Where will the IT dough go?

Influenced by the stock market, consumer confidence, and unemployment rates, CIOs will not spend their entire 2002 IT budget by the end of the year. And 2003 IT budgets will only grow a meager 0.2 percent from 2002 values, leaving IT spending flat at best in 2003. The optimism in the second quarter, when companies were still planning to increase 2003 IT budgets by 1 percent, has disappeared.

AMR Research surveyed 100 IT executives in October, and found that, on average, they had 23 percent of the 2002 IT budget still to spend in the fourth quarter, with plans to only use 15 percent of the 2002 budget in that period. So where is the rest of the IT budget going, the 8 percent not being used? IT departments made cuts in areas such as head count, training, outsourced services, and telecommunications capacity. A good portion of IT executives (38 percent) decided that outsourced services, like third-party consultants in particular, were not that critical to reaching the overall business goals. Companies are either turning to in-house resources with the hopes of saving money, or are relying on the larger, more stable third-party consultants to meet their needs. IBM Global Services/PwC Consulting was the clear favorite for third-party consulting, with nearly four times the support of Accenture and Cap Gemini Ernst & Young. But enough with the cuts--what about the positive? Where will CIOs be spending money in the fourth quarter of 2002?

Budgets loosen for EPM
The spotlight will be on Enterprise Performance Management (EPM)--an initiative that companies adopt to expose existing data to improve day-to-day operations through the use of analytics and performance metrics. Increasing the performance of the organization is one of the top three areas companies will concentrate on in the fourth quarter, largely to use existing applications to improve business processes. Performance management is an iterative process, and CIOs see it as an important initiative well into 2003, when it is again among the top three areas IT executives plan to invest in, along with customer fulfillment and supply chain management.

Infrastructure gets a boost
The need for more efficient performance is also seen in the top two technologies that companies are planning to invest in during the fourth quarter of 2002 and throughout 2003: integration and data warehousing. EPM can only be achieved when the organization is successful at integrating and aggregating information critical to making better business decisions.

IT executives also plan to invest in physical infrastructure and security. The current economy has created a good climate for buying, and CIOs say they plan to take advantage of lower prices for physical infrastructure, such as servers, storage, and networking gear. Investments in security remain crucial for organizations to protect intellectual property and assets. Ubiquitous access to information--such as from the Internet--as well as the distributed nature of organizations today, have forced companies to increase the security needed to guard or share corporate information and assets.

ERP revival
Enterprise Resource Planning (ERP) is also getting some new momentum, with companies eyeing it as a critical piece of business process improvement. Oracle, SAP, and PeopleSoft are considered the most strategic vendors of note, while the best-of-breed vendors all but disappear from the list, shrinking to 9 percent in the third quarter of 2002 from 21 percent in the second quarter of 2002. As one IT executive mentioned, "the big get bigger and the barrier to entry gets higher." Meanwhile, Microsoft, IBM, and HP take the top infrastructure provider slots.

Spending is selective
The fact that companies plan to spend 92 percent of their 2002 IT budget by the end of the fourth quarter is probably better than most expected. Organizations will spend less this year, but CIOs are still spending, and they have very clear ideas on where they will be investing budget dollars. EPM, customer fulfillment, Supply Chain Management (SCM), and like areas will see investment in 2003 along with the software infrastructure needed to support them.

CIOs Will Spend 92% of Their 2002 IT Budget
First published on November 15, 2002.
By Tony Friscia , Bob Kraus, Colleen Niven, Fenella Scott

Where will your company spend the rest of its 2002 budget? TalkBack below or e-mail us with your thoughts.