CIOs: 2003 IT budgets under the gun

In the latest sign that IT budgets continue to tighten, companies in Europe and the U.S. are trying to reduce the percentage of revenue they devote to IT spending, according to a survey of CIOs conducted by the research department of investment bank Merrill Lynch & Co.

Companies surveyed now devote on average 5% of their total revenue to IT spending, and 62% of them are trying to shrink that figure, “which suggests a lid to spending improvement in 2003,” according to the survey of 75 CIOs in the U.S. and 25 in Europe. Only 22% of respondents said their companies want to increase their IT spending-to-revenue ratio, while 16% reported no change was in the works.

Among the 58% of respondents which had finalized their 2003 IT budget plans, the average budget will be up just 1.3% compared with 2002, with U.S. CIOs expecting an average increase of 2% and their European counterparts expecting their budget to remain flat on average, according to the survey.

If their budget plan changes, 55% of respondents said the budget would likely shrink, rather than grow. A majority (70%) said improving profits, as opposed to revenue growth, would be more important to getting an IT budget increase at their companies.

Storage ranked as the IT segment poised to experience the most growth in spending, followed by services, servers and software, in that order. Not much growth is expected for PCs and networking equipment, according to the survey.

Surveyed CIOs ranked their top IT challenge for 2003 as maintaining operations with a lower budget, followed by cutting costs, which essentially boils down to “meeting user requirements while dealing with tight budgets,” according to the report.

Respondents overwhelmingly agreed that a vendor’s support of standards is extremely important to them, because this allows IT departments to integrate products and avoid getting locked into one vendor’s products.

IBM gets mixed reviews in this area of standards support, ranking first among vendors that most understand the importance of standards, but also third among vendors that don’t. Dell, viewed as agnostic by most respondents in this area, ranked as the second vendor that most understands the importance of standards, followed by Hewlett-Packard. On the flip side, Microsoft and Computer Associates International led the list of vendors that don’t understand the importance of standards.