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Healthcare and Utilities Lead Vertical Markets in IT Spending
Published: March 2, 2009
by Dan Burger
In a year when IT spending is being nipped, trimmed, and sometimes lopped, it's refreshing to hear about additional funds finding their way into corporate planning. For a peek at that silver lining, we are thankful to the forecasters at Gartner, who last week released a report detailing IT spending by vertical markets. Two industries claimed a place in the sun: healthcare and utilities. Not that it's all that sunny in the forecast, but Gartner's prediction is that IT expenditures in healthcare will grow 2.2 percent and utilities will invest at a slightly higher rate, which is pegged at 2.9 percent.
"The slowdown in economic output (revenue) growth will continue to have a significant, but uneven, impact on IT spending across industries and within industries, as companies continue to adjust cost structures to preserve earnings," says John-David Lovelock, research vice president for Gartner.
In an interview with the IT Jungle, Lovelock explained that the across-the-board trends show organizations deferring purchases such as servers and PCs and choosing to reduce internal services. But he is also seeing "a great deal of investment in business intelligence, business analytics, data warehousing." Another identifiable trend is in the areas of software as a service, remote hosted software, and cloud computing, which are a break from traditional licensing methods and an attractive alternative to traditional software delivery models in that they are not so much capital investments as operational costs.
Much of the IT spending directives, Lovelock says, will be tied to development and integration and software, but consulting services brought on to implement applications and create interfaces between applications are also expected to play a big role. Lovelock describes it as "fingers on keyboards" consulting.
Healthcare is Lovelock's area of expertise. Although it is picked as an area for IT growth in 2009, it shares many of the same economically induced ills that have sapped other vertical industries. In many ways, the IT spend in the healthcare segment reflects the expected direction of organizations overall.
"Healthcare is feeling some of the effects of the recession, but not to the same extent," Lovelock explained. "We are seeing budget freezes that are mostly affected by cash flow, not necessarily revenue. This relates partially to the restriction of credit and getting operating loans. To a lesser degree, it also comes from a reduction in donations, and there is a hit taken in pensions, trust funds, and the like."
For healthcare, system interoperability is a gnarly dilemma--a conundrum that in no way is industry-specific. Not only does information need to be shared, but it needs to be standardized in the way that it is collected and annotated. If healthcare can lead the way in this area, look for other industries to benefit from the trail blazing.
"Hospitals are able to buy enterprise-wide, computer-based patient records products. They are able to purchase departmental systems and standalone, niche systems," Lovelock says. "The difficulty they run into is having all those systems interoperate, share data, and draw on a common enterprise master patient index. This drives a lot of the development and integration spending."
Hardware spending is expected to decline at a rate of 12.5 percent in 2009, by Gartner's reckoning. Most of that decrease is attributable to pushing hardware replacement purchases into the future. In conjunction with a decline in PC and server refreshes, Lovelock expects a big uptick in server virtualization.
"Healthcare will not be able to live without new PCs and servers indefinitely," Lovelock notes. But we expect companies will push the replacement cycles in a year such as 2009 where they are concerned about cash." Naturally, the purchase of disk storage and network equipment will continue because they are ongoing business requirements that can't be deferred.
The story is not all that different for utilities. What this segment has in common with healthcare is a shared spotlight in the country's stimulus package.
"Utilities are at the core of the energy independence movement and the climate change challenge," says Cynthia Moore, another Gartner vice president. Moore specializes in the energy and utilities vertical niche, where smart grids and energy supplies are viewed as national and strategic issues in many countries. It has made IT spending a necessity.
In the United States, Moore says "the utilities industry has come out of the post-Enron debacle with new strategies." This has led to an internal reorganization at many utilities and that has better prepared them for today's world. In general, Moore sees them as being financially stronger because they have well-established lines of credit along with cost-focused strategies. They have in place cost-management programs with strong monitoring. This puts them ahead of other industry sectors in terms of investments leading up to today.
Legacy systems, often anchored by the IBM System i and System z, play a big role at many utilities, and typically the mission-critical applications are home-grown. However, Moore says, there is a clear industry direction toward using more off-the-shelf software with some level of customization.
Predictably, utilities in 2009 will defer new purchases and shift IT spending to maintenance and support services. Asset management programs are an important software focus. Reducing the cost of maintenance and increasing the productivity of all assets are areas getting a great deal of attention, according to Moore. Automating processes and introducing best practices that optimize asset performance and reduce costs are goals that will remain high on the budgetary priority list. Asset management solutions are not likely to be home-grown solutions.
Looking at near-term spending, Moore predicts a trend toward software as a service (SaaS) types of alternatives. "Integration issues are looking to SaaS capabilities to create a more flexible infrastructure that allows legacy applications to be transitioned to an environment that provides more transparency--a more end-to-end view of processes," she says.
Although SaaS is being used in only a small portion of utilities, it is gaining much consideration along with service oriented architecture. From Moore's perspective, the utilities need is to create a more agile information infrastructure and escape the silos of functionality that exist.
Both Moore and Lovelock foresee a greater trend in data center outsourcing and strategic business consulting. The adoption pattern varies slightly, Lovelock says, but the overall trend is toward more IT and business process outsourcing. Certain industries are affected greater by outsourcing.
"Where the application or service is more tailored, the industry has the ability to take on those services," Lovelock notes. "For instance, health insurance and healthcare providers have a difficult time taking on global sourcing because of personal health information restrictions."
The report on worldwide vertical market IT spending projects $2.7 trillion will be spent in 2009, a 0.5 percent increase from 2008. Here's the breakdown:
| IT Spending by Industry |
|
|
Percent |
| (In Millions) |
2008 |
2009 |
Change |
| Financial Services |
$558,496 |
$554,388 |
-0.7% |
| Manufacturing |
$482,723 |
$479,586 |
-0.6% |
| Government |
$419,533 |
$428,289 |
2.1% |
| Communications |
$268,341 |
$371,515 |
0.9% |
| Services |
$190,304 |
$192,622 |
1.2% |
| Retail Trade |
$153,331 |
$153,755 |
0.3% |
| Utilities |
$128,146 |
$131,812 |
2.9% |
| Transportation |
$105,085 |
$105,806 |
-0.2% |
| Healthcare |
$86,080 |
$88,012 |
2.2% |
| Wholesale Trade |
$81,158 |
$81,446 |
0.4% |
| Education |
$59,341 |
$59,961 |
1.0% |
| Agriculture, Mining &
Construction |
$29,386 |
$29,658 |
0.9% |
| Total |
$2,662,825 |
$2,676,850 |
0.5% |
| Source: Gartner |
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|
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The complete Gartner report on vertical industry trends covers myriad industries and within those industries it breaks down its information into sub-industries. Beyond that, the data includes 10 separate spending lines. It includes 32 countries and regions around the world. For information on buying the report, click here.
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