Forty-two percent of CIOs suffered budget decreases in the first quarter of 2009, and IT shops on average slashed budgets by 4.7 per cent according to new research published by Gartner. CIOs were expecting an average first quarter budget increase of 0.16 pr cent late last year, but were forced to cut costs as the economy worsened. Fifty-four percent of CIOs reported no change in their IT budget, while a scant 4 per cent enjoyed an increase. Average declines of 7.2 per cent were seen by those companies that reduced IT spending. Counting all companies, including those with flat budgets and increases, the average decline was 4.7 per cent.
"CIOs reported that renegotiating vendor contracts and head count reductions were the primary focus areas for accommodating budget reductions," Gartner analyst Mark McDonald says in a press release. "CIOs report shifting more work to in-house resources and delaying capital expenditures more than reducing IT project investments."
The findings are based on a survey of 900 CIOs from across the globe, encompassing US$77 billion in IT spending. The survey, conducted in March and April, was compared to results from a similar survey of 1500 CIOs conducted from September to December.
Budget cuts spanned all types of enterprises both in terms of size, geography and industry. Healthcare organisations reported an average budget increase of 2.2 per cent, but CIOs in every other major industry reported a decline in the first quarter, Gartner said. Ten percent budget cuts were seen in the professional services, telecommunications and high-tech sectors. An 8 per cent budget cut was reported in manufacturing, and 4 per cent cuts were reported at utilities and financial services organizations.
Many CIOs say further cuts in 2009 are unlikely, and that they expect the economy to recover between the first and third quarters of 2010. But they are bracing for the possibility of further budget reductions.
"The percentage of CIOs with a contingency plan for the remainder of 2009 has more than doubled compared with 2008," Gartner reports. "CIOs with additional contingency plans for 2009 are planning for the potential of renewed IT spending, as well as additional reductions. While 44 per cent of CIOs do not believe they will need to tap into their contingency plans, those that do believe they will [expect to] do so during the next six months."
CIOs are already planning for ramping up IT spending, once the economy recovers. Increases in "IT investment projects and workforce levels" will be the top priorities for CIOs during the expected turnaround, according to the survey. "Software, hardware and infrastructure investments are also high on the CIO's agenda on the path to economic recovery," Gartner says.
In this atmosphere of flat or reduced budgets, another Gartner executive highlights the need to focus on the long term, and to prepare for the end of the recession.
Keeping a close eye on what is going to happen with budgets next year, rather than just the immediate day-to-day concerns is important in the downturn, says Gartner Research vice president and research director Andrew Rowsell-Jones.
Speaking at an ICONZ conference in Auckland, Rowsell-Jones says it can be difficult for CIOs, CEOs and CFOs to judge what shape the recession will take. “Is it going to be a V, steep down and steep up, or is it going to be a U with a steep climb out the other end?”
However, if it’s an L shaped recession, things are going to bump along the bottom for a while, he says. “This means any plans that we have thought of a couple of years ago are no longer valid, because we’re going to be in this recessionary environment long enough for us to re-plan and rethink.”
The fact that the IT industry experienced a similar downturn in 2003 means local businesses are prepared for it, he says.
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