According to the study, which looks at historical spending data, IT spending has experienced a healthy three years of budget increases since the beginning of 2004, giving many IT execs and IT solution providers plenty of reasons to celebrate. Annual growth in 2006 is expected to top 6 percent. And although projections for 2007 show a more conservative sentiment, spending increases are likely to continue with consensus estimates of 5 percent to 6 percent expected. This is far cry from the double-digit annual increases of the dot-com era but is good news for IT stakeholders.
Examining IT spending and effectiveness metrics on 21,000 companies in 37 different industry segments worldwide, the results of the study show that there are eight significant findings to consider when IT executives set their budgets, and IT solution providers establish their sales and marketing plans:
- Innovation spending is up sharply by 43 percent
- IT efficiency has increased 10 percent, allowing companies to do more with less
- IT projects remain risky. With almost half of all IT projects cancelled prior to completion, or failing to meet schedule, budget or feature requirements, only 1 in 4 are launched successfully and deliver on promised benefits
- IT spending is up, but when examined in relation to revenue growth, overall IT spending has lagged for the second year in a row, declining to only 3.3 percent of revenue
- More stakeholders are involved in each IT decision, making it harder to gain approval and consensus
- IT Executives prioritize proving and improving the value of IT high, but progress is slow in actually addressing the issue and quantifying value
- Frugal remains best as top IT performers under-spend the average;leaders spend only 2.45 percent of revenue on IT, compared to the 3.3 percent average
- Overall IT spending -- while lagging revenue growth -- is driving superior and quantifiable corporate performance in the majority of industries, and has improved 67 percent from 2003.
The research shows that the focus on infrastructure optimization projects such as consolidation, standardization, virtualization, security, governance and automation tools has led to continued IT efficiency gains, up over 10 percent from prior years. This has helped organizations do more with less, and free up IT staff for higher impact, more innovative initiatives. As a result, innovation investments are up a whopping 43 percent as a percentage of overall spending, helping to drive continued business improvements and growth. The yield from IT spending, ROIT continues to improve, garnering the largest year-over-year gains since Alinean began tallying this metric in 2003.
The IT spending trends into 2007 will be shaped by the overall macro-economic environment and sentiment. Current predictions are that the overall economic picture is unclear. This will constrain IT spending increases until the risks of a slowdown disappear. However, with the success of prior investments, the continued efficiency improvements and budgets shifting to more innovation will continue unabated into 2007.
For the IT vendor, these trends clearly highlight some opportunities. Customers are looking for a valued partner to help them set direction and achieve higher success, and there is a clear opportunity to help prove and improve the value of IT:
- Lower Total Cost of Ownership (TCO) to drive innovation investments
- Increase business investments vs. infrastructure spending
- Help stakeholders better collaborate and make optimal decisions
- Reduce risks and improve project success
- Help align IT investments with business strategy
- Help prove the value IT delivers to the business.
