IT Spending Still Expected to Increase in 2004

While the $58 billion enterprise applications market continues to deal with the changing market conditions brought about by globalization and consolidation, a new survey indicates investment optimism is returning.

“I was surprised by the optimism from such a short period of time from last quarter,” said Fenella Scott, AMR’s senior quantitative research analyst and the survey’s author. “I think that a lot of it has to do with a companies starting a new year, they’re hoping for higher profits. It’s probably more optimistic than reality but it’s a sure sign companies are in the mind set their revenues will increase and they’re going to have the money to spend.”

Scott said she would have expected the Q4 2003 survey results to indicate a two-percent increase over Q3 numbers, which indicated a 4.3% increase in IT spending for 2004, not a doubling of those results.

The areas of highest spend are expected to be application integration and development tools, business intelligence applications and performance management software, such management dashboards.

Spending on CRM application modules such as salesforce automation is also expected to increase as companies look to attain better customer loyalty and grow market share.

“What I’m saying here is the focus is sort of shifting from just cost cutting to technology that is going to enable (companies) to grow their customer base and increase profitability,” said Scott.

AMR interviewed 200 manufacturing and service industry IT and business executives in the U.S. during January on their expectations for IT spending in 2004. The survey is weighted towards the retail sector.

The survey results include the following findings:

Driven by anticipated growth in the economy, 66% of respondent companies plan to increase IT investments in 2004, compared to only 47% in Q3 2003. Growth rates also increased significantly to nine percent in Q4 2003 from 4.3% in Q3 2003.

Customer Service remains the central focus of 2004, with 48% of respondents claiming that customer-driven issues like loyalty and retention will have the greatest influence on IT investments over the next twelve months.

Applications and the software infrastructure used to integrate them will get the most investment, with 55% of respondents giving these areas top priority in the next twelve months; and

while 35% of companies are generally satisfied with ISV software offerings, the majority plan to take significant actions to address specific areas of dissatisfaction, such as lack of flexible licensing models, application flexibility via the adoption of open standards, product costs, and failure of technology to map well with their business goals.

Next quarter’s Tech Trend survey should give the best indication on how much companies will actually spend through the end of 2004, Scott said.