A new report due out next week will indicate that, while IT budgets will remain relatively flat over the next two years, the demand for IT services will still continue to increase.
Demand for services will also shift towards business intelligence and data management activities as companies try to manage and mine ever increasing amounts of data while, simultaneously, look to avoid being blindsided―again―by the economy. Two other IT demand drivers, regulatory compliance and M&A activity, are expected to remain fairly stable.
“Some of what we saw that was of interest and a little surprising was the growth rate of IT demand was expected to be still 8.6% (per year) through 2011. So, from a business side, people were still expecting IT to be a big part of business enablement,” said Hackett IT Advisory Practice Leader David Ackerman, and a co-author of the IT Cost Control Study.
IT budgets and staffing levels are expected to remain nearly flat over the next two years in large part due to the global economic downturn. But demand for IT services will increase by more than 17% (8.6% x 2), creating a significant gap that companies will need to address with improved efficiency and productivity. Hackett’s research, which looks at results from more than 80 global companies, details best practices in three key areas that companies can use to close this gap: IT cost control strategies, demand management, and discretionary cuts.
According to Hackett’s research, companies forecast that IT budgets and staffing levels will each grow by only about 1.0 % annually over the next two years, down from the annual growth rates of 5.3% (for budgets) and 4.3% (for staff) seen over the past three years. This 75% decline in budget growth contrasts sharply with companies’ projections for IT demand, which will shrink by only 15%, to 8.6% annually for the next two years, resulting in an increase of more than 17% by the end of 2010.
“Overall, there is still a higher demand for IT today than there was yesterday and yet IT staff are being reduced … so there is a productivity gain that has to happen by definition,”said Ackerman.
Hackett’s research found that the drivers of IT demand are also shifting, with organic business growth dropping significantly as a priority while needs driven by process transformation and business reorganization increase. “So, they’re really looking to how business can be enabled by additional automation as well as additional business intelligence,” said Ackerman.
Three Ways to Manage Costs
Hackett’s research outlines best practices in three key areas that companies can use to close the gap between flat budgets and rising demand. The first, IT cost control, is a well-understood and mature approach that has the greatest potential to reduce IT costs, and includes key tactics such as: offshoring and outsourcing; IT reorganization; technology rationalization; productivity and process improvements; and supplier and contract management.
In this area, Hackett found that offshoring and outsourcing offer the largest opportunity for cost control, more than three times the savings of other IT cost control strategies, primarily because it affects the largest share of the overall IT budget. But the study also found that an across-the-board goal of 10% cost reductions in this area is both realistic and achievable.
The study found that the second area, IT demand management, is a highly underutilized technique by most companies but one that is getting a fresh look. IT has traditionally been more focused on how to meet ever-growing demand than on implementing processes to curb that demand and ensure that the highest value work gets done. As a result, demand management techniques are less mature than other cost control techniques.