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CIOs expected to spend more in 2005

Forrester's spending survey offers good news for the IT market. Analysts are not predicting a '90s-like boom, but they do think CIOs will spend more than they're willing to admit.

Fresh numbers from a Forrester Research Inc. survey show that enterprises plan to increase their IT spending by...

3.9% in 2005, but an analyst with the Cambridge, Mass.-based firm said the actual figure may be about twice that.

Forrester polled more than 1,300 IT decision makers in North America and Europe, from large enterprises as well as small and medium-sized businesses.. Analysts then factored in other variables, such as economic conditions and revenue growth and adjusted the numbers. The sum of all that tweaking? A forecasted 7% increase in IT spending for 2005.

The prediction dovetails with recently released figures from International Data Corp. analysts who predicted a 6% spike in global IT spending, with the strongest growth in Central and Eastern Europe, China and India. A Gartner Inc. study found that CIOs are shifting out of cost-cutting mode and are becoming more focused on handling growth in a smart (i.e., unlike the '90s) way.

"Business investment in technology is driven by growth in the economy and profits from one or two quarters earlier," said Andrew Bartels, a vice president and research analyst at Forrester. "It's been a good 2004 for profits, and history suggests this should carry into 2005."

The study also showed that more than half (54%) of respondents have a positive outlook for their businesses in 2005 -- a 10% improvement over this time last year -- with business services, financial services and insurance the most upbeat industries.

Spending on application upgrades or deployments topped the list of spending priorities, with nearly six out of 10 CIOs putting it at the top of their list -- a spot occupied by security last year. Of those firms focused on application upgrades, nearly 70% indicated they plan to buy expertise and turn to outside consultants for help with those projects.

Stronger governance and support for regulatory compliance were critical priorities with 38% of respondents. Forrester predicts compliance with Sarbanes-Oxley will stoke demand for both content management software (up 15%) and business intelligence software, as public companies look for ways to better capture and control large amounts of data in order to shore up internal controls over financial reporting. This should increase BI spending by 9% and make it the No. 1 planned purchase for 2005, Forrester said.

The CIO of at least one major telecom already has used BI to get the IT house in order for Uncle Sam.

"Our industry isn't as solid as it should have been with regards to compliance," said Elizabeth Hackenson, CIO of MCI Inc. in Ashburn, Va. Her company has already put some intelligence behind its compliance efforts, and she feels that MCI is SOX-ready from an IT perspective.

In 2005, Hackenson plans to invest further in customer enablement and make improvements to MCI's customer-facing portal. "We want to e-bond with them," she said.

And, of course, no broad CIO survey would be complete without at least a mention of outsourcing. Forrester predicts the trend to keep moving ahead, with application outsourcing to grow 9% and outsourcing for app maintenance to increase 27%.

But the survey didn't report growth in every area.

"We're going to see a slowdown in the rate of investment in computer hardware and communications equipment," Bartels said, although he believes PC spending should hold up well as more firms replace their aging machines.

"We're clearly not booming, but it's better than a decline," Bartels said.

For Delta Technology Inc., a wholly owned IT subsidiary of Delta Air Lines Inc., 2005 will be about helping the airline stay above water and avoid bankruptcy.

"We're holding our 2005 budget flat," said Brian Leinbach, senior vice president of application development. Delta's technologists are trying to help the company get back on solid financial ground by leveraging technology to help the company cut costs.

"We're trying to enable self-service and everything else that will help streamline the company," he said.

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