The economic downturn caused most organizations to cut all their budgets last year, including IT spends. Though the worst is now over, recovery is happening very slowly. These are therefore extremely challenging times for budget planners, who’re currently busy planning for the next financial year. What kind of growth plans should they project and plan for next year? What should be their business priorities? Since IT is directly aligned with every organization’s business needs, the IT spends can only be determined after the business priorities are decided. To make life easy for IT budget planners, who would be caught in a dilmna right now because of this, we collaborated with IDC to do a survey of large and very large organizations to understand their IT spending plans for the next fiscal. The results are interesting indeed, giving a positive outlook for next year.
Business priorities
The business priorities for a majority of organizations across all industries we surveyed over the current financial year (2009-2010) were to reduce operational cost, followed by improving productivity and customer service. This was understandable given the economic downturn. In the coming 12 months also, organizations plan to do the same, possibly, as the market condition improves, these priorities will change, and organizations will start looking at more growth oriented activities. Amongst the various industry segments that were surveyed, manufacturing organizations had productivity improvement as their top priority, followed by measures to reduce operational costs. Improving customer services was the top priority in the BFSI segment, which perfectly gels with the fact that most banks were busy deploying CRM solutions last year (refer to PCQuest Best IT Implementation Awards.
Overall analysis of IT spends
IT spend next year is likely to increase by 10%. It will largely be determined by top line growth, according to 70% who respondents. The next major factor that would impact IT spends is profit margins.
Though organizations don’t seem to have aggressive growth plans, CIOs are showing signs of embracing new technologies over the next 12 months. That’s why, the top most priority amongst 76% of the CIOs was to implement technologies, while the next highest priority was to use their existing technologies more efficiently. Surprisingly, the implementation of Green IT initiatives has the lowest priority for most CIOs. One explanation for this is that some of the newer technologies, like virtualization help organizations go green.
Overall IT budget breakup
The good news is that IT spending is finally getting back on track. It’s expected to be higher than last year. The BFSI segment, as expected, has the highest IT budget amongst all industries we surveyed, which is the same as last year. The total IT spending can be divided into three parts-hardware, software, and services. Out of these, hardware comprises the largest chunk of the IT budget, followed by services, and then software. This matrix is likely to remain the same next year as well. One difference though is that the hardware spend is expected to decrease slightly and the spend on services is likely to go up in all organizations. Spends on software are consistent with very minor variations.
Hardware spending patterns
Hardware spending is broken up into three parts computing devices (PCs, laptops, and servers), networking devices, routers, switches, etc), and peripherals (printers, scanners, cartridges, etc). In the overall mix, organizations spend the highest on computing devices, followed by networking, and then peripherals.
As compared to last year, next year, the spending on computing devices is likely to come down from 87% to 81%. Here, the largest drop was visible in the BFSI and IT/ITeS segments. In BFSI, there’s likely to be a 12% drop in IT spends on computing devices, while in IT/ITeS segment this drop is going to be 9%. In all other segments, the drop is anywhere between 3-6%.
Research Methodology
IDC adopted quantitative research technique through structured interviews mode to address the identified objectives. Field driven face-to-face structured interviews were conducted among large and very large organizations in top 8 cities. CIO/CTOs or any other relevant decision makers were the target respondent set. Interviews were conducted at head offices of these enterprises. The sample was distributed across cities to get a fair representation of the population.
The survey was conducted amongst 311 enterprises, out of which, 158 were very large enterprises comprising of 1000 permanent employees or higher; and 153 large enterprises having 500 or more permanent employees. The survey was conducted to analyze IT spending patterns across five key industry verticals-BFSI, manufacturing, IT/ITES, communications and media, and healthcare.
Spending on networking will go up from 10% to 15%, and in peripherals, it was 3% last year, and is likely to be 4% next year. Here, IT/ITeS is likely to have the highest jump in the spending on networking as compared to last year. Spending on peripherals will see a steady increase in BFSI and healthcare segments.
Software spending patterns
The spending on software is also broken up into three parts, just as it is in hardware. Business applications (ERP, CRM, SCM, etc). Application development and deployment tools, and system infrastructure software (security, system/network management, etc). Unlike hardware, here, the distribution of IT spends between these three components is more evenly spread.
Interestingly, as compared to last year, the spending on business apps and development tools is likely to reduce by a small percentage over the next 12 months. 41% of the IT software budget was on applications last year, which is likely to go down to 38% next year. Here, the most significant drops were seen in BFSI and manufacturing.
Likewise, 33% of the software IT budget was spent on application development tools last year, which is likely to go down to 31% over the next 12 months. Here, the biggest drop is happening in the IT/ITeS segment.
The overall spending on system infrastructure software however, is seeing a slight increase over last year, from 26% to 31%. Here, BFSI is likely to increase its spends by 9%, IT/ITeS by 11%, and communication by 13%.
Services spending patterns
The services spends are divided into three parts. Project oriented services (system integration, custom software development, network integration and consulting, etc.), outsourcing (managed services, IS outsourcing, etc) and IT support services, (hardware and software deployment, training, etc).
Unlike the hardware IT budget, the services budgets are also relatively evenly distributed. Here, the IT budgets for support services and project oriented services are likely to go down as compared to last year from 37% to 34%, and from 39% to 38% respectively.
Large organizations are looking at increasing their IT outsourcing budgets, from 24% last year to 28% over the next 12 months. We did see greater interest in IT outsourcing during the economic downturn, because organizations were interested in reducing their CapEx and moving to a more OpEx oriented IT budget. It looks like the trend will continue over the next 12 months as well.
Industry vertical wise, we only saw moderate rise or cut in budgets.
Where to spend next year?
Each CIO is likely to spend either on managing the existing IT setup or on new projects. Here, the IT budgets of large organizations are higher for managing the existing setup as compared to spending on new projects. As compared to last year, there is a slight increase in the IT budgets for new projects. Last year, 25% of the budgets were for new projects, while next year, it’s likely to be 27%. Likewise, 77% of the IT budget last year was allocated for managing the existing IT setup, which is dropping to 73% next year.
Which technologies you should deploy?
There is lots of hype around a lot of technologies these days-virtualization, information security, unified communications, Green IT, open source, web 2.0, cloud computing, and so on. How do you separate the hype from reality to decide which technology is right for you? The survey results we received were very interesting, and completely different from what one would expect. The good news is that organizations do plan to spend higher on all the upcoming technologies as compared to last year.
The top technology that most large enterprises are likely to spend on in the coming 12 months is Business Continuity and Disaster Recovery or BCDR. 78% of the CIOs voted for it. The next area that closely follows BCDR is data center built-up. This is possibly stemming from the result that organizations do plan to spend a large part of their IT budget to maintain their existing IT infrastructure. The third area in the list is managed services, which incidentally is not a technology. There is a lot of interest in Open Source technologies, with 54% of the CIOs likely to adopt it in the next 12 months. Information security is next at 52%. Even Unified Communications is pretty high at 49%. All other technologies were voted for by less than 50% of the CIOs.
Interestingly, cloud computing, which is the most hyped technology today, is the lowest in priority for most CIOs. Only 16% of the respondents said that they’re likely to adopt it in the next 12 months. However, it is a quantum jump over last year, when only 7% of the CIOs had adopted it.
Interest in tech as compared to last year
More CIOs are willing to embrace newer technologies next year. Unified Communications for instance, seems to be the biggest crowd puller amongst large enterprises. While only 26% CIOs embraced it last year, 45% are likely to do so over the next 12 months. That’s a 19% jump! The next big jump is in data center built-up, with 17% more CIOs likely to deploy it next year over the 54% CIOs who did it last year. BCDR follows with a 14% jump in CIOs over the 62% figure last year. The other significant technology amongst large enterprises is information security, with 48% CIOs wanting to deploy it-a 12% jump in numbers as compared to last year. The jump in number of interested parties for all other emerging technologies is less than 10%, but higher than 3%.
Amongst large enterprises, BCDR sees the largest jump in interest over last year. There are 12% more CIOs who are likely to deploy BCDR over the next 12 months. Interestingly, Cloud services saw the next biggest jump. Only 9% of the CIOs embraced it last year, while 20% are likely to do so next year-an 11% jump. Surprisingly, the third largest jump in the number of interested parties was for Open Source technologies. 50% of CIOs said they’re likely to deploy Open Source technologies, against 40% who deployed them last year. Other technologies that saw a 10% jump in the number of CIOs interested in them were Unified Communications, and BI and data warehousing.
Tech Adoption in BFSI
While BCDR is the technology that a majority of CIOs are likely to deploy next year, it’s Open Source that saw the highest jump as compared to the number of CIOs who deployed it last year. While only 46% of the CIOs had embraced it last year, 17% more are likely to deploy it next year. The next biggest jump was in Unified Communications in this segment, followed by data centers, information security, and cloud services. In the remaining technologies, the jump in interest was 11% or lower.
Tech adoption in Manufacturing
Unified Communications is the technology that saw the maximum jump in the number of interested CIOs against last year. Only 27% CIOs from the manufacturing segment had adopted Unified Communications last year. Next year, 16% more are interested, so 43% of the manufacturing segment CIOs are interested in this new technology. Likewise, 12% more CIOs are interested in data centers, making that 73% of the total CIOs from manufacturing. Next highest jump is seen in BI and data warehousing technologies. There were 10% more CIOs who’re likely to deploy it against the 38% who deployed it last year.
Tech Adoption in IT/ITeS
The largest chunk of CIOs in this segment are likely to deploy BCDR. Last year, only 76% of the CIOs in this segment were interested in this technology, while this number has jumped up to 99% for next year. The next highest jump is for Cloud Services technologies. 14% more CIOs are likely to embrace it from IT/ITeS segment as compared to last year. This is followed by Unified Communications, with 66% of the CIOs likely to deploy it in the new fiscal.
Tech Adoption in Healthcare
BCDR again rules the roost in this segment, with the highest number of CIOs likely to deploy it. This number has jumped from 53% last year to 77% for the next year-a 24% jump. data centers is the next technology with 58% of healthcare CIOs likely to deploy it next year. Unified Communications sees the next quantum jump at 13%.
Tech Adoption by Media
The largest number of CIOs in this segment are likely to invest in data centers. But, this segment is also worried about information security. Last year 45% of the CIOs had spent on this technology, which has jumped to 65% CIOs for next year. BCDR is also important for this lot, with 74% of the CIOs interested-a jump of 13% over last year. This is followed by virtualization at 52%, where the jump is again 13% over last year.
Why adopt new technologies?
‘Show me the RoI’ was the most popular phrase that we heard from CIOs last year as IT budgets were squeezed due to the economic downturn. The primary reason why CIOs are likely to deploy new technologies is to reduce cost and expenditure. The next reason is to make the business more efficient. End-user experience has also become important amongst CIOs now .
The reasons for deploying specific technologies are not very difficult to understand. Organizations are likely to deploy managed services, unified communications, virtualization, green computing, and cloud services because they expect considerable cost savings in the same. In case of Open Source tech adoption, the prime reason quoted by a majority of CIOs was to improve business efficiency. The prime reason for deploying technologies like BCDR, Data centers, Information Security, BI and Data warehousing was to improve application performance and end-user experience. Interestingly, organizations have also experienced maximum savings by implementing BI & Data warehousing. Likewise, UC was deployed primarily to improve internal/external communication. The same reason was given by a majority of CIOs for deploying Web 2.0 technologies as well.
Emerging technologies
Why should or shouldn’t you deploy a particular technology? This depends upon the perception you’ve developed about it over a period of time, which could be based on many factors. We found that technologies like Unified Communication and Virtualization were considered as potential cost saving options. Deploy them if you want to save costs. In case of virtualization, another perception is that it helps to achieve optimal usage of resources. There were negative perceptions about the technologies as well. For instance, there is quite a bit of apprehension with respect to the investments required to deploy technologies like Unified Communication and Virtualization. On the other hand, as expected, data security is still a major concern when it comes to cloud computing.
Source:http://pcquest.ciol.com/content/ITstrategy/2010/110030301.asp
