Although not negative, the growth in enterprise IT spending in 2007 is going to be substantially less than IT leaders thought eight months ago.
Organizations with more than $1 billion in revenue have re-forecast their IT spending increase for 2007 to 2.8%, according to a new Gartner Consulting Worldwide IT Benchmark report, released last week.
These spending projections are down from research collected during the first half of 2006. At that time, IT spending for 2007 was forecast to grow at 6%.
“Some of this is just simply as we see the economy change we often see the IT picture change. It’s normally very reactive,” said report author Jed Rubin, manager of Gartner’s worldwide benchmarking services.
“There are a couple of things that are important for a CIO. One is that although the forecast looks relatively bleak in terms of total spending … there’s sort of a lot going on under the covers.
“For a CIO what’s important is that they’re not being asked to kill their (business) growth and transformation plans … for 2007 as much as they are looking to drive down their core costs to run the business. What this means is they are going to be optimizing (IT performance) and managing demand better.”
Part of the increased costs associated with running IT in 2006 included increasingly complex infrastructure and applications requirements, rising energy costs, regulatory requirements and other non-discretionary spending to keep the business running, said Rubin.
This increased ‘run-the-business’ spending consumed budget resources that were originally earmarked for more strategic and transformational investment.
IT leaders are now planning to optimize their spending in these areas in the year to come.”
According to the report, supporting business growth and transformation remain the top priorities for enterprise CIOs in 2007, but any new investments need to be funded by a significant reduction in existing ‘run-the-business’ spending.
To support these priorities, IT organizations will subsequently need to reduce their ‘run the business’ budgets by nearly five percent in 2007.
The new 2007 version of the Gartner Consulting Worldwide IT Benchmark Service and the Worldwide IT Benchmark report includes five volumes of IT spending and performance data across 20 industries.
The report highlights comprehensive IT spending plans of more than 1,500 companies with more than $1 billion in revenue, combined with historical spending and performance data on more than 10,000 companies worldwide.
The research does show that IT spending forecasts differ by industry; some not as bleak as others. In 2007, the most significant difference in IT spending growth will be in the Media industry, up to nearly seven percent from four percent in 2006.
The consumer products industry will see the biggest decline in IT spending in 2007, as spending is expected to decline by nearly six percent, down from an eight percent increase in 2006.
“It’s going to be a challenge,” concluded Rubin. “CIO’s are going to have make sure they really manage their performance. It means two things: it means managing performance better and managing demand better to keep that budget free to support growth and transformation.”
Methodology
The sidebar table represents 807 organizations with greater than $1 billion annual revenue, representing $130 billion in IT Spending.
Gartner’s Worldwide IT Benchmark Service surveys companies from more than 30 countries in more than 20 industry sectors.