Forrester: Australian IT budgets set to rise

Australian and New Zealand organizations are feeling optimistic this year, and this is flowing through to IT budgets which are set to rise by 5 percent.

Forrester's IT budget forecast released this week shows 33 percent of companies anticipate an IT budget increase of an average 5 percent in 2006, with only 18 percent of respondents expecting a reduction in budget.

The forecast found that worldwide, Australian and New Zealand companies show the strongest alignment of IT with business in supporting organizational goals such as improving productivity and reducing cost. However, senior decision makers are split over whether IT adequately supports activities such as re-engineering core business processes or driving innovative markets.

New investments are on the horizon with 26 percent of repondents planning purchases this year, up 8 percent from last year.

One quarter of respondents see security related purchases as a critical priority, 22 percent see infrastructure consolidation and disaster recovery as major focus areas, and 19 percent are prioritizing application upgrade or replacement.

"These improvement activities will ultimately assist Australia and New Zealand in further reducing the maintenance budget allocation, releasing more funding for future years," Forrester analyst Sam Higgins said.

Application renewal will be a theme in 2006 with 45 percent of organizations expecting to make significant cuts to legacy maintenance and only 8 percent choosing to spend more on it. Replacement applications will most likely be custom built, as companies are turning away from packaged solutions like SAP and Oracle.

Higgins said that Oracle's strategy and Fusion roadmap may have caused a small amount of end user dissatisfaction in this market, but that is not the main influential factor.

"Oracle's acquisition strategy would be a small blip in an otherwise healthy outlook for it. I think the main reason is that everyone has already done their spending. There is only so much ERM and CRM people can do," he said.

Higgins said companies are instead looking to integrate applications by hand, spending their money with traditional application development platform giants like Microsoft and IBM.

"If you compare Oracle's view of application development with Microsoft and IBM, Microsoft and IBM strangely enough have a much broader view of interoperability and openness than Oracle does. Things like JDeveloper, as standards-based as they first appear, really can lock people in to the Oracle view," he said.

"IBM is much more based on open source and tends to be a bit more flexible, and Microsoft needs to interoperate with everyone else so it doesn't get much choice but to be open, at least at the edges."

Storage and server spending is also on the rise, with 40 percent and 43 percent of respondents respectively planning to spend more in these areas. Overall, 21 percent of companies plan to spend more this year on hardware generally.

The main losers from this budget outlook are services, with 30 percent of firms aiming to reduce spending in areas such as outsourcing and managed services.

This tightening of services is set to hit application management outsourcing the hardest, with 41 percent of firms ready to reduce funding in this area, as they replace outsourced legacy applications.

Consultants and system integrators should not be too affected by the tightening of services though, as they are the logical companions for increased spending on security software, applications development activity, servers and storage, Higgins reports.

"The IT services market is being industrialized along with the rest of IT. So a lot of the big-name vendors are creating partner networks, but they are small partner networks of select partners," Higgins said.

In compiling its Budget forecast, Forrester surveyed 703 technology decision makers in the Asia Pacific from organizations ranging in size from 500 to more than 20,000 employees. Of these, 128 were from Australia and New Zealand. Global benchmarks are formed from a worldwide survey conducted in October last year.

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