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Report: Economy in turmoil, IT budgets and new projects fading

Optimism and IT budgets for new projects waned in 2011, Forrester Research says. Operating costs must go down in 2012 for IT to play a strategic role.

With the recession officially over in 2010, this was supposed to be the year when IT budgets bounced back. Long-deferred equipment refreshes were back on the table. CIOs were advised to ready their organizations for business expansion. There was talk of a hiring crisis. But that was before the European debt mess and the threat of double-dip recession rattled markets anew. An IT budget benchmark report from Forrester Research Inc. shows that projected growth failed to materialize.

"When IT budgets were put together in the beginning of the year, there was a lot of optimism, almost on a global basis, that we had been through the worst," said Forrester analyst Craig Symons, lead author on the report. “That optimism proved to be unfounded."

You cannot stay competitive spending 70% of your budget on MOOSE.

The findings are from a Forrester survey of 2,741 IT executives and technology decision makers from enterprise companies and small and medium-sized businesses around the globe, taken from March to May. A follow-up survey is due in December.

"What we are hearing anecdotally is that organizations have taken a much more cautious outlook on the economy and potential business growth, and that is going to be reflected in their IT investments going forward," he said.

Another worrisome trend for 2011? The way information technology budgets were spent barely budged. Consistent with previous years’ findings, only 25% to 30% of spending goes to new IT projects, while 70% gets sucked up by what Forrester calls MOOSE, or spending to maintain and operate the organization, systems and equipment. In a year in which technology delivery models such as cloud and mobility beckoned -- and when CEOs looked to IT for a competitive edge -- CIOs continued to spend the bulk of their IT budgets on maintaining the status quo.

"At companies where IT plays a significant role in the products and services they deliver, you cannot stay competitive spending 70% of your budget on MOOSE," Symons said. About 50% of MOOSE goes to supporting ongoing operations and maintenance, with the other 20% allocated to expanding to accommodate organic business growth.

CIOs need to drive down the operating and maintenance portion to less than 50%, Symons warned, if they expect IT to be a strategic business partner. "There are a slew of ways to do that," he added, ticking off a list familiar to most CIOs: moving to the cloud, doing more virtualization, improving operational processes, automating management of systems and eliminating legacy apps that don't produce value. The single biggest MOOSE expense category, at 32%, is full-time IT staff.

Rogue IT, mobility and tablets in the enterprise

IT's lack of resources for growth initiatives is particularly unnerving in light of a benchmark Forrester added this year: IT spending made directly by the business, without the IT department's involvement. "It may be that some of the new stuff is not reflected in the IT budget numbers because it is being done outside of IT," Symons said.

According to the survey, 70% reported at least some IT spending directly by the business, while 12% reported that this spending was as much as one-quarter of the total IT spend. The finding points up the need for governance, Symons said. Without governance, companies will face the same security, financial and business continuity risks endemic to decentralized computing, when "everyone did their own thing, their own way."

Forrester expects the percentage of business spending on IT to grow, but in the meantime the Cambridge, Mass.-based firm draws an interesting connection to another data point in this year's report. "Expanding the use of mobile/tablet applications" dropped out of the top five technology priorities for enterprise CIOs this year, after claiming the No. 3 spot in 2010. The economic uncertainty that put efficiency and cost reductions back in the forefront could account for that, Symons said. But just as likely is that the spending on IT by the business "has moved the locus of mobile activity into the business units."

That wouldn't be the case for Rick Roy, CIO at CUNA Mutual Group. Roy launched an ambitious mobile device strategy this year that will radically reduce the number of laptops at the Madison, Wis.-based financial services company. Roy, who works closely with CUNA Mutual's CEO, said the company has come to expect IT to be "thought leaders" on technology.

"I think there is a real trap for CIOs and for IT areas of any corporation: If you dig in on what you have and don't stay current with what's possible, your users will go right around you," Roy said. "That has always been a risk, but that risk is enormous today because it is so easy for anyone as a consumer to get access to mobile technology. I think IT has to be very careful not to get relegated into a place where the users become the real thought leaders and IT is scrambling to keep up. That is not a good place to be and certainly not a place that is adding value."

Symons doesn’t disagree, stating that ceding IT spending on new projects to the business relegates IT "to more a pure technology infrastructure role." Plus, IT budget benchmarks are meaningless unless the value of IT is factored in, he said, noting that a $200 million return on a $100 million IT infrastructure investments is a good deal, no matter what peers are doing.

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

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