IT Budgets, Spending Set for Rebound as CIOs Realign Priorities

• By David Nagel
• 01/21/10

Worldwide IT spending and IT department budgets across public and private sectors are set to make something of a comeback following 2009's drastic declines. Further, all major segments in IT are expected to see positive growth in 2010, according to two separate reports released this week by market research firm Gartner Inc.

'Slow but Steady Growth'
According to one report, released Thursday, IT spending worldwide will climb 4.6 percent in 2010 to $3.364 trillion. Richard Gordon, research vice president at Gartner, said this increase came a bit sooner than previously anticipated.

"Last quarter, we did not expect to see IT spending levels recover to 2008 levels until 2011," Gordon said in a statement released today. "However, now, with the upward revision to the current dollar forecast, we are projecting that global IT spending this year will approach the level seen in 2008. Our updated forecast for IT spending to reach $3.4 trillion in 2010 is actually a year earlier than we expected leveling our previous forecast update, and reflecting a bounce back in underlying IT spending from the sharp drop in 2009."

However, this figure, he warned, is inflated partially by the weakening United States dollar and follows a year in which overall spending declined by 4.6 percent.

"While this forecast might seem bullish at first, it's important to factor in the impact that exchange rates will have on the markets," Gordon said. "Much of the increase in our revised 2010 forecast can be attributed to a projected decline in the value of the U.S. dollar compared to 2009."

The positive outlook is also predicated on several additional factors, including:

• A predicted increase in gross domestic product (GDP) over the next 12 to 18 months;
• Improvements in consumer confidence;
• Expanded credit availability; and
• Pent-up demand for new technologies.

Gartner said the United States and Japan will see some of the slowest growth, at 2.5 percent and 1.8 percent, respectively, while emerging markets lead the way, with 9.3 percent growth predicted for Latin America, 7.7 percent growth in the Middle East and Africa, and 7 percent growth in the Asia/Pacific region. Western Europe is expected to experience 5.2 percent growth in IT spending in 2010.

In terms of IT categories, services will see the most growth, according to Gartner's forecast, climbing 5.6 percent to $824.2 billion. IT services spending had declined 3.5 percent in 2009 to $780.9. The modest 1.6 percent increase projected for overall computer hardware spending (to $331.7 billion) will follow a steep 13.9 percent decline experienced in the previous year. Software spending is projected to grow 4.9 percent to $231.5 billion. And telecom is expected to grow 4.7 percent to $1,976.6 billion.

Budgets on the Rise
Meanwhile, worldwide, CIOs have also indicated that their budgets will begin to recover somewhat from 2009's free fall. In a separate report released Tuesday, Gartner Executive Programs indicated that IT budgets across all sectors will increase "by a weighted global average of 1.3 percent in nominal terms, compared with 2009 levels where IT budgets declined 8.1 percent." Gartner described 2009 as "the most challenging year for IT since the survey began in 1999" and said that the miniscule increase would bring IT budgets essentially to their 2005 levels.

For the report, "Leading in Times of Transition: The 2010 CIO Agenda," Gartner surveyed 1,586 CIOs across public and private sectors. The CIOs who participated represented 27 industries in 41 different countries and accounted for $126 billion in IT spending.

"2009 was the most challenging year for CIOs in the corporate and public sectors as they faced multiple budget cuts, delayed spending and increased demand for services with reduced resources," said Mark McDonald, group vice president and head of research for Gartner EXP. "This is set to change in 2010, as the economy transitions from recession to recovery and enterprises transition their strategies from cost-cutting efficiency to value-creating productivity."

McDonald said the current situation could afford IT departments an opportunity to bring about a change in the role of IT within an organization: "Transition gives the enterprise and IT the opportunity to reposition themselves and exploit the tough corrective actions taken during the recession. CIOs see 2010 as an opportunity to accelerate IT's transition from a support function to strategic contributor focused on innovation and competitive advantage. They have aspired to this shift for years, but economic, strategic and technological changes have only recently made it feasible."

In addition, the survey also found that CIOs are realigning some of their priorities for 2010. Where business intelligence was the No. 1 priority in surveys from the previous five years, it dropped to fifth position for 2010, replaced by virtualization, with the overall trend shifting to "'lighter-weight' services-based and social media technologies," as Gartner described them.

"While enterprises will transition at different rates and times, every CIO faces the need to raise productivity, create new capabilities and use the recovery to drive fundamentals of the current agenda and the repositioning of IT," McDonald said. "Such transitions will not happen overnight but they will start with the decisions and directions established in 2010."

The top-10 cross-sector CIO priorities for 2010, as revealed by the survey, are as follows:

1. Virtualization;
2. Cloud computing;
3. Web 2.0;
4. Networking, voice, and data communications;
5. Business intelligence;
6. Mobile technologies;
7. Data/document management and storage;
8. Service-oriented applications and architecture;
9. Security technologies; and
10. IT management.

"These technologies, implemented properly, create the opportunity for IT to change its role and the operational performance of the enterprise," McDonald said. "Asymmetric technologies like virtualization, cloud and Web 2.0 enable companies to get out from under a front-loaded heavy investment model that limits IT's agility and flexibility."