Let the Good Times Roll? IT Spending on the Rise, But Executives Remain Economic-Focused
As could be expected, Forrester indicates that the majority of 2010 IT spending went to support existing operations – essentially “keeping the lights on”. Forrester dubs these investments the “MOOSE” part of the budget – spending to Maintain and Operate the Organization, Systems and Equipment.
Even with the shift towards more conservative spending, the survey indicated that a substantial 29% of the budget was still dedicated to new IT initiatives and projects. With the severity of the downturn and conservative budget increases, the relatively large new IT initiatives and projects percentage clearly shows that when there was a bottom-line business reason for upgrading, migrating or innovating, budget dollars were available.
The 2011 Trends
Looking forward, TechTarget's recent 2011 IT Priorities Survey (2,300 respondents) points to a continued increase in IT spending to 2.8% over 2010 levels, anemic growth rates compared to the 5-7% annual growth that could be expected in a good year.
According to TechTarget’s survey results: “Life in IT is returning to normal for 42% of IT departments, with 43% recovering slowly from the recession and 15% still stuck in it. That return to normal is reflected in a budget growth of more than 5% in 46% of IT shops.”
An important shift for 2011 is the focus on “business growth” as a primary focus versus more conservative pullbacks to “keep the lights on”. For 2011, worldwide, 37% of respondents cited "expand IT to support business growth" as the primary focus for their department next year. That's up from 21% last year, when "selective spending in a few key areas" and "maintaining service levels with flat budgets" topped the agenda (at 28% and 23% respectively).
As the budget focus shifts from day-to-day operations towards supporting business growth it is important to remember that IT decision makers, as well as influencers from other groups, remain frugal.
Since the technology bubble burst at the start of this decade, we have found that technology buyers have become more focused on quantifiable proof of bottom-line impact for most large investments. With the Great Recession more pressure than ever is on IT to do-more-with-less, and the economic buyer is firmly in control. We call the economic buyer trend Frugalnomics, where buyers seek quantifiable proof of bottom-line impact, significant ROI, fast payback and superior value from each purchase.
IDC’s most recent customer experience survey of over 200 key IT decision makers confirms that business growth is indeed a priority, but also, that Frugalnomics is indeed in full effect. Research on what drives IT purchase decisions indicates that decisions are currently made based on financial requirements, such as enabling business growth (29%), improving profitability (25%), and reducing costs (22%). These economic driven decisions greatly exceed sentiment for all other purchase drivers such as improving competitiveness, meeting regulatory requirements, or increasing staff utilization.
From this research, it is clear that messages and tools need to be provided to deliver buyers the evidence they need to understand the value of solutions in enabling business growth, improving profitability, and reducing costs. Failure to provide this information means that buyers are left to understand on their own how your solutions might deliver on these goals, or leave it to the buyer to quantify what value the solutions provide. This can cause buyers to bypass your solution, spin on ways to quantify the value and slow the buying lifecycle.
When ranking the important factors that influence IT purchase decisions, survey respondents indicated that economic factors once again reign. For the IT buyer, business benefit assessments (34%) and financial assessments (26%) were both highly important to making a purchase decision, greatly exceeding, by more than 2x, the vendor relationship (14%) as a decision driver.
When we look at marketing budgets however, we find that spending is not aligned with this financial decision making criteria in most cases. Most organizations spend much more on branding and relationship management versus value-based sales and marketing initiatives. From these findings, to better align sales / marketing with buyer requirements, perhaps more budget should be allocated to business benefit and financial assessment content, tools and support.
Value Selling is a Requirement
The IDC research indicates clearly that the way IT solutions are marketed and sold needs to change. In the early days of IT, product selling was prevalent, pitching products to innovators who were shown a product’s features and functions and then figured out on their own how to apply it to a pain / opportunity.
This advanced in the 1990s to solution selling, where several popular methodologies prompted sales and marketing to ask a buyer questions about their pain points, then aligning solutions to help solve these opportunities.
In today’s frugal environment, buyers don’t always have the resources or framework to understand what might ail them, or quantify the vital bottom-line impact in solving the issue. These buyers seek diagnostic advice to help proactively uncover issues, recommend improvement roadmaps, quantify benefits and assure best value. Survey results from IDC indicate that on average:
- 90% of corporations surveyed require quantifiable proof of bottom-line benefits on most projects;
- Two-thirds (65%) of buyers indicate that they do not have the knowledge or tools needed to do business value assessments and calculations on their own;
- 81% of buyers expect vendors to quantify business value of proposed solutions.
It is clear that the economic recovery is driving an increase in IT spending, and a change of focus from “keeping the lights on” to renewed spending on postponed migrations and upgrades, supporting business growth and reinvigorated innovation. The news is good for worn down IT managers and IT sales professionals and marketers.
The latest research from IDC reinforces that even with spending increases, Frugalnomics is here to stay, and that any substantial proposal requires sales and marketing to quantify potential benefits, bottom-line impact, competitive advantages, return on investment, and payback.
Because this can be difficult and time consuming for overloaded IT decision makers to do on their own, IT vendors must help buyers to assess opportunities, and quantify the value of proposed solutions.
Enterprise IT Spending 2010, Dennis McCafferty, 2010-12-27, CIO Insight
Full Forrester report is available at: www.forrester.com/go?docid=57508
IT budgets, priorities returning to health in 2011, Mark Schlack, Vice President Editorial, 03 Jan 2011, SearchCIO.com