In-Depth

IT Avoids Spending Freeze Despite Weakening Economy

When will IT budgets feel the effects of the ongoing economic crisis?

• By Stephen Swoyer
• 10/14/2008

When will IT budgets feel the effects of the ongoing economic crisis?

IT spending indicators are mixed. Gartner Inc., Forrester Research, and other industry watchers cite encouraging (if somewhat muted) IT spending plans (see http://redmondmag.com/news/article.asp?EditorialsID=10150). Other market watchers -- such as IT staffing firm Robert Half technology -- still cite plenty of demand (in the neighborhood of 10 percent growth) for IT skills (see (http://redmondmag.com/news/article.asp?EditorialsID=10225).

A more pessimistic take came late last month, when the CIO Executive Board -- a group comprised of over 1,000 IT chiefs -- polled its members to gauge their spending plans in the midst of economic crisis. More than half of CIOs said they’d already frozen nonessential IT projects -- while a quarter had instituted IT hiring freezes. The CIO survey found that nearly two-thirds (61 percent) were reassessing next year’s IT budgets.

Fast forward to this week, when the Society for Information Management (SIM) released its survey of senior IT decision makers, concluding -- in contradistinction to the CIO survey -- that nearly half (44 percent) of respondents planned to increase their IT budgets next year.There’s an important caveat, of course: the SIM survey was completed in June, when the economy was just teetering on the brink of crisis. It does not take into account what’s happened on Wall Street over the last several weeks, including unprecedented consolidation in the banking sector, tightening credit, and a bloodbath on Wall Street.

That being said, the SIM numbers are encouraging. By late June, the economy had already started to take a turn for the worst: there was talk of trouble at Fannie Mae and Freddie Mac, for example, and share prices of Washington Mutual, Wachovia, Lehman Brothers, and Merrill Lynch were trending ever lower. SIM found that -- in addition to expanding their IT budgets -- almost half (43 percent) of IT decision-makers expect to increase their staffing levels in 2009. Moreover, a full three-quarters anticipate that IT staff salaries will rise in the coming year.

Outsourcing, too, is on the rise; it’s expected to increase from 3.2 percent to 5.2 percent in 2009.

SIM officials, not surprisingly, say the results are both encouraging and valid. "With all of the concern regarding our economy, it appears as though IT and business executives are working closely together to ensure they are well prepared," said Jerry Luftman, SIM vice-president for Academic Affairs and Distinguished Professor and Associate Dean at the Stevens Institute, in a statement.

"Budget and headcount forecasts remained strong, despite the fact that economic conditions were weakening at the time the survey was taken."