When it comes to information technology spending, a quick look at the economy is often enough to get a rough idea of whether IT budgets are expanding, contracting or staying flat -- and this year is no exception.
"Looking back over the last 60 years, what's happening with economic growth feeds directly into what companies are prepared to spend on technology," said Andrew Bartels, a research analyst at Forrester Research Inc. in Cambridge, Mass. "We see some positive signs that the economy seems to be reviving a little, keeping us in fairly moderate growth."
Bartels forecasts information technology spending in 2008 at about a 7% increase, which is slightly higher than 2007. "It's a bit of a slow ramp-up, but the worst is behind us, and as that happens, it should increase confidence and IT investments," he said.
With that in mind, it's not surprising to find CIOs reporting that budgets are up slightly, although that varies by industry, pointed out John Matelski, chief security officer and deputy CIO for the city of Orlando, Fla. "I believe that we will likely see significant increases in the financial services sector as organizations firm up their infrastructures and utilize technology to create efficiencies," he said. "But in the public sector, we will see levels remain flat or increase slightly, as organizations are asked to do more with less, while still trying to create efficiencies through business process enhancements."
Public-sector CTO Gary L. Allen agrees. "IT spending at Amarillo ISD is trending upward slightly," said Allen, CTO of the Amarillo Independent School District in Texas.
As to where the money is going, a large chunk goes to the usual suspects: staff, maintenance and upgrades. For example, Allen pegs the district's network hardware upgrades as his biggest IT initiative for 2008.
"The biggest part of our budget is staff, but our maintenance and license renewal budget is pretty significant," Matelski
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said. "If you take into account all of the software, hardware and infrastructure that goes into maintaining IT throughout the enterprise, the costs of maintenance, licensing renewals and infrastructure recurring expenses are significant. On average, you are looking at paying 15% to 20% maintenance on these items."
Some of the investments reflect the recent era of austerity, as companies finally upgrade areas that have needed it for a while. "We are completing a refresh of our PCs and laptops which had their lifecycle extended to seven years," Matelski said. "Moves to Web-based applications, which require less processing and disk space at the desktop, have allowed us to prolong the life of our PCs and laptops. However, they can only be extended for so long … and thus the time came this year and next to replace them."
Technology lifecycle factors into information technology spending
Bartels pointed to a second factor behind his forecast of increased technology spending. "Longer-term cycles also have an impact -- we get eight-year periods of technology innovation followed by digestion, and the current digestion period should be ending in 2008," he said, identifying several tech areas that will cause CIOs to rethink budget priorities. Among his predictions are the following:
Virtualization. "Server virtualization and the tools to run the data center more effectively is one area of interest," he said. Amarillo's Allen agreed -- server upgrades and virtualization are on his budget wish list. "Virtualization will extend the life of our servers," he said.
Voice and data convergence. The move to broadband, wireless and the IP-ing of networks continues to be hot, and Bartels said he expects the trend to intensify as the foundation of data and voice convergence solidifies. For example, Matelski has sank more than $2 million into a move to Voice over Internet Protocol (VoIP). "The VoIP telecommunications infrastructure will diminish the long-term costs of leased telephone lines, and allow us to manage our own telecom infrastructure," he said.
Service-oriented architecture (SOA). "The buzz has subsided, but the substance has started to grow, and we expect this new architecture to act as a catalyst for new investment," said Bartels, citing the steady emergence of SOA suites as an indicator that SOA is gaining increased interest and acceptance. "It's more open, and allows companies to more easily pull other software into the mix."
In the end, the 2008 budget picture could be the harbinger of a new period of heightened IT spending. "We think that part of the lift is from these technologies starting to reach inflection point," Bartels said.
Carol Hildebrand is a contributing writer based in Wellesley, Mass. Let us know what you think about the story; email: editor@searchcio.com.
