Consulting budgets squeezed during downturn

The scale-back on IT plans, as some companies respond to a slowing economy, is leading some businesses to slash their IT consulting budgets in an effort to rein in spending.

Principal consultant in advanced computing technology at Du Pont in the US said: "Everywhere I look companies are being told to get rid of contracts with consultants to save money."

Earning shortfalls by many IT vendors is spreading to consultancies.

E-business consultancy Xpedior said a decline in revenue has prompted the company to lay off 300 employees or 42 per cent of its workforce.

In a recent survey of 20 European and 50 US CIOs by Merrill Lynch, nearly half the respondents said they will spend less on this year's IT budgets than they did last year.

They also said the economic slowdown has forced their companies to prioritise or even delay projects; 40 per cent said they will reduce the number of consultants they use.

"We normally maintain relationships with a number of consultants, but for the first half of this year, we're aiming to reduce these relationships because of the change in the market environment," said Steve Norwitz, a spokesman for US-based asset manager T Rowe Price Associates.

Norwitz added that the consulting pullback is "being played out across the financial services industry".

Kennedy Information Research Group analyst Joshua Randall said that last year "everyone was trying to increase their revenues through consulting and Web transformation projects".

But today, he said, more clients are trying to control costs and one way they can do that is by cutting back on professional services spending.

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