Waiting for the Rebound: 2004 IT Budgets in a Holding Pattern

The bottom line: IT spending will remain at 2003 levels for most companies, and even those that are planning to invest more in IT won’t be increasing their budgets by much. Careful and measured spending are the watchwords for 2004.

Nucleus conducted interviews with IT directors at 30 of the top 150 Fortune 500 companies to learn their plans for technology spending in 2004. The results show little change from 2003 spending levels, with 67 percent of respondents saying that their IT budget will not increase. Only 3 percent indicated that they would spend less in 2004 than they did in 2003; 30 percent expected some (albeit limited) increase in spending.

When asked what could have an impact on their spending plans, most respondents cited the economy as a key factor that could drive spending, with 87 percent indicating that an improvement in the economy would drive increased spending.

Spending Priorities

Priorities for spending those precious IT dollars break down as follows:

• 30 percent will spend on networking.
• 27 percent will purchase hardware.
• 23 percent will invest in portals.
• Other technology areas cited for 2004 spending were storage, customer relationship management (CRM), business intelligence, and supply chain software.

With the more contained spending that went on in 2003, IT directors were pleased with their IT investments last year and continue to seek out technology that helps their organizations be more productive and profitable. Wireless networking is a technology direction that they would like to take advantage of, but the financial climate precludes them from making that investment. Business activity monitoring (BAM) is also an area of interest and one that they would pursue if they had a limitless budget for spending.

Organizations will continue to be pragmatic in 2004 and concentrate their spending on technology that will enhance the value of their operations and enable them to better integrate and distribute more of their data resources. Improved data access, analysis, and utilization continue to drive the sales of technology for business intelligence, CRM, and storage.

Spending Necessities

In addition to spending on projects critical to business operations, many organizations are forced to take on projects to meet mandates from the government and trading partners. With RFID-compliance deadlines from the Department of Defense, Wal-Mart, and other retail giants looming, some organizations will have no choice but to devote some of their 2004 budget to getting their infrastructure RFID ready.

Compliance with governmental or regulatory standards, such as Sarbanes-Oxley or UCCnet, will also drive some spending, but organizations will look for cost-effective methods to reach compliance rather than make big-ticket purchases.

Conclusion and Recommendations

Careful and measured spending are the watchwords for 2004. As buyers still feel the sting from the aftermath of the free spending late 1990s, the early years of this decade will be a time of controlled purchasing and careful measurement of the ROI technology products deliver. Marginal ROI, rather than triple-digit ROI, will become more prevalent as organizations look for incremental savings from technology purchases that deliver true value to their business.