IT spending for 2003: What to expect

CIOs worldwide may say they will maintain or increase IT spending in 2003, but analysts warn the IT industry is nowhere near out of the woods yet.

The 2003 Worldwide IT Benchmark Report, a Meta Group poll of about 25,000 IT professionals

in 34 countries, shows that reports of higher IT spending are actually misleading, says director of benchmark services for Meta Group Worldwide, Jed Rubin. Researchers found that IT spending levels, measured as percentage of revenue, look like they’re increasing because revenues are dropping. The amount of money companies are willing to spend on their IT organization has remained the same or even decreased in some cases, he says.

As the economy continues to struggle, enterprises are faced with making difficult cuts, Rubin says, having already eliminated most of their discretionary spending. Companies have already hit a wall and are now having to figure out what to do, he says.

“”What that can mean in some cases is irrational cuts,”” he says. “”Organizations are cutting at areas such as help desk or desktop support simply because that’s an easier area to cut, but what that can do is force the people who need the help in supporting their desktop to look beyond the IT organization for help and reinforcing hidden spending patterns which are not directly reported in the IT budget. It can get really messy.””

The Canadian landscape is quite similar to the worldwide picture, agrees Vito Mabrucco, IDC Canada products and service research group vice-president.

“”The interesting dichotomy is that just because they’re planning to keep or increase their budget, it doesn’t mean that they’re going to spend those dollars,”” Mabrucco says. “”There is a much more careful analysis and assessment of the IT investment decision because while people realize that IT is important, they want more diligence around spending money on IT.””

Mabrucco says that Canadian organizations realize IT is a good investment, but in tough economic conditions — and having been burned once too often over failed projects — have made them wary.

Not surprisingly, the Meta Group reports that some of the largest cuts in the industry have been around staffing. That sentiment is echoed by Herbert Hess, president of Toronto-based recruiting firm Hess Associates, who reports a dramatic decrease in IT job openings and is not optimistic about them in the short term.

“”The only areas that are really showing any signs of life are manufacturing and the banks somewhat, but not in any huge numbers,”” Hess says.

“”Normally in this kind of situation, when the permanent placement levels decrease the contract levels increase. This is one of the few times ever that both the contract and permanent positions are decreasing significantly.””

Hess attributes the dire state of the job market to the troubles telecommunications companies experienced this year, since they have traditionally been the strongest segment in terms of hiring IT professionals.

Hess notes that while the traditionally strong Ottawa and Toronto job markets have looked bleak all year, Montreal firms have been surprisingly active in recruiting IT talent.

Things in the IT industry will look much as they have in 2002 next year, Mabrucco says. IDC Canada is forecasting a growth rate of one to two per cent. That doesn’t mean the industry is in dire straits, however.

“”The IT industry is a very large industry,”” Mabrucco says. “”In Canada it’s about a $45 billion industry. When you reach that size it’s difficult to continue to grow at (double) digit rates. In fact we expect the IT market will probably have a lot of difficulty reaching double digit growth rates again, ever.””

In terms of real dollars single digit growth of a large market can mean a much stronger industry than a small market growing by double digits.

The IT market worldwide is going to see lower growth rates from now, Mabrucco says, but dollar amounts spent will continue to increase.

A somewhat more mature technology market is also to blame for the slow recovery of the IT industry on a global scale, says Howard Rubin, the executive vice-president of Meta Group Worldwide.

“”There are no (expected) breakthrough technology introductions that we believe would drive increased levels of spending,”” he says. “”We do not to see any uptick in 2003 and perhaps single digits going into 2004.””

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