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Forecast 2014: How to wring value from your IT budget

Hosted services will reign in 2014, but IT leaders will be challenged to accomplish everything while still containing costs.

September 23, 2013 06:00 AM ET

Computerworld - At First Banks Inc., the name of the game is finding new ways to keep up with the giant financial institutions that have billions of dollars to spend on new products and services.

"We're a midsize bank. We can't keep up with the big guys in terms of their IT spending," says Rick Nolle, CIO at Clayton, Mo.-based First Banks. Even with a 10% to 12% budget increase planned for 2014, "we have to find ways where we can do things differently that give us a boost here and there," he says.

Data from 2014 Forecast Survey (Base: 221; June 2013), 2013 Survey, 2012 Survey, 2011 Survey and 2010 Survey . Mouse over graph to get data details; click on items in chart key to turn them on and off.

So about 36% of the bank's 2014 IT budget will be spent on service providers that do everything from hosting its online banking system and providing mobile apps for customers to providing assistance for corporate customers -- some 40 apps in all, hosted by a handful of banking-specific vendors. Nolle's team customizes some vendors' "vanilla" apps, or waits for vendors to add new features that the big players already have.

"We try to work between the vendors to innovate -- finding ways to connect things together differently that give us a new service, that give us some independence from vendors, that differentiate us from other guys in the market," he explains.

In fact, hosted services have become the bank's focus. "Whenever any kind of replacement need comes up, the first place we're going to look is in the cloud -- what can we subscribe to or have somebody put up for us?" Nolle says. The bank has plans for a mortgage loan origination system hosted in the cloud, and possibly a new retail banking system that it will subscribe to via a software-as-a-service model. And both of those will cost less than it currently costs to maintain existing systems.

That's a common theme in 2014 enterprise IT budgeting.

Computerworld's Forecast 2014 survey of 221 IT executives shows that IT budgets are continuing to make a nice recovery. Some 36% of our survey respondents said that they expect an increase in their IT budgets, while half said that their budgets will hold steady. What's more, budgeting for services is outpacing spending on hardware and software, and that has a domino effect on the skills that IT organizations need. While some organizations have cut staff when adding outside help, others have held steady or even added IT staffers because, if an IT organization is buying services, it needs more people with vendor management and negotiation skills.

According to Gartner, IT budgets will chug along with small but steady 2.9% average annual increases through 2014.

That doesn't surprise some analysts even though the economy is looking up in many segments. "IT budgets are normally less precocious than the economy," says Gartner analyst John Lovelock. "We have longer purchasing cycles. We can [cut spending] relatively quickly, but the inverse isn't always true."

Forecast 2014

Top Budget Priorities

• Top five areas of increased IT spending in 2014:

1. Security technologies
2. Cloud computing
3. Virtualization
4. Wireless/mobile
5. Business analytics

• Top five areas of decreased IT spending in 2014:

1. Hardware
2. On-premises software
3. Data center consolidation/optimization
4. IT/network services management
5. Unified communications

Top Business Priorities

Containing costs: 65%
Optimizing and automating business processes: 55%
Optimizing existing investments: 48%
Accelerating business process and agility: 45%
Improving collaboration with business: 34%

Biggest Leadership Challenges

Budget constraints/economic pressures: 26%
Managing expectations/business alignment: 14%
Security: 11%
Managing projects: 10%
Managing personnel: 7%
Improving the customer experience: 7%

Source: Computerworld 2014 Forecast survey of 221 IT executives, June 2013

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