Corporate IT Spending Flat in 2004, Cutter Predicts

Money spent won't keep pace with inflation or growth in other expenses, according to study

Money spent won't keep pace with inflation or growth in other expenses, according to study

Arlington, MA — October 21, 2003 — Contrary to some of the rosier findings in other studies, a recent Cutter Consortium study showed that IT spending will remain steady, although a bit flat, in 2004.

The survey found that though the actual amount of money corporations plan to spend on IT may increase slightly, it won't be enough to keep pace with inflation or growth in other expenses.

George Westerman, a Cutter Consortium senior consultant, provided analysis of the data. "Even a slight increase in spending is welcome, but suppliers and IT managers might want to wait a bit before cheering an end to the technology slump. After all, one-third of the 97 organizations represented in the survey plan to cut IT spending relative to other spending."

To put IT spending in context, Westerman explained Cutter's main measure of IT spending is "IT intensity," which is defined as total IT expenditures divided by total organizational expenses. "This is a good representation because it considers inflation and corporate growth, which should, on average, affect IT expenses and total expenses evenly," Westermann said. "So if IT spending grows just because the organization grows or because of inflation, the IT intensity ratio will remain constant. If IT intensity rises, it represents an increased commitment to using IT. Conversely, if it falls, it means that organizations are finding other ways to spend their money."

The study revealed that IT intensity is expected to decrease slightly, from an average of 18.29 percent in 2003 to 18.06 percent in 2004. This difference, which is small enough to be statistically insignificant, Cutter said, masks a great diversity in IT spending plans for next year. Thirty percent of organizations expect to increase IT intensity by 2 percent or more, 33 percent expect to reduce it by the same margin, and the remaining 37 percent expect their IT intensity to remain relatively unchanged.

About one-quarter of the organizations expect much larger changes, with 10 percent saying they plan to increase IT intensity by 26 percent or more and 14 percent planning to reduce IT intensity by 26 percent or more.

Westerman remarked, "Contrary to some predictions of a turnaround in IT spending, our survey finds that as a percentage of total organizational expenses, IT spending will be flat to slightly declining in 2004. But spending plans differ by industry, region, organization size and other factors. Some organizations are increasing IT spending significantly, while others are making major cuts. In general, smaller organizations are much more likely to be increasing their IT intensity than are larger organizations. The largest organizations, which are most attractive to IT vendors, still plan on reducing IT spending relative to other expenditures."