The 2003 IT Budget Pinch: Belts Get Pulled Even Tighter

With economic recovery on hold, enterprises keep lid on it spending.

If Irving Tyler had known two years ago that the economic recovery would go AWOL and his company, like most, would need to trim expenses, he might never have launched a multimillion-dollar global enterprise resource planning system rollout. But he did, and when hard times hit, it was too late to turn back.

Now, having pressed on with deployment of the OneWorld ERP system from J.D. Edwards & Co., Tyler, vice president and CIO at Quaker Chemical Corp., is looking to squeeze spending wherever possible. That means looking for deals from smaller IT vendors and renegotiating software licenses and telecommunications deals. It also means limiting new projects to those that deliver quick return on investment.

"This year was a tough year for our company, and next year looks to be the same," said Tyler, in Conshohocken, Pa. "We started an ERP project last year, and that ship has sailed. To really benefit from our investment, we have to complete the process. ... But there probably wont be a lot of new initiatives over the next year."

Faced with some of the worst economic conditions in 10 years and wary of recent Federal Reserve reports that the economic recovery has lost steam, many enterprises are, like Quaker, deferring any increase in IT spending beyond next year. While a select few companies are going against the tide, boosting IT spending in anticipation of a recovery, most CIOs say they will continue to budget conservatively and avoid large, long-term projects in favor of quick hits.

CIOs say theyll be spending their precious dollars on finishing large projects such as ERP and CRM (customer relationship management) deployments already in the works. Theyre also paying more attention to projects that provide quick improvement in existing systems and, in relatively short order, could have a large impact on the business. That includes videoconferencing and VOIP (voice-over-IP) deployments. And, conscious that some technologies require long-term investments, organizations continue to spend briskly on a few infrastructure items, including security and storage technologies and application integration middleware, in preparation for Web services and Web-based systems.

To be sure, as enterprises wrap up their 2003 budgets, not all is doom and gloom on the IT spending front. The good news is that, at least according to some researchers, the spending outlook for the second half of the year is a bit brighter than it was in the first half. In a survey of 1,001 IT buyers, Forrester Research Inc., in Cambridge, Mass., found more companies (19 percent) will increase their IT budgets than cut them (12 percent) during the second half of this year. However, where cuts are planned, they will be significant. Of those expecting to cut their budgets, at least one-third foresee more than a 10 percent downward shift, according to the Forrester survey.

Not a terribly rosy outlook. But the Forrester research is on the optimistic end of the spectrum of budget forecasts. In a survey of more than 1,000 companies in 46 countries, for example, research and consulting company Meta Group Inc. found that spending will drop by around 12 percent this year compared with last year and could fall an average of 15 percent further next year.

"We definitely see a downward trend in IT spending in 2003," said Howard Rubin, an analyst at Meta, in Stamford, Conn. "IT executives are spending less and are being forced into making strong choices. They are putting their money into technologies that provide tangible business value in the short term."