When Budgets Expand

By Elizabeth Wasserman

Could corporate America's lengthy technology hangover following the Y2K spending spree finally be over?

In the late 1990s, U.S. industry and government paid out more than $100 billion in IT costs to correct the infamous Year 2000 computer glitch. But soon after, as the global economy faltered, IT budgets were tightened, cut, or -- at the very least -- restrained.

2005, in comparison, looks to be ushering in a new wave of IT spending. Research firm IDC forecasts IT spending to grow worldwide by 6.1 percent. A Forrester Research survey of 1,383 technology decision makers at large companies in North America and Europe found that IT budgets are expected to increase 3.9 percent in 2005 -- up from the 1.7 percent increase last year. Other research is more conservative but still forecasts spending increases in positive territory. A recent Gartner survey of 1,300 CIOs around the world found the executives expect IT budgets to grow 2.5 percent in 2005.

To make best use of these sorely needed IT gains, CIOs would be wise to prioritize.  IT executives need to weigh various factors: their organizations' main areas of concern, requests for technology upgrades from various departments, and demands to realize business gains from IT projects. They must also take into account how the rules have changed in the past few years as a result of technological advancements, security threats, and government mandates.

Against this backdrop, Forrester Research surveyed 868 decision makers at North American enterprises about their top IT priorities for 2005. These C-level executive's priorities were similar to those in 2004, with some slight reshuffling.

"This is actually the second year of modest budget increases," said Andrew Bartels, a Forrester analyst. "What that means is that some of the more pressing needs have already been met. For example, last year saw very high interest in meeting disaster recovery goals and beefing up security."

According to Forrester, the top IT priorities for 2005 are:

• Deploying or upgrading a major application software package Nearly 60 percent of executives listed their first priority as installing or upgrading software that will help the business run more efficiently. Among the most popular programs are those for enterprise resource planning, customer relationship management, and supply chain management.
  
  
• Implementing disaster recovery upgrades In the wake of the Sept. 11, 2001 terrorist attacks, some companies have made progress in ensuring they can restore data quickly, but others have been waiting until the economy turned around. Finding a company that is going to provide backup of records and systems in the event a natural disaster or terrorist attack destroys the company's data center remains a priority for CIOs.
  
  
• Supporting corporate governance changes In order to meet mandates under the Sarbanes-Oxley Act of 2002, many companies have been upgrading to the latest generation of financial management software. They are also investing in such products as contract management solutions to give them a full perspective on how they are managing contractual relationships with outside vendors. Spend analysis systems, which analyze patterns of spending to identify improper billing or payments, are also popular.
  
  
• Improving security Companies are investing in software to upgrade firewalls, detect and delete spam, and identify and prevent network intrusion. Some companies are also investing in hardware -- smart cards or biometric technologies -- to physically secure IT systems and facilities and ensure access only by authorized personnel.

In addition, Forrester's Bartels recommends that CIOs with more discretionary control over any budget surplus consider refreshing their infrastructure. "This is still a good time to buy hardware," Bartels said. "Prices are low. Discounts are wide as vendors are hungry for business."

In particular, Bartels said 2005 is a good time to buy current-generation servers (including Linux servers) and storage technologies to replace older systems.

Another advantage to replacing infrastructure systems: new servers may have two or three times the processing capability of those manufactured just a few years ago. That means you can consolidate fewer servers to support the same level of activity.

Some CIOs may also want to consider applying increased budget resources to new technology tools that can help reduce the cost of IT operations and maintenance. For example, Bartels recommends automated server management solutions, which reduce reliance on staff by automatically inventorying servers, patching software, and enforcing policies for distributing applications and content.

An assortment of new technologies is also worth exploring. Voice over Internet protocol and wireless LANs can help lower telecommunications costs. Server virtualization, which treats multiple servers as a pool of processing resources, can balance loads across the base, rather than having some servers running at full capacity and some sitting idle.

Of course, as with the Y2K tech-spending spree, analysts warn that CIOs need to be cautious about their expenditures in 2005. One of the pitfalls is inadequate due diligence. Many vendors are eager to sell products, but CIOs need to make sure they are buying solutions for their companies' problems -- not just whatever the vendor is selling.

Elizabeth Wasserman has written about technology and business for Inc., the San Jose Mercury News, and CIO Insight. She is a freelance writer based in Fairfax, Virginia.