are the key reasons for managing IT costs better.
An IT manager of a healthcare company who chose to keep their IT budget unchanged said, “Any increase or decrease in our annual budget depends greatly on the company’s requirements.” He pointed out that they have never set any fixed percentage increase for their annual IT budget even in the past. “Normally, we just determine the urgency of any requirement and, then, we prioritize,” he elaborated. “If the total cost of all the projects would be too big to be justified in one year, then we’ll just have to defer some of it for next year.”
On the other hand, another IT manager said they have decided to adopt a wait-and-see attitude with regards spending and managing their bottom line. “We want to see if the economy will pick up and, if it does, whether or not there will be a corresponding increase in the demand for our products and services,” he said.
With business likely to remain sluggish, 27 per cent of the survey respondents expect to slash or, at best, keep IT spending tight as the country’s economic problems linger. Some said they would minimize cost as there are no “must-have” technologies that will spur new investments while others have already filled up their manpower requirements.
Among the companies that will reduce their IT spending this year, nine per cent said their budget will contract by less than 10 per cent. While 11 per cent will have a budget reduction ranging from 10 per cent to 30 per cent, only seven per cent said their spending will diminish by more than 30 per cent.
The study also found out that the average IT budget as a percentage of the company revenues remains very low, averaging below five per cent of the organization’s total income as claimed by 49 per cent of the respondents. While 24 per cent disclosed that they allocate an average of five per cent to 10% of their revenues for IT, 16 per cent claimed that their IT spending represents 11 per cent to 15 per cent of their revenues. Only 10 per cent said their IT budget constitutes more than 15 per cent of their company’s revenues.
Meanwhile, the survey showed that if profits improve over the next three to six months, 19 per cent of the respondents would revise their plans and definitely increase their IT spending above the current level. The same goes for 43 per cent of the respondents who, in all probability, will hike their spending above what they have planned once their profits improve. On the contrary, 37 IT officers will stick closely to their plans even if their firms realize a growth in income.
For this year, most of the budget priorities are centered on the following: new software application deployment and development, security, application/systems integration, replacement of aging hardware, and disaster recovery/business continuity.
With most organizations planning changes in major applications and operating systems, one area that is likely to receive a huge share of the IT budget this year is the deployment and development of new software to implement new technologies and run business operations more smoothly. “Our company is convinced that tailor-made applications are the key to success in today’s business because you could address your application requirement head on,” an IT manager of a company engaged in maritime services said. “As a company with offices worldwide, standardization of office operations and procedures has become the order of the day to simplify management and to promote a harmonious working environment among employees of different nationalities.”
An IT officer in an e-business concern disclosed that the bulk of their spending will be on new software deployment and development once their profits improve and their budget loosens up. “We plan to roll out new business applications to improve productivity and automate some of our basic operations,” he said. “The hope really is to ‘do more with less’ and now is as good a time as any to start these projects.”
Other areas where IT managers can be expected to pour increased investments are security and disaster recovery/business continuity projects. Emphasizing that security is a chief concern that needs to be intensified to fight off the growing threat posed by computer hackers and viruses, an IT officer of a healthcare company said, “There is a pressing need to strengthen the security policy and infrastructure of the company as the types of threat are also increasing and changing every year.” For this IT officer, “the case of security and disaster recovery/business continuity is a continuing journey that needs constant improvement and enhancement.”
The need for a business continuity plan (BCP) is also a priority concern that is prompting local firms to open up their vaults this year. Increased emphasis on disaster recovery considerations is another cost challenge to organizations, particularly now that real as well as perceived threats are on the rise. “With all the disasters happening around us especially since Sept. 11, 2001 (when terrorists attacked the World Trade Center in New York), the reality of the need to have a BCP is starting to sink in. People have started to buy the idea of investing in this area. So, we are now focused on this,” a bank IT officer recounted.