IT Budgets Are Lagging Behind Corporate Revenues

July, 2007

A new study from Computer Economics finds that the median IT budget growth rate in the U.S. and Canada is accelerating to 5.0% this year, from 4.1% reported in 2006. At the same time, the median IT budget as a percentage of revenue is falling to 1.8%, from 2.0% last year.

“IT spending is growing at a healthy pace,” said Mark McManus, Vice President of Research at Computer Economics. “At the same time, IT budgets are not keeping up with the growth of corporate revenues. To us, this shows that CIOs are doing an excellent job of controlling costs while continuing to meet the needs of their organizations.”

Further evidence of IT cost management discipline is seen in other metrics in the study. Over 80% of IT organizations are increasing their IT budgets this year. But IT spending per user is flat compared to last year, and IT spending per desktop computer is actually falling.

“These metrics confirm that IT executives are able to support corporate growth without making equivalent increases in IT spending,” said Frank Scavo, President of Computer Economics. “We’ve now entered into a period where IT spending is increasing at a healthy, yet restrained pace. The boom-and-bust years of the late 1990s and early 2000s are clearly behind us.”

Other key findings of the study include the following:

  • In large and mid-size organizations, the median increase in IT staff headcounts this year is only 2.0%, a pace slower than the growth in IT spending.
  • IT outsourcing continues to increase in each of nine IT functions tracked by the study, with substantially more organizations increasing their use of outside service providers than decreasing. The use of offshore providers continues to grow.
  • The use of contractors and temporary employees continues to be a popular HR strategy, with the use of contingency workers somewhat greater in larger companies than in small and mid-size firms.
  • The mix of IT capital spending this year is shifting more to software from hardware, reflecting the continuation of a long-term trend toward software as a growing percentage of the IT budget.
  • Security and disaster recovery rank in the top five priorities for IT spending this year.
  • Windows continues to be the dominant operating system in the data center, although its share of the processing workload appears to be nearly the same as last year, possibly indicating an end to its growth on a percentage basis.

These findings are part of the 2007/2008 edition of our IT Spending, Staffing, and Technology Trends study, now in its 18th year of publication. This 22-chapter study provides dozens of ratios and metrics for composite sample, including IT spending and staffing benchmarks, technology acquisition statistics, and ROI/TCO trends. The data is also sliced by organizational size and for 10 specific industry and government sectors. Key metrics for IT spending and staffing are also provided for select industry sub-sectors.

A complete study description is available on the Computer Economics website.

free 32-page executive summary of the study is available upon request.