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Survey: Economy puts nonessential IT projects on back burner

A survey finds nearly half of respondents don't expect information technology budgets to increase in 2009 and have put nonessential projects on the back burner as economic conditions worsen.

These are insecure times, and everyone is feeling the strain of a down economy. But TechTarget's 2009 IT Priorities Survey reveals that while things may be shaky, the sky isn't exactly falling -- not in IT, anyway. There are bright spots. Any projects you had planned in building out your network or security infrastructures will likely remain intact. But the cloud hanging over everyone's head? You'll have fewer resources to support your project. People will be the first to go.

In fact, nearly 37% of respondents said staff is the area most affected by the economy, more than twice the 17% who singled out hardware, or the 15% who fingered IT services, or the 13% pointing to software. Maintenance has a 5% chance of getting whacked. Security and networking will escape unscathed, given a 1% or less chance of being affected by the economy.

The survey was conducted in mid-September, prior to the financial crash. The findings are based on responses from some 268 executives, managers and professionals across a wide range of industry sectors and IT disciplines from companies with 5,000 or more employees. Nearly 70% of the companies represented have an annual revenue of $1 billion or more, including 30% with revenue exceeding $10 billion.

Many budgets flat or decreasing

About three-quarters of respondents said the overall economy is having a significant impact on their IT budget, and among those, one-third cited it as the "single biggest factor." Asked to compare their IT budgets in 2009 with 2008, nearly half of respondents -- 46% -- do not expect to see any increase; of those, half anticipate a decrease exceeding 10%. Of the 43% expecting a budget increase during 2008, two-thirds peg the boost at less than 10%.

Were the economy not in crisis, 64% said their budget would be growing more. Moreover, if the economy does not improve in the first half of the year, 68% say more budget cuts are likely, with two-thirds of that group either "certain" or "very likely" of additional cuts.

On a willingness -- or ability -- to try new technologies given the economy, more than half told TechTarget they were less likely or able than before the downturn.

The findings reveal a level of caution, even in an industry that has largely escaped the blows absorbed by other sectors in this recession, notably financial services and automobile makers. Information technology budgets and employment have proved fairly resilient. In the face of the 6.5% unemployment rate announced Friday by the U.S. Department of Labor -- the highest level in 14 years -- the technology sector was still being hailed as a bright spot in the increasingly dark jobs picture. Dell Inc. and Hewlett-Packard Co. are shedding thousands of jobs, but as a Time magazine analysis on the employment figures noted, Facebook Inc., Samsung, Intel Corp. and BlackBerry maker Research in Motion Ltd. are still hunting for employees.

Many industry analysts and CIOs argue that the current crisis is unlike the recession of 2001, when technology caused the bubble and IT workers paid dearly when it burst. CIOs have learned to budget lean. Forrester Research Inc. analyst Andrew Bartels believes IT is also less vulnerable to budget cuts than in 2001, because business leaders better appreciate what technology can do for their operations. They are looking to IT to help reduce costs, streamline processes, boost productivity, even generate revenue.

What happens to IT budgets and technology investment in 2009 is still uncertain. Most research houses predict total tech spending will be flat. An audience of 300 IT and business executives at an AMR Research Inc. conference in Boston yesterday was nearly unanimous that IT spending will decrease in 2009. Gartner Inc. halved its earlier forecasts for total tech spending to a little more than 2% in 2009, and is still hedging its bets on CIO budgets. But CEOs have made it clear to Gartner in recent weeks that cost cutting is a high priority. A Society for Information Management (SIM) survey released Nov. 10 of 350 IT executives was close to the TechTarget response on budgets, finding that 56% of its members do not expect a budget increase in 2009.

IT girds for cuts, putting nonessentials on hold

The TechTarget survey leaves little doubt that IT departments are girding for cuts. Asked if the IT budget is cut, which scenario most closely describes how it will be done, nearly two-thirds expect to delay or cancel nonessential upgrades; 40% said they would be asked to delay or cancel nonrevenue-generating projects and 34% to reduce staff; 27% expect to outsource jobs to save money and 22% said they will look for ways to boost energy efficiency.

Software as a Service (SaaS), touted as an effective delivery mechanism in volatile times because usage can be scaled to fit demand, was at the bottom of the list. Less than 10% named SaaS as a strategy in budget reductions.

In follow-up interviews with survey respondents and other enterprise CIOs this week, many of the what-ifs on spending priorities from early September have come to pass or are in the works.

An engineer in the computer department at a large university in Pennsylvania said the IT budget "is frozen for the foreseeable future."

"We are permitted to spend on projects that we have already committed to doing, but we are not going to undertake any new initiatives," he wrote in an email, echoing feedback from other IT executives in academia.

We have prioritized all projects in the queue, and anything in the 'nice-to-have' category, we've been asked to put off.

Director of IT at a major metropolitan university

Indeed, tight credit is threatening students' ability to finance their educations, endowments are plummeting and alumni giving is strained, making for tense times. A director of IT at a large, private university in Boston, where IT operations are unusually centralized for higher education, said the university had just announced large layoffs in its planning and development ranks, as money for capital projects has dried up. He said the university is looking for "cost savings across the board," asking departments, including IT, to demonstrate the value of every undertaking.

"We have prioritized all projects in the queue, and anything in the 'nice-to-have' category we've been asked to put off." His department is analyzing the benefit of outsourcing certain functions and is committed to helping re-engineer certain business processes in anticipation of more layoffs, he said.

Several IT executives, while not being asked to cut their staffs, said they are scrambling to help their organizations accommodate cuts in other departments by automating processes, even though that work will take time. And every inch of IT infrastructure is under scrutiny. One executive who has pushed back on nonessential projects has brought in "value engineering" consultants to look at the company's SAP AG enterprise resource planning software to pinpoint "what we are doing right and find the gaps" where improvements could be made.

A silver lining? For organizations on the east and west coasts, where the financial services business is concentrated, resumés are plentiful. And compared with just six months ago, "vendors are hungry," said a CIO at a large building systems services firm. Like others who were interviewed, he has been able to negotiate better maintenance fees and lease deals on hardware. Some vendors have balked, he said, but by and large, "we're in a much better position than we were a year ago," at the negotiating table.

Let us know what you think about the story; email Linda Tucci, Senior News Writer.

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