Solid Gains: Signals are good for an IT spending rebound

In partnership with EDGE magazine, Canaccord Capital surveyed 185 senior IT executives regarding their spending intentions. Of those, 65 per cent were vice-president level or higher, many at the CTO/CIO level. A total of 75 respondents have budgets over $1 million.

Overall spending intentions

appear healthier and poised for recovery. IT budgets in 2004 will increase five per cent over 2003, comparable to similar 2004 IT spending surveys by IDC (five per cent growth),

and Forrester Research (four to five per cent).

Among the survey’s highlights:

* In 2004, price is the top consideration for vendor selection, followed by quality of support and implementation risk.

* Regulatory concerns, such as Sarbanes-Oxley, are supporting spending on enterprise applications, — 42 per cent are spending more on enterprise resource planning, business intelligence and content management. But adoption of supply chain management and customer relationship management software is flat.

* Enterprises are going wireless. Fifty-seven per cent of respondents named wireless LANs and 64 per cent wireless e-mail as their priorities for 2004.

* Forty-three per cent of respondents indicated plans for increasing investment in PCs in 2004, with priority given to Dell and IBM. PCs showed improved spending over 2003, reflecting the fact that many PCs are at end-of-life and due for an upgrade.

* Enterprise software vendors prioritized for IT spending in 2004 include Microsoft, Oracle, SAP and PeopleSoft.

Our survey showed a marked increase in overall IT budgets in 2004 relative to 2003, with specific areas targeted, indicating an improving outlook for certain categories and technology vendors through the remainder of 2004.

Fifty-three per cent of respondents indicated they intend to increase IT budgets over 2003 levels by between three and five per cent. Surprisingly, 22 per cent of respondents indicated IT budgets will increase more than

10 per cent. The survey results show an improvement in IT investment from 2003, when IT budgets were generally increasing by one to three per cent.)

A large number of respondents (79 per cent) indicated a substantial reprioritization of IT spending in 2004 towards projects that support revenue-generation over those that save costs.

This represents a significant shift from 2003 where the focus was oriented towards saving, not making money. It indicates a shift to spending in software and hardware that drives improved productivity and captures additional revenue. However, it also implies a significant focus on those vendors who have proven customer successes with revenue generation via their products.

A total of 28 per cent of respondents said they would maintain their current IT spending levels, but in general, survey respondents con-veyed a more confident view of the economic recovery in their plans.

One in five respondents (19 per cent) still plans to decrease IT budgets in 2004, which continues to show demand for applications and technology that reduces IT cost.

Regarding spending in 2005, respondents showed still solid but weaker increases than in 2004, with 44 per cent expecting to increase spending by less than 10 per cent.

Thirty-four per cent of respondents indicated that all top projects are expected to get funding. This compares favourably to the previous year, when only the top few projects were expected to get approval.

Respondents indicated that in 2004 spending priorities would be distributed between new initiatives (26 per cent), initiatives already underway (23 per cent) and routine infrastructure upgrades (21 per cent) with the remainder to be divided between hardware and software upgrades.

Although overall spending is increasing, 46 per cent of respondents indicated that diligence over implementation risk would be key. More than 40 per cent of respondents also indicated an increased focus on diligence and accountability around ROI.

While diligence will keep projects on track, initial IT spending increases appear receptive to spending on software licensing (62 per cent) and reflects the contribution from new initiatives. This is likely occurring as a result of pent-up demand from projects placed on hold over the past couple of years that can no longer be delayed.

We asked our respondents to gauge which technologies are likely to see the greatest spending increases over 2004. The priorities are security, application integration (reflecting a growing IT focus on tying together disparate databases and applications), Web services, database and content management and e-commerce.

Software areas slated for the largest decrease in spend-ing include application development and deployment, desktop applications and ERP/ CRM. The declines in application devel-opment are likely indicative of companies recently hav-ing retired older applications and re-engineered their portfolio of applications to foster significant reuse of portions of that portfolio across an organization (previously, large companies had hundreds, if not thousands, of applications that often overlapped and were built in a variety of computing environments). The declines in ERP/CRM spending may be more indicative of the unclear ROI and high implementation risk associated with those categories.

On the outsourcing front, for the most part, IT executives are satisfied with the solution-provider companies they engage with to spec out, install, manage and support the IT solutions they buy. However, there is pressure to reduce the size of outsourcing contracts, most intensely those costing $1 million or more.

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Jim Love, Chief Content Officer, IT World Canada

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