In-Depth

IT Spending: Cost Reduction Still Key

How IT organizations are spending their budgets

• By Stephen Swoyer
• 07/27/2004

Putting aside all speculation, then, about whether budgets are growing or shrinking, how are IT organizations spending their IT dollars?

Very deliberately, concludes Cutter senior consultant George Westerman, who notes that cost-cutting measures top the list of IT-related expenditures. Cutter surveyed 97 IT organizations about their spending plans for 2004, identifying several common demographic and strategic drivers among all organizations.

Cost reduction was rated as the highest overall spending priority, with 26 percent of respondents rating it number one, and 58 percent ranking it in the top three. “This demonstrates that organizations are continuing to do more with less in these tight economic times,” he writes.

An analogous trend is that of service improvement, which 19 percent of respondents rated as their top IT spending priority in 2004 (all told, 45 percent ranked service improvement among their top three priorities). “These firms appear to be trying to provide better service for the money they spend rather than investing more money to improve service,” Westerman explains.

Similarly, many organizations are taking steps to consolidate or otherwise simplify their IT infrastructures, which, Westerman notes, is also consistent with an overall emphasis on cost reduction.

In all, 16 percent of respondents rated infrastructure consolidation as their number one IT spending priority this year, while 53 percent ranked it among their top three priorities. “By consolidating data centers, networks, or call centers, and by adopting focused standards for servers, desktops, and handhelds, firms can achieve dramatic savings on their maintenance and operational costs,” he points out. “These cuts tend to have a much quicker payback than do other IT initiatives such as new applications.”

Elsewhere, respondents are earmarking budget dollars to better integrate their IT systems with those of business partners: 12 percent rated such integration a top priority (26 percent had it in their top three), while another eight percent identified architectural integration as their overall top priority (surprisingly, 39 percent had it in their top three). Westerman says both trends can also be tied back to cost-cutting and service improvement.

“By automating steps that were formerly manual, integration with business partners can make processes faster and less costly. It also can eliminate errors associated with manual activities, thus making interaction with business partners smoother and more accurate,” he comments, noting that “architecture integration plays a similar role … inside the firm.”