CIOs Remain Cautious About Spending

VARBusiness

But that doesn't seem to be the case. A new survey of CIOs by Forrester Research suggests IT spending might not increase quite that dramatically. Based on interviews with 818 IT decision makers working for North American companies with at least $500 million in revenues, customers say they are only budgeting for a mere 1.7 percent increase in tech spending.

And a panel of CIOs from AXA Financial, Exide Technologies and Arrow Electronics, moderated by Merrill Lynch analysts last week, suggests that the pressure to keep costs under control is as strong as ever.

"Our goal is to reduce the budget next year by 5 percent," said Carlos Cabrera, CIO of Exide Technologies, a manufacturer of industrial power supplies and batteries.

Cabrera says the building blocks are in place. A data-center consolidation effort is under way that involves a significant reduction of servers. And Exide recently renegotiated more favorable terms for itself with its outsourcing provider, EDS. When it comes to negotiating with solution providers and technology vendors, Cabrera said he still has the upper hand.

"It's not very difficult to deliver good results and make believe you're a great negotiator," he said.

Donald Buskard, chief technology officer of AXA Financial, agreed, but said the tides could turn next year.

"It's clearly still in my favor. There's little doubt in my mind about that," he said. "Whether it will continue to get more in our favor is the only question. I tend to doubt it -- I think we've hit a bottom."

As Cabrera put it, 75 percent of his IT budget is tied to depreciation, maintenance and outsourcing of the data center. In other words, just keeping the lights on.

"[That] 75 percent of the budget is pretty much untouchable," he said. And even when his organization has managed to reduce costs, "we have to fight with management to let us keep some of those savings."

Arrow CIO Mark Settle said his spending budget will likely be flat this year.

"We're an entrepreneurial organization," Settle said. "Although we've always had a budget, we don't follow it religiously."

Indeed, those deviations, among others, have lead Forrester to forecast that actual IT spending will increase 4 percent, presuming the economic recovery sustains over the next several quarters.

"With all this good economic news, people have been rushing to the conclusion that the tech sector is on the mend," said Tom Pohlmann, the Forrester analyst who authored its new spending report. "We do think next year will be a better year, but the CIOs we're talking to are still very cautious with their outlooks."

Among other things leading the recovery, Pohlmann noted, is that consumer spending is helping to fuel the tech recovery. Increases in consumer spending are also leading companies that sell to consumers to spend more than those that don't. Retailers, insurance companies and those in the entertainment and health-care industries expect higher IT spending growth, while those less tied to consumer spending, such as producers of raw materials, chemicals and petroleum, are decreasing spending, the report notes.

Initiatives that will get the highest priority include upgrading IT security, improving disaster-recovery capabilities, deploying a major application, replacing desktops and supporting corporate governance changes. Consolidating IT infrastructure, replacing proprietary systems and implementing a services based architecture are also considered priorities.

Curiously, at the bottom of the tech priority list were moving more systems to Linux, moving IT work offshore and considering business-process optimization alternatives.

"I expected those categories to be higher than they were," Pohlmann said.

So does customer sentiment conflict with the optimism by solution providers in our most recent quarterly VARBusiness 500 survey? As we reported, 31 percent said their third quarter revenues were ahead of expectations, and 56 percent said revenues were in line with expectations, while only 13 percent were below. Ironically, 32 percent of the IT decision makers surveyed by Forrester say there IT budgets in 2004 will be higher, 43 percent say it will be flat and 19 percent say it will be lower. The remaining 6 percent were unsure.

In the end, it all depends on how you look at the numbers. But keep in mind, while the outlook may look better than it has in a long time, keep your optimism in check. Because while you may see the glass as half full, your customers see it as half empty.