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Tuesday, January 02, 2007

IT Spending : Great News For IT Ecosystem

Alinean’s new IT spending study focused on finding IT spending trends for 2007 finds that spending increases are likely to continue. The study finds that IT spending has experienced a healthy three years of budget increases since the beginning of 2004. Annual growth in 2006 is expected to top 6%. And although projections for 2007 show a more conservative sentiment, spending increases are likely to continue with consensus estimates of 5% to 6% expected. This may be seen to be far less than the double-digit annual increases of the dot-com era and so, while it’s not time to ‘party like its 1999’, it is great news for the IT ecosystem. This ties in with the numbers that have come in from Forrester, IDC & Gartner. In fact IDC predictions show that the worldwide IT spending will grow 6.6% in 2007, up from 6.3% in 2006. Gartner finds from surveys that overall IT spending is growing faster than IT organization budgets. Forrester finds that Asia Pacific IT spending is exceeding IT spending of western & central Europe. I liked the Alinean study for the details that it has come up with. Alinean shows :

1. Innovation spending is up sharply by 43% since 2003 and will likely continue to grow
2. IT efficiency has increased 10% allowing companies to do more with less
3. Yet, IT projects remain risky, with almost half of all IT projects cancelled prior to completion, or fail to meet schedule, budget or feature requirements, and only 1 in 4 launched successfully and delivering on promised benefits
4. IT spending is up, but when examined in relation to revenue growth, overall IT spending has lagged for the second year in a row declining to only 3.3% of revenue
5. More stakeholders are involved in each IT decision making it harder to gain approval and consensus
6. IT Executives prioritize proving and improving the value of IT high, but progress is slow in actually addressing slow in actually addressing the issue and quantifying value
7. Frugal remains best as top IT performers under-spend laggards and the average
8. Overall IT spending, even though lagging revenue growth, is driving superior and quantifiable corporate performance in the majority of industries, and has improved 67% from 2003.

Alinean finds that increasing IT budgets and corporate initiatives to reduce operating costs and reallocate budget to new initiatives have resulted in increased innovation investments, rising 43% from 10.2% of the average IT budget to over 14.6% measured in three years since 2003. How were the CIO’s able to do this? Organizations are beginning to learn to do more with less for routine tasks and spend more on new initiatives. If you wonder how, the answer lay in this : the focus on infrastructure optimization projects such as consolidation, standardization, virtualization, security, governance and automation tools has led to continued IT efficiency gains, up over 10% from prior years. While IT productivity benefits are always questioned, Alinean notes that the yield from IT spending, ROIT continues to improve, since it began tracking this years back. 56% of the industries had increased ROIT rankings (the ratio of Economic Value Add (EVA) to IT Spending), and performance improved some 67% from 2003. The report notes rightly that the modest Return on IT (ROIT) performance leaves room for improvement.

Ok. Be that as it may. What do these tell the IT vendors? The answer is customers are looking for valued partner(s) to help them set direction and achieve higher success, and there is a clear opportunity to help prove and improve the value of IT:

- Lower Total Cost of Ownership (TCO) to drive innovation investments
- Increase business investments vs. infrastructure spending
- Help stakeholders better collaborate and make optimal decisions
- Reduce risks and improve project success
- Help align IT investments with business strategy
- Help prove the value IT delivers to the business.

The study rightly notes that IT investments shall be a influenced by overall economic climate, which remains unclear, but with the success of prior investments,the continued efficiency improvements and shifting of budgets to more innovation will continue unabated into 2007. Sandhill’s MR comes with a set of big questions for 2007 that the software ecosystem need to focus on. Read this in tandem with the trends observed in 2006. In the tech consumer sector, it is a period of heady growth as increasingly it is clear that the world is hungry for technology Overall, optimism prevails. The benefits can be better realized with carefully thought out strategies and good execution. I repeat the call, with so much bullishness amidst uncertain economic situation, Innovation shall be the dominant Mantra for the year 2007.

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