Forrester Says IT Spending Is Choppy Across Industries and Geographies

Published: September 15, 2008

by Timothy Prickett Morgan

Like many of you who have been in the IT industry for a few decades, I watch the ebb and flow of IT spending as IT budgets meet the hard realities or thrilling exuberance of the business environments in particular industries and geographies. With the steady stream of bad economic news--I do not need to get into the litany, since I know all readers of The Four Hundred are informed citizens of the world--it is no surprise we are as jumpy as the economies we participate in. And, IT spending, according to a recent study from Forrester Research, reflects all of this.

How could it be otherwise?

Anyway, to get a sense of how IT budgets are being impacted, Forrester surveyed 950 IT managers in North America and across Europe. A lucky 28 percent of those IT managers polled said that their budgets were not affected by economic conditions--well, there goes that theory, and we all want jobs wherever they are working--but 43 percent of IT managers said that they have cut their overall IT budgets for 2008 and 24 percent said they put discretionary IT spending on hold.

"This is not an across-the-board spending slowdown," explained John McCarthy, the principal analyst behind Forrester's recently released The State of Enterprise Services 2008 report, which is culled from the survey. "The impact of the economy on IT budgets varies widely by industry and geography. With regard to the services sector, the slowdown has firms renegotiating rates, being more selective in choosing vendors, and examining spending plans more thoroughly, but they are still expecting to pay more for services. The demand for enterprise IT services has not dropped significantly."

While the report aimed to focus in on services, Forrester gathered general trend data for IT spending as a backdrop, to give the report a "so what?" factor. Not surprisingly, IT shops in the financial services sector have taken it on the chin, with 49 percent of IT managers in this sector saying they have cut budgets. Only 39 percent of companies in the entertainment and media industry--the healthiest sector, apparently--have reduced spending. Companies in North America have been hit harder than their European competitors when it comes to IT budget cuts, Forrester discovered. Some 49 percent of IT managers in the United States said they had cut their budgets and 39 percent in Canada said they had as well; only 31 percent of IT managers polled in Europe (averaged across all countries) said they had made cuts. (This survey was done in the second quarter, before some economies had weakened a little. So take that with a grain of salt.) By country, 28 percent of managers in Germany said they made cuts, 32 percent in France said they did, and 33 percent in Britain admitted they had as well, just to give you a flavor of the variations. (To my ear, this is not statistically significant--unless, of course, you are the one who gets the sack thanks to the cuts.)

Now for the drill down in the IT services part of the survey. Some 70 percent of the IT managers polled said they were probably going to negotiate lower prices with their IT services suppliers, and 16 percent said they already slashed services spending. But 45 percent of the companies polled said they were going to increase their application outsourcing and 43 percent said they would be both increasing their use of outsourcing for IT infrastructure and moving various IT work offshore. However, 52 percent of those polled said that the biggest problem with outsourcing is that cost savings are not as high as they expect at the front end of deals. (Imagine that. . . . ) About 40 percent of those IT managers polled said that they had issues with inconsistent or poor service levels and 35 percent said that their service providers did not respond rapidly enough. Which is how you know it is IT, whether it is insourced or outsourced.

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