Corporate E-Biz Spending to Plummet

Executives polled by Forrester Research Inc. expect their e-business budgets to decrease by nearly 6 percent.

In light of a weakening economy, corporate spending on e-business is going by the wayside.

Executives polled by Forrester Research Inc., in Cambridge, Mass., expect their e-business budgets to decrease by nearly 6 percent. That is about 19 times greater than the 0.3 percent average budget cuts executives were expecting in May. And while only 17 percent of Global 3500 firms had their e-business budgets cut in May, now 32 percent of these firms report budget cuts.

Moreover, executives remain cautious about spending their e-business technology budgets. Forty-eight percent of firms have either already reduced spending, delayed spending or both. This represents a 26 percent increase since May, when 38 percent of firms polled by Forrester Research reported reducing or delaying e-business technology spending.

The survey, released Monday, comes one week after the Commerce Department reported corporate spending on computers, software and other high-tech goods declined at a 14 percent annual rate in the third quarter--the third consecutive quarterly decline. Forrester polled more than 800 Global 3500 firms in May and then another 209 firms following the terrorist attacks. More than 40 percent of firms surveyed in September and October of this year also had been surveyed in Forresters May report.

While 10 percent of executives cited the terrorist attacks as having impact on their e-business budgets, the recent events are secondary to a rapidly softening economy, according to the report. Nonetheless, the terrorist attacks have had an impact. More than 60 percent of respondents believe that the events of Sept. 11 will further weaken the economy. And only 6 percent believe that either recent economic shifts or the terrorist attacks will drive increased spending.

The terrorist attacks had the largest impact on financial institutions. Of those financial institutions polled, 40 percent pegged decreased budgets to the terrorist attacks. In fact, these firms reduced their budgets twice as much—12 percent vs. 6 percent—when compared with those firms that cited the weak economy as the main factor for decreased spending.

Areas expected to take the hardest hits from decreased e-business budgets are projects involving customer relationship management, wireless and mobile data. In May, between 25 percent and 45 percent of firms surveyed planned to increase their spending on these products. Now only 14 percent or fewer plan spending increases.

Also expected to take hits are consulting companies. While nearly a quarter of companies planned to cut spending on consulting services in May, 60 percent of billion-dollar companies now plan to reduce their consulting budgets. Moreover, these companies are slashing budgets aggressively by an average of nearly 30 percent.

E-business employees at Global 3500 firms are faring no better. A quarter of firms surveyed plan to cut headcount, and nearly 20 percent will reduce salary expenditures. Manufacturing e-business staffs have seen the biggest change since May. At those companies, headcount has gone from a 0.4 percent increase to a 10.2 percent decrease.

Disaster recovery spending to increase

But it isnt bad news across the board. One exception is in disaster recovery budgets. In the survey, 44 percent said they expected spending on disaster recovery to increase by an average of 18 percent in light of the recent terrorist attacks. And 29 percent of firms say that theyre increasing spending on security by an average of 22 percent.

Surprisingly, 32 percent of Global 3500 firms also say they plan to increase spending on business travel. Dismissing remote meeting technologies like videoconferencing, instant messaging, Web conferencing and telephone conferencing as clumsy, awkward and impersonal, CIOs say theyll cut spending on these technologies by nearly 6 percent this year.