IT Budgets Contracting at Slower Rate

'Contracting at a slower rate' seems to be the ubiquitous catch phrase as the recession begins to lose steam. As these carefully chosen words demonstrate, economic indicators don't just reverse direction on a dime. They first slow, come to a stop and then reverse direction. For example, overall jobs losses are in the slowdown phase: monthly job declines are now hitting about a third of what they were at the beginning of the year.

Recent surveys, such as CIO.com's survey of IT leaders this spring, suggest stabilization regarding corporate IT spending. Although only 14% of IT leaders say that their IT budgets will increase compared to 63% more than a year earlier, good news can be found in their budget planning. In January, 53% of IT leaders said their IT budgets would decrease. A few months later that figure dropped to 50%. While 3% is not a great change, it is movement in the right direction. The most encouraging change, however, is that 36% of respondents expect their IT budgets to remain steady, which is up from only 28% earlier in the year.

So where do IT leaders plan to spend budget dollars? Applications lead the list with 28% of survey respondents reporting a budget increase in this area. Hardware, on the other hand, was at the top of the list for decreases with 47% anticipating decreased hardware spending. Not surprisingly, 63% of respondents agree with the statement that "current economic conditions [are] causing IT purchases to undergo closer scrutiny by other business executives within your company." So what will be the ultimate business goal behind IT spending over the next 12 months? CIOs will be concentrating on enabling business process innovation (31%), lowering IT operating costs (27%) and generating top line revenue growth (22%).

Although about half of the CIOs reported that they had instituted IT staff reductions in the past six months, very few plan to implement either a hiring freeze (3%) or an IT headcount reduction (4%) in the next six months. And whereas 62% reported that they had reduced spending on IT contractors and consultants in the past six months, only 11% plan to do so in the next six months.

And though these new insights provide positive signs and reminders that growth will return, no one can know the day this hard recession will end. For IT professionals it’s reassuring to note that companies remain reluctant at this stage of the economic cycle to enact widespread layoffs. With a recovery comes recruiting needs, which means that at this juncture companies are more likely to cut salaries and perks than lay off workers.