IT Spending: No Longer The First Thing CutIT Spending: No Longer The First Thing Cut

It seems like I have been having this kind of conversation a lot lately:

"How's your business?"

"We're actually doing pretty well. But we're worried, not so sure how our partners and a few key customers are doing. So we're keeping a close eye on things."

Companies are operating with one hand firmly on the cash-flow spigot these days, ready to crank down spending the moment any blip confirms their doubts about the economy.

This state of uncertainty looms over IT spending as well. But several indicators and anecdotes suggest the IT-spending spigot remains reasonably open in this is-it-or-isn't-it recovery.

The latest indicator comes from the Society for Information Management, which surveys CIOs and other IT leaders on their business IT priorities. More than half (56%) say their companies' 2011 IT budgets will exceed last year's, and just 17% expect a cut. In 2010, just 34% expected an increase and 35% expected a cut. Looking to 2012, 51% expect IT budget increases in the coming year, and just 15% expect a cut. The survey, taken in June, includes 275 IT leaders across many industries. (The findings are more pessimistic than our information 500 research, done in the spring, in which 69% of companies expected an IT budget increase in 2011.)

This recession is different when it comes to IT spending, says Jerry Luftman, a professor at Stevens Institute of Technology and a VP with SIM. In past recessions, dating back to the 1960s, IT was one of the first places to cut. It was viewed as expensive and risky, and business execs weren’t sure of the value.

[ Want more on IT effectiveness? Read 8 Signs Your IT Team Is Too Slow. ]

IT is still expensive and risky, but companies today know they need tech projects to make progress--whether to reach new customers, analyze the profitability of their products, or improve productivity. "What executives are doing is asking IT to work closely with the business to find ways to leverage IT," says Luftman. That's a worldwide phenomenon, he adds.

Keeping Up With Technological Change

Jason Maynard, a senior technology equity analyst with Wells Fargo, on Sept. 15 issued a report on IT spending, in which he concluded, “It isn’t that bad.” Barring a “Lehman-like shock,” Maynard sees IT budgets as likely holding up this year against the economic gloom for several reasons.

One, IT budgets have stayed lean, so there’s little fat to cut. Two, businesses consider many IT projects as essential to their ability to compete. And three, most companies didn’t expect huge growth, so a slowdown isn’t reason to panic.

But most importantly, Maynard says, technological change today is “perhaps the most in 20 years, and business doesn’t want to miss the social, mobile, and cloud waves.”

IT Priorities: BI to Cloud to Mobile

Those trends Maynard sees driving IT spending show up in the SIM data, too. Cloud computing shot to No. 2 on the list of tech priorities (from No. 5), while mobile apps and customer relationship management moved into the top five. Stalwarts business intelligence (No. 1) and ERP (No. 3) held their ground.

These rising priorities reflect a focus on growth--and new opportunities that hinge on emerging tech. The change happening in wireless is easy to see, but don’t overlook CRM. CRM was 13th on the list in 2009. Companies know they can’t afford to let good prospects get away. And there’s a link to wireless: Why build intimate new ties to customers through apps if you can’t use analytics and CRM to do so profitably?

One thing that could stall companies' investment in business intelligence, which holds its perennial No. 1 spot on the priority list, is finding enough people with statistical and mathematics skills combined with IT knowledge. "There's a major skills gap in utilizing these techniques," Luftman warns. IT departments outside of Wall Street and pharma traditionally haven't had these skills, but they're going to need them to do the kind of advanced analytics many companies envision.

Waste Management, for example, recently created a Decision Sciences group that reports to the CIO, and brought in PhDs in statistics and math it hadn't had before. The group helps with projects such as applying analytics to guide pricing decisions.

One of the hottest topics in all of IT is cloud computing, and the SIM data sends something of a mixed message on it. Cloud computing is No. 2 on the technology priority list, but when asked what share of the budget they're allocating to cloud, CIOs report on average just 11% -- 5% for external clouds, 6% for internal clouds. "It's clear that most everybody is thinking about it," says Luftman. "People aren't moving as quickly as you might think."

But in general, Luftman sees companies a lot more focused on their infrastructure needs, including considering cloud infrastructure as a service and outsourcing infrastructure. Luftman thinks some companies kept their IT project spending going during the downturn but neglected IT infrastructure, and now see the need to ramp up.

Another recent report backs up this thinking. DataDynamics, a researcher who follows the data center industry, predicts a 15% increase in the number of server racks data center operators run, and a 19% increase in data centers' energy use.

Getting funding for IT, as always, is only part of the story. Once funded, IT still must deliver. That explains the top two IT management priorities in the SIM survey: business-IT alignment, and business agility and speed. In this economy or any other, IT must know what the business needs--and get it to them fast.

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