Vendors Become a Main Target of IT Cuts

Corporate IT executives are planning even deeper cuts in their 2002 budgets and are trying to squeeze better pricing out of technology vendors to meet that goal, according to survey data compiled this week from Meta Group Inc.

Sixty-two percent of IT executives surveyed this month by Meta Group said that they plan to further cut their 2002 IT spending plans by the end of this year, Howard Rubin, an executive vice president and research fellow at Meta Group, told eWEEK on Thursday. In the worst case, 27 percent plan to slash between 15 percent and 20 percent more from their spending plans. The other 35 percent plan on cutting less than 15 percent more. Only 38 percent planned to make no additional changes to next years IT budgets.

The news should be doubly worrisome for tech vendors because companies are doing more than just dropping IT projects or staff. Theyre also working to renegotiate contracts with key vendors to lower the cost of the technology they already have in place, Rubin said.

The majority of IT executives, 54 percent, are seeking to renegotiate a third or more of their contracts, and another 36 percent are attempting to rework less than a third of their contracts. Only 10 percent are leaving their vendor contracts untouched, Rubin said.

“The data has shown that as things got bad this year, about 55 percent of companies cut staff,” Rubin said. “Staff is easy, so then they had to save more money, so they put initiatives on hold–like [enterprise resource planning] and [customer relationship management]. After you do the easy things, where do you go next? Where else you can get a fast hit is to call your vendors.”

The most recent findings from Meta Group, based in Stamford, Conn., are based on weekly surveys of a portion of its database of 10,000 companies worldwide. The results come after the IT market research company in late October announced that it expects corporate IT spending to fall in 2002 for the first time ever. Its projection at that time was for a 2 percent to 5 percent drop in IT spending as a percentage of revenue in 2002 compared with 2001. That has worsened to 11 percent, Rubin said.

“Its almost like last-minute stock selling,” Rubin said. “Were seeing end-of-the-year adjustments in IT spending.”