IT Spend: New Development Caved in Bear Economy

By Donald Sears  |  Posted Wednesday, July 16, 2008 23:07 PM

The growth of IT spending in 2008 is much like the growth of the economy right now: It's a bit bearish and a little tight in the wallet. It's trending toward hibernation, will reuse your trash, but isn't there to frighten or eat you.

At least, that's the findings of the 19th annual, research benchmarking report "IT Spending, Staffing & Technology Trends" put out by Irvine, Calif.-based Computer Economics. "[W]e now find the median IT operational budget growing 4.0 percent this year--a decline from the 5 percent growth last year," it says in the executive summary.

The report surveys 200 IT management types for "composite statistics of IT spending and staffing data, a segmentation of the same statistics by organization size, and individual chapters for 11 commercial and government sectors."

The report's major findings are:
-IT spend growth is slowing

-IT execs are stretching the budget
-Banking, healthcare, retail and manufacturing lag

-Capital spend growth rate falls to zero
-Top priorities: Service levels, risk management, cost control
-Headcount holds the line
-Outsourcing continues

"We're seeing some retrenchment with the economy on IT spending and staffing," John Longwell, Director of Research at Computer Economics told me. "The sky is not falling, but there is a slow down in growth and operational budgets... The overall sentiment is restraint, and we're seeing it on the staffing side too. Most companies are not adding to staff or laying off."

One of the more interesting things from the report is that new development is taking a back seat to improving service levels and managing risk via disaster recovery, security, and lowering maintenance and support costs. Last year's CE report, had new development as the number one thing on the spending priorities list. New projects are probably getting shelved or slowed.

Tangentially, in June, Baseline reported that what IT managers say are security priorities are not usually being funded, despite its consistent spot atop many research studies including the Ziff Davis Enterprise-backed study that was the basis for the story. It's always tough to correlate different research and methodologies, but the argument can be made that what we say we are going to do, isn't always what we end up doing.

Is security and risk management really being pushed near the top of your priority lists? If so, what kind of security projects? Let us know.

Back to the CE report...Of the 200 companies surveyed, 53 percent are outsourcing application development, which is a 15 percent increase from 2007. Data center operations gets 35 percent of the pie, along with 28 percent outsourcing help desk teams, and 23 percent using outside desktop support.

Not surprising on those last ones, but I wonder how much of contracted application development is being squashed right now given the climate CE depicts in the report. Of course, we all know there is cheaper labor being used on development in other parts of the globe. Eastern Europe. Russia. India.

How much of that is being shut down or slowed right now? What kind of new development projects are being shelved? Are you seeing a healthy mix of operational management and new projects, or is it all about maintaining status quo?

In fairness, the CE report is good about pointing out the differences in IT spend growth across the market segments and verticals, which break out like this:

2008 Median IT Operational Budget Growth by Sector (2007 to 2008):
Utilities & Energy 8%
High Tech 7%
Prof. Services 5.5%
Wholesale 5%
Insurance 4.5%
Healthcare 3%
Discrete Manufacturing 3%
Banking & Finance 2.5%
Retail 2%
Process Manufacturing 0%
IT spend for energy is way up. Shocking.

So what do you think of these findings? Where is your company's IT budget being trimmed or expanded? Do you buy that IT jobs are holding up? What is being outsourced?