CIOs foresee modest boost in IT spending

Computerworld - 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 last week by Forrester Research Inc. indicated that companies plan to increase their overall IT spending by an average of 7% next year. Spending on hardware is expected to jump by 14% 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% or as much as 7%.

Spending predictions by market researchers for next year are also mixed (see chart). "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% 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% 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.