Pent-up demand adds gloss to IT spend

While analysts predict IT budgets will increase in 2004 with tech spending in Australia set to grow by more than 6 per cent, IT managers are not so upbeat.

Researchers attribute the increase to pent-up demand for long-delayed technology projects contributing to a 3 to 5 per cent increase in overall IT spending next year.

With initiatives around security, Web services and CRM the likely beneficiaries as IT executives enter the final stages of negotiating their 2004 technology budgets with CEOs and other business executives, IDC predicts Australian spend will grow from $223 billion outlayed in 2003 to $237 billion in 2004

However, Meta Group executive vice president Howard Rubin expects IT outlays in 2004 to remain flat and on average IT spending will amount to 3 per cent of corporate revenue next year,

Cottee Health Group senior IT manager Robert Kiss has seen his spend cut back by 22 to 30 per cent over the last 18 months.

Kiss said cutbacks at the pharmaceutical company are the result of an acquisition completed last year of Pharmaction with "normal" spending returning after the transition ends.

He said the focus in 2004 will be on maintaining current IT systems efficiently, and adding to the budget the cost to maintain any new systems or projects coming on line.

"I even bring in my own equipment for temporary situations. It saves the company avoidable rental or purchase costs and justifies to my [partner] why I need have a room full of years of accumulated IT gear," he added.

Kiss is adamant corporate IT spending is not likely to hit the levels of the 90s again, at least not until the next global economic boom - a climate in which he believes logic around spending "will go missing in the race for market share".

Also, the potential for budgets to increase or decrease, will lie at the discretion of senior managers - whether they believe major projects they undertook like Y2K, GST or CRM were successful, over-budget or even unnecessary, Kiss said.

"CRM projects, for example, were often initiated on slick vendor sales pitches to non-IT execs, with unrealistic expectations to increase sales and reduce cost...leading to only [partly] successful outcomes or the project being abandoned. Rather than [use] a company-wide collaborative assessment of [a project's ROI], IT input was bypassed."

The spending cutbacks made by many companies during the past few years could eventually have a whiplash effect on IT departments, said research firm Alinean's president and CEO Tom Pisello. Corporate business units have resorted to creating "shadow" IT departments to launch pet projects that have been stalled by IT budget cuts. Eventually, IT managers could become responsible for maintaining the systems installed by business units, he said.

Swatch Group Australia IT manager Rhys Jones agrees there will be small budget increases next year. Jones said his organisation's IT budget for 2004 is not likely to grow above this year's.

"It's not overly likely that we'll have an increase. It's unnecessary in the immediate future."

Like most IT managers, Jones said larger IT budget were always welcome. While initiatives which IDC expects to benefit from companies' IT budget allocations next year include security, Web services and CRM, Swatch Group Australia's 2004 tech spend will go towards upgrades and communications and networking technology, Jones said.

Meta's Rubin said some companies will continue to "spend money to save money", typically investing in server consolidation projects to bring down hardware purchasing, leasing and maintenance costs. But many IT departments that have been cost-focused in the past three years are likely to pad their investments in technologies such as CRM systems to help grow revenue as consumer confidence begins to pick up steam, he added.

(With Lauren Thomsen-Moore.)

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