As the economy goes, so goes IT. Right now, the lackluster economy-made darker by the recent collapse of Lehman Brothers and the acquisition of one-time powerhouse Merrill Lynch by Bank of America-is casting a pall over 2009 IT budget planning. Even so, some experts say the second half of 2009 could see a return to brighter days.
“We’re going to play it by ear until next year,” said Jim Michael, associate director of IT services for California State University and vice president of SHARE, an association of IT professionals. “How soon will we feel the effects of recovery? The state budget might not recover as quickly as private industry. It’s definitely wait and see.”
The current doldrums in IT spending began in 2008 following a strong year in 2007. “2009 and 2008 are going to be one and the same; we’ve tapered down from 2006-2007,” said Paul Tinnirello, CIO of a company in the insurance information business. Robert Rosen, CIO of the National Institute of Arthritis and Musculoskeletal and Skin Diseases and an eWEEK Corporate Partner, took a similar view: “At the very best, [our budget] will be flat. With the cost of living, it’s effectively a cut.”
Analysts said the economy is dictating the pace of IT spending.
“It’s all about the economy-that’s underlined by all of our surveys,” said Stephen Minton, an analyst at IDC, pointing to his company’s interviews of IT professionals. “They’ve told us pretty clearly that the only reason for them to be pulling back on tech projects is because of the economy. Banks, retailers, wholesalers, construction companies-all those that have felt the slowdown of the economy-they are being forced to cut back on their tech spending,” Minton said.
Forrester Research analyst Andrew Bartels said his company assumes a recession in late 2008 that will carry over into 2009. “Consumer spending showed a decline in real terms in July 2008, and there is weak growth in personal income,” Bartels said. “Stimulus checks have been propping things up, and U. S. exports were propped up by the weak dollar. Europe is slowing, and Japan seems to be in recession. Consumers look like they’re going to be hitting a wall.”
IT execs are taking note, Bartels said: “They’re going to be looking at an economy that will be looking pretty feeble during the budgeting process, so they’ll be approaching 2009 very cautiously and very conservatively in terms of spending.”
Wall Street Cutbacks
The spectacular downfall of twin Wall Street stalwarts Lehman Brothers and Merrill Lynch bodes ill for IT spending at all Wall Street companies, Bartels said. “Wall Street firms will have major cutbacks to their business. With consolidations going on, they may consolidate IT systems as well,” he said.
However, the impact should be confined to Wall Street and won’t spread to other areas of the economy, said Bartels, who added that, overall, the dip in Wall Street IT spending won’t greatly change the overall IT budget picture: “The financial services industry comprises only 8 percent to 10 percent of IT budgets; Wall Street might be 2 percent to 3 percent.”
Just how much IT pros are hunkering down is open to debate, however.
“If we’re in a recession, it’s not being reflected in IT budgets. There’s not a panic setting in,” said Jerry Luftman, associate dean and distinguished professor at Stevens Institute of Technology and vice president for academic affairs for SIM (Society for Information Management), an organization if IT executives.
Luftman manages SIM’s annual survey of its membership, which found that 80 percent of members expect their IT budget to increase or stay the same in 2009.
However, Luftman said, survey respondents tend to be optimistic about the coming year and that actual spending tends to be lower. “Eighty percent will probably turn out to be a little closer to 75 percent,” said Luftman.
In last year’s SIM survey, 78.4 percent of respondents said their IT budgets would remain the same or increase. The actual figure, reported in this year’s survey, was 75 percent, according to Luftman. The results of the latest survey will be published at the organization’s SIMposium conference, which will be held in Orlando, Fla., in November.
“Given the economic fear that we’re hearing about, companies are not panicking,” Luftman said. The reason, he said, is IT people have made significant progress in tying technology to their organization’s business mission. As a result, IT is not so frequently looked at as merely an expense to be cut. “IT people are much more engaged with their business partners now. Budgets aren’t getting sliced, and hiring isn’t falling off so much,” he said.
The mood of proceeding with caution, while not abandoning new initiatives, prevails at auto giant General Motors, which will continue its long-term trend of gradually decreasing its IT expenses, according to CIO Ralph Szygenda.
“The U.S. economic outlook and gas prices are driving cost reductions in [the United States],” Szygenda told eWEEK via e-mail. However, he added, GM is aiming to spend more in other parts of the world. “We continue to invest in strategic globalization of processes and systems and in growth markets such as Russia, China, Lain America, India, Eastern Europe, etc.,” Szygenda wrote.
While new initiatives may be coming under closer scrutiny than in some years, maintaining IT at a normal level, including moderate growth, is the order of the day at many organizations. “We’re spending most of our time keeping the status quo going, including the normal expansion of normal services,” said Kevin Wilson a client architect of desktop mobile and virtual at a southeastern U.S. energy company.
At California State University in Fresno, Michael is planning to complete a network infrastructure refresh, including replacing a telephone switch. He will also follow through on a federated identity management project that will allow a person from one campus in the state university system to be recognized at another campus in the system.
Whats Driving Spending
Whether the times are good or bad, the accumulation of data that must be stored continues without letup.
“Storage keeps growing exponentially. We’re out of space and out of power,” Rosen said. “I don’t have the space to keep adding Fibre Channel drives to our SAN.”
Rosen is looking at commercial software, including hierarchical storage management systems, to mitigate the problem and maximize storage utilization.
IDC’s Minton agreed that the proliferation of data will drive investment not only in storage but in other data center technologies, as well.
“There is a massive increase in the amount of information that is flowing back and forth, so companies are spending on data center consolidation, virtualization, upgrades to their network equipment and software that allows them to better manage their storage,” Minton said. “Companies are rolling out smart phones, and they are flowing the data back into their networks. There is a lot of value in this information, so people are spending on data mining and business intelligence tools.”
Forrester’s Bartels said enterprise software spending is remaining strong.
“We’re still seeing software investment growing at above-average rates. It’s seen as investment that helps save money elsewhere. It’s less PC-type software and more service-oriented architectures, ERP, CRM and other big applications like supply-chain management, product lifecycle management, business intelligence, security, content management and collaboration tools,” Bartels said.
Meanwhile, he noted, hardware spending remains stuck in low gear. “We’re seeing weakness in PCs and servers-they have been down in 2008 and will probably remain very weak. CIOs are saying they can run with what they have a bit longer,” said Bartels.
While the economy exerts a strong force on the budget process, there are several technology and other factors that are having-surprisingly to some-little or no impact.
Microsoft’s Windows Vista, for example, was expected to hit its stride in 2009 as companies cyclically refreshed their desktop systems. However, Vista is expected to have little or no impact on IT budgets.
Indeed, many companies are seeking to skip over Vista and move directly to its successor, which Microsoft has been calling Windows 7. In large numbers, IT managers are finding the benefits of Vista do not outweigh the time and expense of testing and deployment.
“Microsoft has given a mixed signal with Windows 7, and support for XP will continue,” said Tinnirello. “We don’t have Vista now and we have no plans for it in 2009. We’ve got an environment that works. It’s stable and tuned where we want it.”
Wilson said he is making preparations for Vista but will bypass it if possible. “We’re going to do the work to go down the Vista road. When we get close, we’ll look at Windows 7, and we may go to Windows 7 instead,” Wilson said. “There are people who would give their eye teeth to skip Vista.”
Even though many instances of Vista are likely to appear in enterprises when new systems are purchased or employees bring in Vista laptops and expect to plug them into the corporate network, experts and IT pros are saying the budget impact of Vista will be negligible in 2009.
“I don’t see Vista as being a factor. But you could see it later in 2009,” Bartels said.
IDC’s Minton concurred: “Vista migration is not impacting IT budgets in a measurable way, but if the economy is better, there will be more companies upgrading to Vista.”
Meanwhile, despite widespread interest in cloud computing-in which remote computing resources are accessed and deployed self-service-style via a Web browser-the phenomenon is having little budget impact.
Like Vista, cloud computing did not show up in the top 10 technology categories in the SIM survey.
And even though green IT is gaining significant mindshare, green initiatives are having little immediate budget impact. “There are areas of green IT where people are spending more, but it’s not causing a spike in spending,” Minton said.
Opinions were mixed on the influence of the presidential election on IT budgeting. “The election will have an influence-whether there is relief at the corporate level or more taxes. Companies may be forestalling their budgets pending the outcome of the election,” Tinnirello said.
Bartels disagreed: “There is no impact at all from whomever is president. Both Republicans and Democrats will be positive on technology.”
The Light at the End of the Tunnel?
Bartels said he anticipates budget growth of 4 percent for 2009, but he expects that actual spending growth will be 7 percent due to the economic rebound he expects in the second half of the year. “2009 will start lousy and get better,” he said.
Bartels points out that although 2007 was a year of strong IT spending, it was not, strictly speaking, a boom year. “Growth was 7 percent. That’s about the same as 2006. It was not 10 percent to 12 percent growth as it was in the late 1990s.”
But the upturn that may be coming next year could kick off a period of strong IT spending that could last for years, if an economic model developed by Forrester proves correct.
According to Bartels, since the dawn of the computer age 60 years ago, IT spending has gone through alternating eight-year periods of high investment, during which IT spending has grown twice as fast as the economy, and eight-year periods of restraint, during which IT has grown only at the rate of the economy.
Since 2008 concludes a period of restraint that began in 2001 with the collapse of the dot-com bubble, we’re due for an eight-year rebound period, the model predicts.
“Starting around 2009 to 2010, we could see a boom like the ERP boom,” Bartels said. Although he is unclear as to the specific technology that will drive increased spending, Bartels suggested that the trend to server virtualization and cloud computing could free up IT dollars that could be invested in new IT initiatives, whether new applications based on service-oriented architecture, widespread use of embedded computing technologies or ballooning storage needs.
IDC’s Minton disagreed with Forrester’s eight-year cycle theory.
“We don’t agree that IT spending will go back to the boom spending we saw in the past … but the cycle of valleys and peaks will probably continue,” Minton said. “Once we get out of the economic downturn in the second half of next year and in 2010, there will be growth of five to six percent. That’s really the long-term growth rate.”