Dealing With The Ever-Cautious CIO

Not so fast.

Many IT buyers have yet to factor positive economic news into their IT spending plans for 2004. In fact, Forrester found in a study of IT decision makers that companies were planning only an average 1.7 percent increase in IT budgets. And despite the fact that two-thirds of CIOs expect their companies' fortunes to improve during the next nine months, most foresee no additional upside to their IT budgets over that same period of time. It seems that recession-scarred IT executives have learned how to do more with less. And perhaps worse, maybe they're not opposed to keeping it that way.

Forrester expects that actual spending will ultimately outpace budgets, leading to 5 percent growth in overall IT spending this year. But CIOs are clearly being very prudent with their funds. Here are five thoughts for technology vendors to consider as they try to cope with the current mindset of large enterprises toward IT.

1. This is a year of getting back to the basics. So what's the killer app this year? Well, there isn't one. When asked for their most vital priorities in 2004, IT executives in Forrester's survey cited improved security, the deployment of a major packaged app, and the upgrades of PCs and Windows. Meanwhile, cooler initiatives like the movement of more IT to an IP-based environment and the adoption of services-based architecture finished lower on the list.

2. Reality never matches the hype. In that same list of priorities, two oft-hyped themes--open source and offshoring--finished last. Despite the election-year anxiety of IT jobs going offshore, only 7 percent of IT shops in the United States consider offshore development a key theme this year. That number dips to 5 percent for Linux. On the flip side, look at e-commerce--once thought to be dead. Forrester found that of all categories of IT spending, those investments related to buying and selling over the Internet are poised to see the most budget growth this year.

3. IT governance has permanently changed--and for the better. Because of past overspending, the pendulum of control over IT buying has swung toward centralization. But despite this shift, Forrester finds that line-of-business leaders' involvement in IT decision making is on the rise. Tech vendors shouldn't try to exploit past differences between business and IT; instead, vendors must learn how to meet the needs of both parties simultaneously, whether they're selling IT infrastructure, applications or services.

4. Cost-cutting remains important, but in a new context. CIOs still consider their top goal to be helping their companies lower overall operating costs. But their minds aren't just on cost-cutting. More IT executives are being asked to shrink the overall size of their IT pies, while, at the same time, increase the size of the slices being spent on new, strategic initiatives. Yes, this is the year of getting back to basics, but CIOs are looking for innovation in those basics. The integrator or reseller that can help them achieve such a goal has a winning hand.

5. Vendors that don't think vertically will lose business. There is no such thing as a single tech economy. There are, however, tech economies within the retail, petroleum and financial-services sectors, to name just a few. For example, thanks to a consumer-led recovery, IT budget growth in the retail sector more than doubled the rate of IT budget growth overall in the United States, while growth in raw-materials manufacturing lingers in negative territory. And according to Forrester's study, buyers of technologies and services increasingly differentiate tech vendors based on their industry-specific features and experience.

Tom Pohlmann ([email protected]) is vice president and research director at Forrester Research, Cambridge, Mass.