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CIO budgets still looking lean

The economy may be awakening, but you'd never know it by looking at CIOs' budgets. Forrester researchers found that IT execs are still clinging pretty tightly to their checkbooks. The analyst firm also found out where most IT execs plan to invest their precious funds next year.

The economic forecast for 2004 calls for some sun. So why are CIOs taking their raincoats into the next year?

Analysts with Forrester Research Inc. say that even though studies point to an awakening in the U.S. economy and an IT spending uptick, you'd never know it by looking at the budgets of CIOs.

Survey says ...

Of the more than 800 North American firms that Cambridge, Mass.-based Forrester surveyed, 32% will increase their IT spending in 2004, but the increases will be slight -- an average of 1.7% more than 2003's spending. The small increase bears out another figure – more than half of respondents expect 2004 to be a challenging year for their industries.

"I was surprised by the cautious tone of CIOs," said Forrester analyst Tom Pohlmann. "They're naturally cautious at this stage of the game, but I expected it [the increase in spending] to be higher."

So where will that 1.7% be headed? Security and disaster recovery finished as the top two tech spending priorities. Compliance with new corporate governance laws (the Sarbanes-Oxley Act) and the improvements needed to get systems up to snuff also rank high on CIOs' lists, as do PC replacements and Windows desktop upgrades.

But some of the most interesting figures come from the bottom of the priority pile. Only 24% of IT execs surveyed listed exploring outsourcing alternatives as a major theme for 2004, and 17% said that moving IT work offshore was a priority.

Even further down the heap? Moving more systems to Linux. Only 5% of respondents declared it critical to their strategy next year.

"It's not that both [Linux and offshore outsourcing] are widely unpopular," said Pohlmann. "[It's] just that firms either love 'em or hate 'em." The firms that love offshore outsourcing, for example, will spread more love next year -- 68% of firms that already are using offshore providers will use them even more in '04. Of firms that aren't already partnered with an offshore provider, only 9% have eyes overseas.

Broken down by industry, those that will lead the pack of IT "big spenders" are retail, insurance, high tech and telecom, and distribution.

Forrester predictions

CIOs will become less timid as the economy continues to improve, and their confidence will translate into more spending by the second half of next year. When all is said and spent, Forrester predicts, corporate IT spending will show 4% annual growth.

New computers will see the most action (9% increase over 2003) from newly opened checkbooks, as firms look to consolidate old servers and replace graying PCs. Demand for security, storage and integration will boost the software market by 6%.

Despite outsourcing's apparent tumble from the top of the trend heap, targeted outsourcing (for applications, software development, and so forth) will put 7% more meat on the bones of that services market. And if you think Sarbanes-Oxley will be the can of Red Bull that energizes the consulting market, think again. Forrester predicts that consulting and integration services will ebb in 2004.

Pohlmann said that CIOs are more concerned with improving existing processes and documentation than buying compliance-related products. "Vendors like to say there's a huge demand," he said. "That may be, but CIOs aren't betting on them now."

Finally, Forrester predicts that only 22% of firms will grow their payrolls next year, leaving spending on IT salaries relatively static compared with this year.

"It's a consumer-led recovery," Pohlmann said. "Eventually, some of the benefits will go up the supply chain."

And then, maybe, CIOs can put their raincoats back in the closet.


Compliance fears exaggerated, report says

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