For IT budgets, tomorrow is still a day away. New surveys from Morgan Stanley, Meta Group, and Gartner/Goldman Sachs find scant evidence of a second-half rebound in tech spending. The surveys do suggest that further belt-tightening is unlikely, but none found much reason to expect a significant uptick — even if the economy rebounds. CIOs must now rival New Hampshire voters as the most intensely polled group in the country; as bellwethers of economic recovery, they give little reason for cheer.
The economic doldrums are just one factor at play. Another is overcapacity. Companies have licensed more software than they are actually using, and until they fully tap what they have, they are unlikely to sign on for more. The absence of any major new product or innovation in technology infrastructure also hurts. "We've always had some form of dramatic change," says Charles Phillips, managing director at Morgan Stanley, whether from hierarchical to relational databases or from client/server to Internet architectures. But now, with Internet standards reasonably stable, most companies would probably focus on absorbing what they've bought even if the economy weren't making that their only option.
Phillips believes that the worst is over, and that, based on his monthly poll of 200-plus CIOs, there will be gradual improvement in spending for the rest of 2002, and additional improvement in 2003. Meta Group's more informal survey of approximately 70 CIOs saw less indication that budgets will increase, prompting the company to declare that "there is no immediate end to the worst IT industry recession [in history]." Gartner surveyed 369 IT managers in May and found that while 89 percent believe the world economy will show signs of recovery in the second half of 2002, 78 percent say it won't affect their technology spending, which is expected to drop by almost half a percent.
The surveys found that companies do plan to spend more on security and on Internet applications and connectivity. That means something else has to give. Morgan Stanley found that the deployment of big-ticket applications is one such area: Three-quarters of respondents had yet to roll out any "major" packaged applications this year (as of April), although companies that have already deployed ERP and CRM were likely to move ahead on upgrades, which have small upfront costs and leverage existing IT staff. Meta Group found that services such as systems integration, consulting, and outsourcing were likely to be cut back as companies assess whether bringing projects back in-house can save money.
Back to Basics
Top IT spending priorities.
- Security software
- Connecting to customers over the Internet
- Application integration
- Windows 2000/XP upgrade — desktop
- ERP software
- Windows 2000 upgrade — server
- Building out network capacity
- CRM software
Source: Morgan Stanley, March 2002
If profits improved over the next three to six months, would you increase IT spending?
- Unsure: 3%
- Definitely not: 7%
- Probably not: 51%
- Probably: 28%
- Definitely: 11%
Source: Morgan Stanley, April 2002
Given the current mantra to "do more with what you've got," one might expect a ready market for software that aids that effort. And in fact Enterprise Asset Management (EAM) software, which helps companies manage the maintenance, repair, and other expenses associated with shop-floor equipment and similar assets, racked up $1.2 billion in sales last year and will reach $1.8 billion by 2006, according to ARC Advisory Group.
But that's only a 5.3 percent compound annual growth rate, sluggish by any standard. Why the slow uptake? Houghton LeRoy, director of consulting at ARC, says the current market is too fragmented: Some companies specialize in factory equipment, others in IT gear (a sizable market not included in the figures above), still others on just one part of the lifecycle, such as procurement.
Some software suppliers have begun to morph from EAM to TEAM (Total Enterprise Asset Management). These firms believe that whether through acquisitions or partnerships, growth depends on offering a broader array of asset-management software and services, and hope that by doing so they can sell to top-level executives rather than middle managers.
William Keyworth, vice president of product management at Peregrine Systems Inc., has his doubts. He says that extracting maximum value from a piece of factory equipment designed to last 30 years is a different challenge from efficiently deploying, say, desktop computers, which may last only 3. Peregrine, which concentrates on IT assets, prefers the term "infrastructure management," and says that just because various problems can be classified as "asset management," doesn't mean the same solution — or company — can solve them all. Gartner estimates that fewer than 25 percent of companies have an IT asset-management program, and that without one, companies spend $560 to $800 more per worker than they need to. Whether EAM and infrastructure management firms team up or mine their respective niches, they face competition from ERP vendors, which see asset management as a growth market.