IT spending still going up, but not for all users
By TODD R. WEISS
(July 20, 2001)
Despite the sluggish economy and the IT buying slowdown cited by numerous vendors, new surveys show that corporate spending on technology still appears to be going up on average this year. But that's certainly not what many users are planning.
Consulting firm Gartner Inc. this week said preliminary results from a survey of 589 large companies indicate that IT spending on the whole will increase by 10% this year. But just slightly more than half of the respondents said their budgets are growing, and more than 40% said their spending will be flat or down, according to Gartner.
Hannaford Bros. Co., a grocery store chain in Scarborough, Maine, is one company that's not cutting back. Hannaford CIO Bill Homa said he's keeping his IT operations budget flat with last year's level but increasing capital equipment purchases by 15% to 20% in an attempt to take advantage of the financial misfortunes of technology vendors.
For Homa, the tight economy has resulted in sales-hungry vendors that are happy to give discounts and sweeten deals, leading him to accelerate buying plans for a variety of products. "In some cases, it's a fire sale," he said. "The bargains are actually justifying the early investments."
Among the items Hannaford has been purchasing are servers, routers, storage devices and applications needed to support its supply chain system. "There's huge returns on this spending, so it's easy to justify even in a down economy," Homa said. "I wish I had more money. I'd buy more."
The situation is different at Carrier Corp., a Farmington, Conn.-based maker of air conditioning and refrigeration equipment. CIO Jagdish Dalal said Carrier's total IT spending will be down "slightly" this year, though he wouldn't be specific. The company is also focusing on projects that will generate better returns on investments (ROI), he added.
"The smarter companies will look at [ROI] in this economy," Dalal said. For example, Carrier is cutting its spending on mainframe applications, some of which date back 20 years and have required continual upgrading. Some are being outsourced, Dalal said, while others are being replaced with newer applications in order to save money and increase productivity.
Atlanta-based Delta Air Lines Inc. is keeping its IT spending on an even keel with last year's levels, said spokeswoman Katie Connell. "We don't see IT as a variable cost," she said. But while no spending cuts are planned, the sluggish economy has prompted the airline to emphasize IT projects that are expected to produce rapid financial gains or efficiency benefits.
Barbara Gomolski, an analyst at Stamford, Conn.-based Gartner, said many other users are also showing "greater scrutiny, but not cutting top-line spending" on IT. As part of the increased scrutiny, she added, companies are readjusting their budgets to emphasize baseline IT expenses over discretionary items, such as spending on consulting and re-engineering efforts.
According to Gartner's survey, 56% of the companies that responded said they plan to increase their IT spending this year, with the average budget expected to rise by 21.5%. Another 21% of the respondents said they are planning to keep spending flat with last year, while 22% said their IT budgets will decline by an average of 12.7%.
Other market researchers also are predicting overall growth in IT spending this year. A recent survey of CIOs at 50 U.S. companies by New York-based Merrill Lynch & Co. pointed to an average increase of 6%, though that was down from an earlier 9% projection. Meanwhile, Framingham, Mass.-based IDC estimated this week that worldwide IT spending will go up by 9%.
At Sears, Roebuck and Co. in Hoffman Estates, Ill., IT spending could total 3% more this year than it did in 2000, but that's not a certainty at this point, said spokeswoman Jan Drummond. The expected increase could disappear by December if reduced business at its stores leads the retailer to make more cost-cutting moves, she said.
"We are definitely looking at spending less in the second half [of the year] than in the first half," Drummond said. "It's actually kind of moving around, and we're watching it very closely."
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