IT budgets to grow in Q1 2004
September 30, 2003
on Datamation / Earthweb.com
North American companies may increase IT spending in the first quarter of 2004, according to most recent data from the "Wendover Global Insight IT Spending Index," issued by Global Insight, Inc. and Wendover Corporation of Philadelphia, PA.
The index, which includes survey data from approximately 65,000 U.S. executives annually, has been shown to accurately predict future behavior six months into the future, according to correlation studies from Global Insight.
Although second quarter data showed a decline of discretionary IT spending by 21 percent compared to first quarter surveys, July survey data showed a three percent rise in discretionary IT spending.
"This is significant because it's the first time that we have had an increase in four quarters," said Wendover CEO Larry Dillon.
The following five types of IT projects demonstrated the most dramatic increases in spending:
- ERP solutions,
- Purchasing software,
- CRM solutions,
- Hardware purchases,
- and e-commerce projects.
In the second quarter of 2003, 57 percent more respondents said they were going to be buying ERP solutions than in the first quarter of 2003. Equally dramatic was the spike in respondents saying they were going to be purchasing software — 52 percent more people in the second quarter than in the first quarter.
Approximately 33 percent more respondents said they'd be buying CRM solutions in the second quarter than the first quarter, while 18 percent more said they were going to acquire new hardware as well as pursue e-commerce projects.
The survey findings appear to jibe with the plans of at least three CIOs in various industry segments across North America, although these CIOs also noted two additional budgeting trends likely to span the industry in 2004.
Two other priorities
IT will spend more to fortify technology security as well as comply with legal mandates, such as Health Insurance Portability and Accountably Act of 1996 (HIPPA), the Sarbanes-Oxley Act of 2002, and Gramm-Leach-Bliley Act of 1999, according to Steve DeLaCastro, a partner with the consulting firm Tatum CIO Partners, with offices around the nation. California's Breach Disclosure Law (Proposition 1386), a law requiring compliance with data security and privacy stipulations, will also drive additional spending in security, according to DeLaCastro. Five other states are presently considering similar measures, he said, creating even greater pressure for CIOs to protect companies from possible fines associated with violating data privacy.
Regarding Wendover's index, DeLaCastro largely agreed with its findings.
"ERP has finally broken out of the ice," said DeLaCastro. "I think a lot of people had differed purchasing because they weren't sure what the economy was going to do. The perception had been, up to about a quarter ago, that the economy was completely stalled out and nothing was going to happen. So people were afraid to make large capital investments in the infrastructure necessary to do ERP. It's starting to come back on line again because the confidence in the economy is starting to pick up."
Following the August power blackout on the east coast of the United States, DeLaCastro said IT will also be budgeting for more disaster recovery and business continuity projects.
"While it's not individually the biggest spend, I'm getting calls from even small companies who are starting to link up and say look we can't be without power for a few days," said DeLaCastro.
CIO Warren Leggett of Niku Corporation, a manufacturer of enterprise software designed to increase productivity and manage project portfolios, said he will increase spending from the last quarter of 2003 to the first quarter of 2004, mirroring the trend Wendover data predicts.
Although the Redwood City, CA-based company doesn't use ERP software, Leggett's IT department will spend more in 2004 to rejuvenate and improve sales force automation, as well as add additional modules to the company's finance applications. Leggett said he expects to refresh some of the company's hardware and many desktop software applications, as well.
While security is a high priority at Niku, augmenting IT security needn't be one of the company's major budget items. Leggett said the company will invest cautiously, at the same time taking low-cost initiatives such as reworking written security policies and procedures.
At Chicago area Network Services Company, CIO Mike Hugos said e-commerce and supply chain management, with an emphasis on purchasing, will be the company's IT focus for 2004.
"E-procurement is going to be a big component," said Hugos, as the company is presently creating electronic connections with preferred suppliers and has retrofitted existing ERP systems so they can export purchase order files into an electronic format and then change them to EDI or XML to meet the needs of suppliers' systems.
Network Service Company will venture into e-commerce to meet the requests of two customers seeking to buy Network Services' janitorial supplies as well as everything from lawn mowers to light bulbs, added Hugos.
Although the Wendover data does predict some gains in IT spending, the outlook for early 2004, does have its down side. Among IT projects showing the least amount of increase in discretionary spending were:
- Firewall protection;
- Data warehousing;
- Network equipment;
- and staff augmentation.
The staffing data does not include projections for consulting expenditures, according to Dillon.
The IT spending predictions underscore the way companies in the near term, at least, will continue to make gains in a weak economy, noted Dillon. They'll invest cautiously in IT projects that can improve efficiency and cut costs. The fact that staffing shows little gain in flexible spend demonstrates that for at least the first quarter of 2004, budgets for IT employment may remain skimpy.