Getting NetSmart - The state of IT spending

The state of IT spending
Goldman Sachs looks to uptick in 2003

Network World, 09/025/02

Each month, economists make the rounds on TV and radio telling us that we've hit bottom and the economy should start an uptick soon. Why should the IT industry be any different?

A new study from Goldman Sachs on IT spending shows that 2002 should be the official bottom for depressed IT spending and that 2003 will show slight increases. However, Goldman Sachs warns that the rise in IT spending will be very nominal.

The analyst firm says that the IT industry is lagging behind the recovery numbers of the overall economy. It warns that growth could only be in the 6% to 7% range, as opposed to the 10% range we experienced in the past. Early indicators show 2003 spending would be even lower, around 3%.

Interestingly, 78% of respondents to the survey said that they expect the fourth quarter of 2002 to have spending at normal levels and many said that had so far only slightly underspent their budget.

The good news is that as the budgets tighten, power over vendors is growing. A majority of respondents said that their ability to command favorable pricing is increasing. This makes sense: If everyone has less money to spend then they need to fight harder for the dollars. This means the money IT managers are spending is going further and creating better bottom-line effects for their companies.

The survey shows the highest ranking IT priorities. Not surprisingly, information security is at the top, followed by cost cutting, application integration, disaster recovery/business continuance, new software deployment, and systems and storage consolidation. On the low end of the ladder are network convergence, managed network services, implementation of new technologies, staff hiring/retention, and the replacement of aging hardware.

The pendulum has certainly swung to the other side in the past year or two if managers aren't worried about hiring and retention. Suddenly, folks aren't clamoring for the door - they are staying put. This must mean that salaries are able to level out a bit because you aren't engrossed in bidding wars. As for aging hardware, what looked old and unmanageable before is looking pretty darn good these days. There's not such a rush to bring in the fanciest machine with the biggest bells and whistles. IT managers are taking a second look at the boxes they were ready to discard and finding new life in them. That said, advances such as Web services help put a little bit of pizzazz back into that old gear.

The areas expecting the greatest growth in spending are security software and hardware. Data networking equipment, wireless LAN equipment, storage software, Windows OS desktop software and mid-range storage arrays follow on their heels. The areas suffering the lowest increases are mainframes, supply chain management software, professional systems integration services, videoconferencing equipment, Unix servers and NT servers.

Summing up the Goldman Sachs survey is simple: your belt will still be tight, but you're getting used to it. You won't be spending time worrying about your staff fleeing and you'll be able to make ground in getting better value out of your vendor contracts. Chasing after the newest thing is not recommended, but thinking strategically about integrating new and old applications is. And who knows, if you follow this path, maybe 2004 will look a lot less bleak.

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