CIOs More Upbeat on Economy

IT spending increase likely to come in second half of 2002, Morgan Stanley survey shows

Tempe, AZ  February 26, 2002  Chief information officers are increasingly upbeat about the U.S. economy's prospects for 2002 and are cautiously preparing to loosen the purse strings and start spending on information technology projects again  assuming that the economy stays healthy.

Such are the conclusions to be drawn from the latest iteration of the Morgan Stanley CIO Survey, version 3.0, issued this month and based on CIO interviews conducted in January.

In the latest survey, 60 percent of the 225 CIOs polled said they had a positive or slightly positive view of the U.S. economy, up from 44 percent in the last survey, taken in November 2001. A total of 63 percent reported feeling positive about their own company's business prospects for the year ahead, up from 55 percent in November and a post-September 11 showing of 42 percent in October.

Inversely, 44 percent of the CIOs in January said that the slowing economy had prompted them to re-evaluate their company's IT budget, down from 67 percent in November.

Moreover, in a bit of news sure to warm the hearts of solution providers, the percentage of CIOs indicating that they would be increasing IT spending in 2002 rose from 31 percent in November to 40 percent in January. Also, 77 percent of the CIOs said they would begin new application projects in 2002, although this figure was up only 1 percent versus the reading of 76 percent in both October and November.

At the same time, the percentage of CIOs indicating they would not be spending more on technology products and services in 2002 than in 2001 edged up from 52 percent in November to 56 percent in January, while those uncertain about 2002 spending plans shrunk from 17 percent in November to 4 percent in January, indicating that more IT departments were finalizing their budgets for the year ahead.

Morgan Stanley further cautioned that IT spending this year looked to be more "back-end loaded," with 47 percent of the CIOs saying they expect to spend more in the second half of the year than in the first six months. This is compared to the 24 percent in the November survey who said they would spend more in the second half of 2001 than in the first half of that year). "This year is looking to be more back-end loaded as management wants to see how the economy plays out," the Morgan Stanley report suggested.

In fact, fully 52 percent of the CIOs said they expected the economy to improve in the third quarter of this year, while 1 percent predicted a pick-up in the first quarter and 18 percent, in the second quarter.

IT spending priorities for 2002 included application integration, security software and e-commerce initiatives. In addition, 18 percent of the CIOs cited customer relationship management (CRM) software as a priority for this year, 10 percent cited supply chain software and 7 percent cited procurement software.

Interestingly, 79 percent of the responding CIOs said their companies conduct at least some of their procurement online, although the percentage or procurement done online averaged 17 percent, with the median percentage coming in at 10 percent. A total of 45 percent of the CIOs said that their companies do between 1 and 10 percent of their procurement online, while just 10 percent of the companies are doing greater than 30 percent of their purchasing online, according to the CIOs.

In other results, the survey found that:

  • 73 percent of the companies surveyed are using electronic data interchange (EDI);

  • but 71 percent view eXtensible Markup Language (XML) as being at least somewhat strategic as an integration standard for their companies;

  • and 60 percent are currently evaluating Web services. "Most companies are in early-learning mode as opposed to tangible projects," Morgan Stanley concludes in this regard.