Computer Economics: More IT Job and Budget Cuts Expected

August 17, 2009 Timothy Prickett Morgan

One of the problems with trying to gauge the economy is that there is a big lag between when statistics are gathered and then analyzed and evaluated in some kind of report that actually gets into your hands so you can try to see how it relates to you and what is going on around you. It is with this in mind that I bring the 2009/2010 IT Spending and Staffing Benchmarks from Computer Economics to your attention.

This behemoth of a report has 1,053 pages across 21 chapters, and it costs a whopping $9,995. But chapters are available on a piecemeal basis for $995 each or are available in bundles by industry for $1,195. The executive summary is available for free, and you can get it here if you don’t have that kind of dough to sling around.

Computer Economics has been doing an in-depth survey of a couple hundred North American IT shops for 20 years now, and even with that skinny amount of data compared to the millions of companies in the region, the trend data across those decades is interesting. In the most recent survey, 202 IT execs were polled and asked a load of questions pertaining to their IT budgets and staffing expectations for 2009 and 2010. The survey was performed in March, and the report came out in late June, and I just found out about it last week, so there is a pretty big lag. Since the survey questions were asked, the American economy seems to have stabilized some, and now economists are projecting that we could even exit the recession that started in December 2007 by the end of September. (We won’t know if this has happened until early next year thanks to all this lagging.)

Computer Economics says that in a typical recession, fewer than half of IT executives polled say they will be increasing their IT operational budgets, and indeed, in the spring when the survey was done, 38 percent of those polled said they were cutting budgets and only 45 percent said they were increasing IT spending; 17 percent said they would spend about the same amount this year as they did in 2008. The report says that this is not as bad as the situation was in 2002, in the wake of the dot-com and ERP busts and the 9/11 terrorist attacks, which sent the world into a recession. Back then, only 36 percent of IT shops polled by Computer Economics said they would increase IT budgets. In many cases, companies were already drunk with excess capacity thanks to IT binge spending, and it took many years to burn off that capacity. (That’s my analysis. Computer Economics had some fuzzy logic about the downturn being led by technology in 2002-2003 and the 2007-2009 recession being led by real estate and financial collapses. Who bought all of those servers back in 2000 and 2001? Every company in every industry on earth that was worried that the Internet was going to leave them behind.)

When averaged across all companies surveyed by Computer Economics, IT budgets are expected to be flat as a pancake in 2009, just like they were in 2004. The company reckons that, based on what survey respondents said, the average IT operational budget in North America grew 2.5 percent in 2005, rose by 4.1 percent in 2006, peaked at 5 percent growth in 2007, and declined to only 4 percent growth in 2008. As you can see, IT managers and their bosses in the boardrooms of North America are keeping IT budgets on a shorter leash than in the late 1990s, when budgets were growing at double-digit rates.

If there is a worrying metric, it is that some 49 percent of IT execs said they would actually spend less dough than they had allocated to them for the budget in 2009, which means more pressure to cut costs than they are already under. Only 9 percent of the execs surveyed said they would spend more than they were budgeted.

IT budgets are also on the decline versus company revenue, according to Computer Economics. In 2004, the IT budgets of the companies surveyed averaged 1.9 percent of revenue, which shrank to 1.7 percent in 2005 and rose to 2 percent of revenue in 2006. In 2007, that ratio between the IT budget and company sales slipped to 1.8 percent, and fell further to 1.5 percent in 2008. It is anticipated to be 1.5 percent in 2009. The amount of IT budget money spent per user is also on the wane. Last year, companies spent $6,924 per user for IT operations, down from $7,583 in 2006 and $8,010 in 2006. (Those are inflation-adjusted figures.) For 2009, Computer Economics was told that the average IT spending per user would rise to $7,284, but it remains to be seen if companies hit those targets–particularly with so many IT managers expected to make deeper cuts than their then-current budgets back in March had already done.

As you might expect, manufacturing and retail companies have been hit the hardest in terms of IT budgets, while energy, healthcare, services, and banking and financing firms have held up. (Banks didn’t really take the hit–remember, we bailed their sorry assets out.) Discrete manufacturers report a 5.5 percent decline in IT budgets, and process manufacturers are taking a 2.5 percent hit. As a group, retailers are expecting to take a 1 percent budget hit in 2009. Energy companies report a 1 percent increase in IT budgets, services companies expect to spend 4 percent more, healthcare companies are looking at a 4.7 percent increase, and those banks are expecting to spend 4.9 percent more. If I didn’t call your name there, your IT operational budgets across your industry are flat. Sorry.

So that was the operational budget. The capital budgets have already been frozen. In 2006, IT capital budgets across the companies polled by Computer Economics rose by 5 percent, and increased by 4 percent in 2007. In 2008, capital budgets were flat, and they are anticipated to be flat this year, too. Server spending is down, but could recover in the second half of the year. (We’ll see. I remain skeptical.) Some 48 percent of the IT execs polled said they would be able to spend all of the hardware and software budgets they have been allocated, but 43 percent said back in March they probably wouldn’t be able to. Only 9 percent say they will be able to spend more. I wanna know who these companies are.

As for staffing, Computer Economics says that nearly half of those companies polled (46 percent) are cutting staff this year, and a quarter are making cuts of 10 percent or deeper in 2009. Some 27 percent of those polled say they are keeping their IT employee ranks the same, and another 27 percent report that they are hiring. It is not clear how the numbers will wash out.

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