IT Spending: 2003 May Maintain 2002 Lows

By Tom Steinert-Threlkeld  |  Posted 2002-06-20 Print this article Print

Online exclusive: At the BusinessWeek CIO Summit, industry leaders and survey results indicated that U.S. companies will cut their information technology budgets by 10% or more this year&#151and hang tough through 2003.

BOSTON—The average U.S. corporation is likely to reduce its spending on information technology by 10% or more in 2002—and then "reset" its budget for 2003 to the lower levels, according to survey results and a panel of chief information officers at the BusinessWeek CIO Summit here Wednesday.

Spending for the remainder of this year will be "back-loaded'' to the end of the year, according to William McNee, managing partner of Saugatuck Technology, a Westport, Conn., industry research firm that is a strategic advisor to IT vendors.

According to a first-half 2002 survey, the majority of CIOs have "underspent" their IT budgets between 10% and 20% so far this year.

The Saugatuck findings follow an April 2002 survey by Morgan Stanley which indicated that companies had been slow to undertake new technology initiatives. The Morgan Stanley survey of approximately 225 CIOs found 80% planned to begin major new initiatives by the end of the first quarter, but only 23% actually had.

The tendency among CIOs has been to "postpone, postpone, postpone,'' McNee says. "But we're approaching the end of the ability to postpone.''

That's because the output of goods and services in the United States may finally be turning upward, after two years of scant economic growth. Real gross domestic product (GDP) increased at an annual rate of 5.6% in the first quarter of 2002, according to preliminary estimates released at the end of May by the Bureau of Economic Analysis.

In the fourth quarter, real GDP increased 1.7%.

Even to maintain spending, CIOs are taking harder looks at their panoplies of information technology initiatives. Rhonda Hocker, CIO of Web software supplier BEA Systems, says she scrutinizes operating budgets every quarter, but holds reviews of her technology investments every six weeks to see if they're on track. Ron Rose, CIO of Priceline.com, maintains an even tighter timeline: He tunes his portfolio of information technology initiatives every two weeks.

However, says Karl O. Wachs, CIO of Celanese AG, "If your spending is at a bare minimum, you will fall into a trap."

He argues that it'll be less costly for companies to start spending now, when skilled talent is on the street and thinking of changing careers.

"This is a once-in-a-lifetime opportunity" to get cheaper resources and the best people, Wachs says.

Wachs says he expects general spending to turn up only when companies are convinced the economic recovery is sustained. His measure: two quarters after the revenue of a company returns to its 2000 levels.

If the kind of GDP growth figures that the Bureau of Economic Analysis recently reported continue, then, what McNee calls the "spending dam" may burst.

At this point, CIOs remain in heads-down cost-cutting mode, however. And bigger budgets don't seem to be in the cards. There is, McNee says, "a substantial risk that 2003 budgets will be reset at the lower levels" of 2002 budgets.

Tom was editor-in-chief of Interactive Week, from 1995 to 2000, leading a team that created the Internet industry's first newspaper and won numerous awards for the publication. He also has been an award-winning technology journalist for the Dallas Morning News and Fort Worth Star-Telegram. He is a graduate of the Harvard Business School and the University of Missouri School of Journalism.

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