As the IT budget season heats up, CIOs interviewed last week said they're guardedly optimistic about their 2005 spending plans. But many IT managers are expected to increase spending on hardware and outsourcing primarily in response to pressure from corporate executives to cut IT infrastructure and labor costs. For instance, a survey of 195 North American CIOs released by Forrester Research Inc. indicated that companies plan to increase their overall IT spending by an average of 7 percent next year. Spending on hardware is expected to jump by 14 percent over this year's levels, it said.
However, some of the anticipated hardware growth is being driven by investments companies are making in less expensive machines that are expected to produce operational cost savings over the next 18 to 24 months, said Forrester analyst Tom Pohlmann.
"Many CIOs are coming around to see that it takes some investments in better price/performance platforms, such as new blade server technologies that are starting to hit the market, to cut costs over the long haul," Pohlmann said.
Robert Schwartz, CIO at Matsushita Electric Corporation of America's Panasonic division in Secaucus, N.J., said that some companies seem to be more willing to invest in IT as the economy shows signs of improvement. He added that he thinks corporate executives are also starting to get past concerns that their companies overinvested in technology during the dot-com boom and the Y2k remediation effort.
"This will fuel some level of growth, but it will be tempered by selecting only those initiatives which meet ROI requirements," Schwartz said. Panasonic's fiscal year begins April 1, and the company won't finalize its IT budget for the next one until December. Schwartz estimated that its IT spending could grow by as little as 4 percent or as much as 7 percent.
Spending predictions by market researchers for next year are also mixed. "We're not seeing CIOs becoming more optimistic about revenue growth and IT spending," said Howard Rubin, an executive vice president at Meta Group Inc. "No one wants to be hamstrung and spend more on IT and then have the economy collapse."
Instead, Rubin said, users are shifting around their IT investments. Last year, companies spent an average of about 65 percent of their IT budgets on "run the business" work and the remainder on new projects, according to Rubin. This year, many have tried to lower IT infrastructure costs to closer to 50 percent of their budgets and pump more money into new projects, he said. "Companies aren't spending more on IT; they're just spending it differently," Rubin said.
Hilton Hotels Corp. still allocates slightly more than 65 percent of its IT budget to supporting business operations, said Damien Bean, vice president for corporate systems at the Beverly Hills, Calif.-based lodging company.
Hilton's IT budget is likely to grow 5 percent next year, Bean said, although that includes the costs of supporting the planned opening of more than 140 new hotels. He added that savings Hilton has achieved through IT efficiency gains this year will be channeled into sales systems and security technologies next year.
But Bean said Hilton has standardized most of its hardware on Intel-based systems and has "already captured the benefits of commodity hardware and nonproprietary maintenance fees, all of which makes our cost structure extremely competitive but limits year-over-year savings."
IT spending at The Guardian Life Insurance Company of America is expected to grow 3 percent next year, driven by a 9 percent increase in infrastructure investments to accommodate upgrades to the New York-based insurer's disaster recovery and security capabilities, CIO Dennis S. Callahan said.
J. Edward Clary, CIO at Haverty Furniture Cos. in Atlanta, said he won't know what his IT budget will be for 2005 until mid-November, when the company's board makes its final approvals. But he does know that the budget won't be smaller than it is this year. "It would be too hard for us to recover if we tried to cut back on our infrastructure investments," Clary said.
Spending Increases Not Likely To Trickle Down to Tech Workers
Analysts last week offered words of caution to IT staffers: Don't translate next year's expected growth in IT spending into visions of fatter wallets.
The widespread availability of low-cost labor overseas has meant fewer bonuses and raises for technology professionals in the U.S., said Barbara Gomolski, an analyst at Gartner Inc. and a Computerworld columnist. And that isn't likely to change, according to Gomolski and other market watchers.
Forrester Research estimates that companies will increase the head counts of their U.S. IT staffs by just 5 percent between now and 2008. "There'll be a little pickup in hiring next year, but salary and benefit growth will remain flat," said Forrester analyst Tom Pohlmann.
IT staffing levels aren't expected to change at Guardian Life Insurance next year, said CIO Dennis S. Callahan.
Robert Schwartz, CIO at Panasonic, also said he doesn't expect to expand his IT staff during 2005. Instead, he said he plans to increase Panasonic's reliance on domestic and foreign IT contract workers.
But that type of approach could raise public relations problems for U.S. companies. And as corporate executives face increased pressure to retain IT work stateside, many firms will try to "bury their offshore activities" by means of creative accounting, said Howard Rubin, an executive vice president at Meta Group. "A company might say publicly that they only have 5 percent of its employees offshore, but they can have thousands of contractors overseas," he said. -- Computerworld (US)
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.