Wednesday, October 20, 2010

Frugalnomics in Full Effect: Forrester and Gartner Downgrade IT Spending Outlook

In the latest research from Gartner and Forrester, both IT research firms revised their annual spending projections over the next few years, predicting lower budgets and slower growth. Gartner's forecasts, revealed at their annual IT symposium here in Orlando, are the most pessimistic, predicting that the next five years would "represent a period of timid and at times lackluster growth."

The revised forecasts track the overall macro-economic conditions and projections for US and other developed economies, and although emerging economies are expected to continue with strong economic growth, these forces are not enough to drive strong IT spending growth overall.

What do these revised projections mean for IT solution providers? CIOs will maintain tight controls over budgets, and although some sectors will see spending constraints loosened, the prevailing Frugalnomics sentiment is expected to continue in full effect. Frugalnomics has buyers seeking quantified bottom-line impact and best value from every project. IT solution providers must recognize this change in order to succeed over the next 5 years - moving from product / solution selling to value sales / marketing strategies - helping buyers quantify the business benefits, return on investment and value advantages of proposed solutions to frugal, economic focused buyers.

Gartner's View: Timid Growth for Next Five Years
According to Gartner's latest projections, global enterprise spending on IT should increase 3.1%in 2011, and continue this "timid" growth over the next five years. Overall spending is forecast to rise for IT hardware, software and services to $2.5 trillion in 2011 and climb to $2.8 trillion in 2014, a gain of only 12 percent over that period.

Of important note to vendor sales teams, "Several key vertical industries, such as manufacturing and financial services, will not see IT budgets recover to pre-2008 levels before 2012 or 2013," Peter Sondergaard, head of research at Gartner, said in a statement. "Emerging economies continue to be the locomotive of enterprise IT spending, substantially outpacing developed economies."


Forrester Research: More Optimistic, But Less So
Forrester Research has updated its U.S. IT spending predictions for 2010, estimating 8.1% growth this year, compared to July's prediction of a 9.9% uptick.
The adjustment came as weaker than expected economic data was released from the U.S. Department of Commerce, indicating that the overall growth slowdown would force CIOs to rethink IT budgets.
In prior research reports and board presentations, Forrester has optimistically predicted a new fourth wave of IT innovation, and these predictions drive higher spending growth projections. Unfortunately, faltering macroeconomic conditions have knocked down the rosy predictions, and delayed the innovation wave.
With a slowdown in IT spending in the U.S., Forrester's global estimate of 2010 IT spending has also been revised downward to 7% from 7.8%. Looking forward, Global IT spending is expected to grow 7% in 2011, with U.S. spending jumping 7.4%, according to the latest report.


The Bottom-Line
Forrester continues to predict that we are on the cusp of a new wave of IT spending, and the start of an important innovation cycle. We too believe that innovation will lead us out of this global recession, and are optimistic but in order to drive innovation, fuel and a spark-source are needed. With developing nations economies continuing to sputter, the fuel is not yet available.

Regardless of which growth rate predictions you subscribe to, the growth rates have clearly slowed, and vendors need to be prepared for Frugalnomics more than ever in 2011. As a result of two boom-bust cycles of the past decade, buyers are more frugal and skeptical than ever. They need help in how to do-more-with less. They demand quantified ROI justification on over 90% of purchase decisions. They demand utmost value and lowest total cost of ownership (TCO) from every solution.

Marketers need to provide the content in order to spark these frugal buyers to action. Its easier to do nothing, unless economic reasons are provided for change.

Sales enablement needs to revolutionize sales methodologies from old product / solution selling to value selling, arming sales teams with the tools to connect and convince frugal buyers to change. Diagnostic assessment tools, ROI calculators and TCO comparisons tools are a requirement.

Sources:

A synposis of the Gartner research can be found at: http://www.reuters.com/article/idUSTRE69H3FW20101018

A synposis of the Forrester research can be found at: http://www.computerworld.com/s/article/9191401/Forrester_downgrades_U.S._IT_spending_forecast?source=CTWNLE_nlt_pm_2010-10-15
 

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