IT Spending Hits Bottom, but Fails to Bounce as Layoffs Continue

June, 2010

(Irvine, Calif.) IT organizations are continuing to shed jobs this year and show no growth in spending on operations or capital projects, despite the still-tentative recovery in the broader economy, according to the 21st annual Computer Economics IT Spending and Staffing Benchmarks study.

The study, which assesses IT spending plans for more than 200 organizations in the U.S. and Canada, found that 42% of IT organizations are reducing the size of their IT staff this year, a level that is roughly equivalent to 2009, when 46% of organizations reported reductions in IT headcount. In contrast, only 28% of the survey respondents reported their budgets for fiscal 2010-2011 will enable them to hire additional staff.

“This is more downbeat than we had anticipated,” said Frank Scavo, president of Computer Economics, an IT research and advisory firm based in Irvine, Calif. “The on positive note is that many IT executives anticipate no further budget cuts this year. So, hopefully, the worst may be over.”

In fact, IT executives indicate they are more confident this year that they will get to spend all of the money in their budgets: 58% expect no further budget reductions while 15% are hopeful they will get authorization to exceed current spending plans. Only 27% anticipate further budget reductions, an improvement over last year when almost half of all IT executives were bracing for budget cuts.

In other findings, the IT Spending and Staffing Benchmarks 2010/2011 study found:

  • IT operational spending flat for the second year in a row. At the median, IT operational budgets are not growing. Moreover, in most years, the majority of organizations increase their IT operational budgets, but this year only 45% of IT organizations are doing so. “In our tracking of this metric since 1990, we find this is typical of a recession,” Scavo said. “For IT operational spending, the recession is still here.”
  • Capital spending improves, but only marginally. There is some improvement in IT capital budgets, but spending remains restrained. The picture is divided: 40% of IT organizations are cutting their capital budgets, while 47% are increasing capital budgets. At the median, however, IT capital budgets are showing no growth over the prior year. “Overall, fewer organizations are reducing capital spending this year and the reductions are smaller than last year,” Scavo said. “We take this as an optimistic sign, again, that the worst may be behind us.”
  • IT operational spending per user declines year over year. Another important measure of IT spending is IT operational spending per user. This year, inflation-adjusted IT spending per user fell to $6,889 at the median, down from $7,259 last year. That means, at the median, each user is receiving 5% less in IT operational spending in 2010 than in 2009.
  • Government, retail, and discrete manufacturing are hardest hit by IT spending cuts. Although IT operational budget growth is flat for the composite sample, IT organizations in the government, retail, and discrete manufacturing sectors are showing declines in spending. Government is the main culprit dragging spending down IT operational budgets with a 5% decline, followed by retail at 1.5%, and discrete manufacturing at 1.4%.
  • Sectors showing improved IT operational spending include commercial banking, healthcare providers, and process manufacturing. Median IT operational spending plans are up 3.2%, 3.1%, and 3.0% respectively in these sectors. 

About the Study
The Computer Economics IT Spending and Staffing Benchmarks study, now in its 21st year of publication, provides key metrics to assist organizations in the financial and strategic management of information technology. Each year, Computer Economics conducts an in-depth survey of IT executives in the U.S. and Canada to gather detailed metrics concerning their IT spending and staffing levels, use of outsourcing, adoption of IT management best practices, and economic experiences with various technologies and IT initiatives. The respondents include executives in the public and private sectors. By repeating this survey each year, Computer Economics is in a unique position to identify long-term trends and understand the challenges of managing IT organizations.

The study is based on a survey of more than 200 IT executives conducted in the first quarter of 2010. It provides composite statistics of IT spending and staffing data, a segmentation of the same statistics by organization size, and individual chapters for 16 commercial and government sectors. We also provide selected key metrics for six specific subsectors.

A detailed description of the study’s content, design, demographics, and methodology can be found in the executive summary.