Friday, September 10, 2010

IT Budgets into 2011 - Robbing Peter to Pay Paul?

Gartner Executive Programs midyear survey indicates that IT budgets are growing at a paltry 1.1% in 2010, essentially flat in 2010.

The good news is that the second half of 2010, projections are in line with Gartner’s survey in the fourth quarter of 2009 when CIOs reported IT budgets would increase, on average, by only 1.3%, and spending outlooks are more positive than earlier surveys. More good news is that 2010 is far better than 2009, with a weighted global average reduction in IT budgets of 8.1% for 2009, showing that a spending recovery is in place, but marginally.

Infrastructure vs. Operations
However the most important trend from the survey is not positive spending growth, it is that CIOs are paying for needed infrastructure upgrades via cuts in operating budgets – essentially robbing Peter to pay Paul.

Mark McDonald, group vice president and head of research at Gartner Executive Programs indicates that "CIOs plan to increase capital expenditures (CAPEX) by 3% this year and pay for that increase with a 1.3% cut in operating budgets. CIOs felt they could no longer delay infrastructure upgrades and other capital investments and they funded them at the expense of operating budgets."

This means that spending on people and services will remain tight, and according to the research, the larger the firm, the tighter it is managing its IT budget in general and IT operating expense in particular. This continues a trend Gartner has observed since 2008 as larger IT organizations started reducing their resource requirements through consolidation, waste elimination and other measures. CIOs of the largest firms indicate that opportunities in these areas remain."

Smart vendors need to anticipate these frugal budget trends, and help organizations figure out how to do-more-with-less. The trend of all buyers is towards Frugalnomics, a requirement that investments deliver quantified bottom-line impact, with pressure on vendors to prove and improve the value of their solutions.


The Bottom-Line
The Gartner budget survey provides great clarity to IT vendors looking for sales and marketing guidance to fight Frugalnomics:


  1. For those selling infrastructure solutions, the budget pressures require showing how solutions will "pay for themselves" via reduce operating expenses such as reducing management and support labor requirements, support and maintenance contracts, power and space usage.
  2. For those selling services, the road is tougher, and will require sensitivity to price, extreme value, and benefits of the services to far exceed the costs, as organizations will be looking to reduce services contracts overall for needed infrastructure investments.
  3. In both cases, frugal buyers will be looking for proactive help in guiding budgets, and any project proposal must quantify a significant return on investment and quick payback.
The press release announcing the Gartner Executive Program study results can be found at: http://www.gartner.com/it/page.jsp?id=1433218


Mark McDonald, group vice president and head of research at Gartner Executive Programs will provide more detailed analysis on the CIO Agenda at Gartner Symposium/ITxpo, being held October 17-21 in our hometown of Orlando, Florida.

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