Businesses rein in IT spending

Just under half (43 per cent) of large businesses across the US and Europe have cut their IT budgets this year in reaction to the slowdown in the global economy, according to research published today by Forrester.

A further 24 per cent had put discretionary spending on hold, while 28 per cent of the 950 senior IT managers questioned said the economy has had no impact on their IT budgets.

When asked how the economy will affect IT services spending, 70 per cent said they would most likely negotiate lower rates with suppliers and 16 per cent said they had already cut their IT services spending.

But cost-cutting drives may be supporting demand for third-party IT services, as the survey found 45 per cent planned to increase their use of applications outsourcing, with similar numbers reported for infrastructure and offshore outsourcing, too.

But John McCarthy, Forrester Research vice president and principal analyst, was quick to point out that “this is not an across-the-board spending slowdown”, as economic impact varied by region and sector.

Overall, Europe appeared to be faring better than the US: nearly half (49 per cent) of had cut their IT budgets compared with 31 per cent of respondents in Europe – although the analyst is quick to point out that the Forrester survey was fielded in the second quarter of 2008, prior to the deteriorating economic conditions in Europe.

IT departments in the financial services industry were hit hardest, with 49 per cent cutting their budgets. By contrast, the media, entertainment and leisure industry only reported 39 per cent of respondents reducing IT spending.

McCarthy was cautious in his evaluation of the results. "The impact of the economy on IT budgets varies widely by industry and geography,” he said.

“With regard to the services sector, the slowdown has firms renegotiating rates, being more selective in choosing vendors, and examining spending plans more thoroughly, but they are still expecting to pay more for services. The demand for enterprise IT services has not dropped significantly.”

Despite a sustained appetite for outsourcing, the research also found satisfaction levels remain low. While overall firms are satisfied with their decision to use a third party, 52 per cent said their biggest challenge with existing IT services and outsourcing relationships is that cost savings are lower than expected.

Inconsistent or poor service quality (40 per cent) and the inability of the vendor or contract structure to respond rapidly to changing business needs (35 per cent) were also factors.

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