Spend on the Old, Scrimp on the New

Published: February 22, 2010

by Dan Burger

It looks like the Las Vegas Strip at midnight as analyst firms try to outshine one another with new reports flashing sunny forecasts for 2010. After the lights flickered and dimmed for many companies in 2009--and went out for others--some good news is cause for exuberance. But let's not drink too much of this predictive analysis, or, for that matter, too little.

Let's start on the bright side. IT operational budgets are trending upward at the majority of companies. No one is saying they will soar, but a little nudge of 1 or 2 percent is welcomed news. There will be plenty of companies sticking with their 2009 battened-down budgets and a minority of companies will reel in IT investments even tighter than before. But because of this and in spite of this, there will be a spurt in software purchases.

Here's one consideration to keep in mind, however.

In the latest report from Forrester Research, based on a survey of more than 2,100 IT executives and technology decision-makers at enterprise and small and mid-size businesses in North America and Europe, the majority of IT software budgets in 2010 will go toward ongoing operations and maintenance of existing applications as opposed to implementing new software solutions.

"Despite all the hype around new technologies that hit the market in the past few years, firms are devoting most of their IT spending on already-installed technologies," says Forrester senior analyst Holger Kisker. "As long as businesses are prioritizing cost cutting and efficiency improvements, tech vendors must provide clearer business justifications for their offerings and demonstrate the functional fit with business requirements that their solutions provide."

Program maintenance continues to be a hardship for most companies. Although Forrester does not provide deep insight into this without purchasing the full report, what I can tell you is that the analysts are clearly pointing to bulk of IT budgets being tied to existing software. The idea that "maintenance mode" is a cost of doing business is being challenged at companies with proactive strategies for increasing the efficiency of business processes through IT. One area where I see this taking place is application modernization. Corrective action is now a priority in the planning stages and reducing program maintenance is no longer an afterthought.

The economic downtime that knocked business for a loop has, among other things, created a backlog of business application software upgrade activities for firms. For many, 2010 will be a catch-up year. And Forrester's report identifies several specific areas that will be receiving attention. For example, 41 percent of enterprises and 21 percent of SMBs plan to upgrade existing finance and accounting software, and 48 percent of enterprises and 19 percent of SMBs plan to upgrade customer relationship management (CRM) applications. Looking at industry-specific software, 52 percent of enterprises and 18 percent of SMBs are planning to upgrade. The fastest-growing area for SMB software will be CRM, where new implementations are expected to increase by more than 20 percent.

Competitive advantage is probably the most overused term in IT marketing. It rolls off the tongue of analysts and sales reps with ease. But as soon as most eyes and ears detect it, the brain's BS alarm goes off. Often you'll hear it smartly applied to CIOs who have made it their mission as they transition IT from a support organization to a critical business tool. As skeptical as I tend to be, I don't doubt that 2010 is the doorstep for big changes in IT. Still, incrementally investing in what you have and improving it while reducing expenditures on maintenance will continue to be the more frequent choice over a plan that involves wholesale changes.

Two Forrester reports The State Of Enterprise Software And Emerging Trends: 2010 and The State Of SMB Software And Emerging Trends: 2010 are available for the purchase price of $1,749 each.

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