Midmarket IT budgets hit by economic downturn

Mark Schlack, Vice President, Editorial

Sure sign that we are in the throes of a serious economic downturn: CIOs will be working with smaller IT budgets this year at a little more than a third of midmarket companies, with another third just holding the line. That's according to a survey of 275 IT managers conducted by and in December and January.

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Despite those unprecedented levels of IT budget decline, midmarket companies (those with 100-1,000 employees) are actually faring better in the economic downturn than their enterprise counterparts, 42% of which are cutting IT budgets (see "Economic downturn hits IT budgets"). IT departments of all sizes are sticking more to their knitting this year, with an emphasis on delivering key business applications and measured progress in most other areas.

According to the midmarket IT managers surveyed, some of the initiatives that will see the most funding this year are:

  • Business software -- 42% increasing spending.
  • Servers and storage -- 34% increasing spending.
  • Networking -- 35% increasing spending.
  • Security -- 33% increasing spending.

The recession seems to have underlined the need for good business intelligence (BI) in companies of all sizes. BI tops the list of software initiatives in the midmarket, with 44% of respondents making BI purchases this year. The rest of the top 10 is the usual fare (ERP, finance, etc.), except for the second and third most popular projects, collaboration and business process management (BPM). The prominence of collaboration is surprising; while there have been signs that collaboration software is gaining traction with the increased use of Microsoft SharePoint and Web tools like wikis and social networking, it probably is not what most experts would predict in a down year.

As for BPM, IT managers in some companies report that they are being asked to automate more office or factory processes to compensate for reduced workforces. BPM is aimed at just that problem. Midmarket companies are playing catch-up with BPM; 41% haven't deployed it yet, compared with 36% in the enterprise. But 29% of midmarket respondents report that they plan to deploy in 2009, joining another 44% who are at one or another stage of deployment.

Server and storage budgets affected by recession

Recent years have seen large infrastructure investments in IT -- storage area networks, network-attached storage, server farms, etc. -- but the economic downturn has forced some to cut back. While a little more than a third of midmarket companies will spend more on servers, storage and networks, about a quarter will spend less. Those that are spending are mainly spending to support application enhancements and upgrades.

Midmarket companies are actually faring better in the economic downturn than their enterprise counterparts.

Midmarket CIOs are sticking with what they know -- rack servers and storage are on the shopping list at 55% and 53% of companies, respectively. In the enterprise, blades are the new rack, as far as being the de facto commodity form factor. But like their enterprise counterparts, midmarket IT shops will be investing in server virtualization software in big numbers (51%).

Midmarket companies have been slower to adopt virtualization, with 31% reporting no current deployment. But looking out 12 months, 39% expect limited deployment, 25% anticipate significant production numbers, and 36% expect most production servers to be virtualized. Enthusiasm for server virtualization hasn't spread to the desktop variety: 46% report no plans for 2009.

The overwhelming reason midmarket companies are virtualizing is consolidation. That's also their strategy to deal with energy costs -- 76% say they're consolidating to improve energy efficiency, compared with 60% buying energy-efficient hardware and 37% improving cooling efficiency.

Many midmarket CIOs face less oversight than their brethren at large public companies, and they're taking advantage of that in their budgeting. Compliance spending, for example, is up at 25% of midmarket companies, while it's up at 56% of large companies.

Let us know what you think about the story; email Mark Schlack, Vice President, Editorial.

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