IT Spending Falls as Percent of Revenues

AMR: Companies looking to technology to boost revenues

Tempe, AZ  July 16, 2002  Companies are spending less on information technology as a percentage of their revenues, and their focus has shifted from achieving returns on investment in IT to improving their top lines, according to a recent survey by tech consultancy AMR Research.

"Companies are still making information technology investments, they are just much more prudent about where IT dollars go," AMR Analyst Fenella Scott wrote in a research note entitled "The Decline in 2002 IT Spending: Is It Perception or Reality?"

In a survey of 500 midsize and large companies for AMR's annual IT Spending Study, the consultants found that IT expenditures as a percentage of revenues fell from 4 percent in 2001 to 3 percent this year.

In addition, companies are focusing more on tactical projects rather than on large-scale initiatives with high price tags, and they are looking for solutions that can help them boost their top lines. "There is a clear shift of importance from return on investment (ROI) to revenue generation," Scott wrote.

Broken down by industry, AMR's survey revealed that service companies planned to spend 5 percent of their 2002 revenues on technology, with a projected 2 percent increase in IT budgets for 2003. Enterprise resource planning (ERP) and customer management applications swallowed the bulk of these companies' budgets for software this year, although it should be noted that spending on applications accounted for just 19 percent of IT budgets for these enterprises.

Meanwhile, manufacturers are set to spend 3 percent of their revenues on IT this year and are forecasting 1 percent increases in IT budgets for 2003. These companies planned to spend an average of 18 percent of their IT budgets on software, and ERP software accounts for fully 42 percent of their applications budgets this year.

Scott noted that consumer packaged goods (CPG) companies are currently trying to get more out of what they have already invested in technology. The companies are set to spend 3 percent of their revenue on IT this year, with plans to reduce that figure by 0.3 percent in 2003. Pharmaceutical companies, on the other hand, are currently spending 5 percent of their revenues on IT, but 62 percent of them are looking to increase their technology spend next year.

Earlier this year, AMR analysts Bob Kraus and David O'Brien had predicted that the enterprise application market will grow by 6 percent in 2001, after increasing 7 percent in 2002, with supply chain management and product lifecycle management applications fueling much of the growth.