Enterprise IT buying 2010-2011

The economic downturn caused most organizations to cut all their budgets last

year, including IT spends. Though the worst is now over, recovery is happening

very slowly. These are therefore extremely challenging times for budget

planners, who're currently busy planning for the next financial year. What kind

of growth plans should they project and plan for next year? What should be their

business priorities? Since IT is directly aligned with every organization's

business needs, the IT spends can only be determined after the business

priorities are decided. To make life easy for IT budget planners, who would be

caught in a dilmna right now because of this, we collaborated with IDC to do a

survey of large and very large organizations to understand their IT spending

plans for the next fiscal. The results are interesting indeed, giving a positive

outlook for next year.

Business priorities



The business priorities for a majority of organizations across all

industries we surveyed over the current financial year (2009-2010) were to

reduce operational cost, followed by improving productivity and customer

service. This was understandable given the economic downturn. In the coming 12

months also, organizations plan to do the same, possibly, as the market

condition improves, these priorities will change, and organizations will start

looking at more growth oriented activities. Amongst the various industry

segments that were surveyed, manufacturing organizations had productivity

improvement as their top priority, followed by measures to reduce operational

costs. Improving customer services was the top priority in the BFSI segment,

which perfectly gels with the fact that most banks were busy deploying CRM

solutions last year (refer to PCQuest Best IT Implementation Awards, June 2009

at http://bit.ly/961OVz).

Overall analysis of IT spends



IT spend next year is likely to

increase by 10%. It will largely be determined by top line growth, according to

70% who respondents. The next major factor that would impact IT spends is profit

margins.

Though organizations don't seem to have aggressive growth plans, CIOs are

showing signs of embracing new technologies over the next 12 months. That's why,

the top most priority amongst 76% of the CIOs was to implement technologies,

while the next highest priority was to use their existing technologies more

efficiently. Surprisingly, the implementation of Green IT initiatives has the

lowest priority for most CIOs. One explanation for this is that some of the

newer technologies, like virtualization help organizations go green.

Overall IT budget breakup



The good news is that IT spending is finally getting back on track. It's

expected to be higher than last year. The BFSI segment, as expected, has the

highest IT budget amongst all industries we surveyed, which is the same as last

year. The total IT spending can be divided into three parts-hardware, software,

and services. Out of these, hardware comprises the largest chunk of the IT

budget, followed by services, and then software. This matrix is likely to remain

the same next year as well. One difference though is that the hardware spend is

expected to decrease slightly and the spend on services is likely to go up in

all organizations. Spends on software are consistent with very minor variations.

Hardware spending patterns



Hardware spending is broken up into three parts computing devices (PCs,

laptops, and servers), networking devices, routers, switches, etc), and

peripherals (printers, scanners, cartridges, etc). In the overall mix,

organizations spend the highest on computing devices, followed by networking,

and then peripherals.

As compared to last year, next year, the spending on computing devices is

likely to come down from 87% to 81%. Here, the largest drop was visible in the

BFSI and IT/ITeS segments. In BFSI, there's likely to be a 12% drop in IT spends

on computing devices, while in IT/ITeS segment this drop is going to be 9%. In

all other segments, the drop is anywhere between 3-6%.

Spending on networking will go up from 10% to 15%, and in peripherals, it was

3% last year, and is likely to be 4% next year. Here, IT/ITeS is likely to have

the highest jump in the spending on networking as compared to last year.

Spending on peripherals will see a steady increase in BFSI and healthcare

segments.

Software spending patterns



The spending on software is also broken up into three parts, just as it is

in hardware. Business applications (ERP, CRM, SCM, etc). Application development

and deployment tools, and system infrastructure software (security,

system/network management, etc). Unlike hardware, here, the distribution of IT

spends between these three components is more evenly spread.

Interestingly, as compared to last year, the spending on business apps and

development tools is likely to reduce by a small percentage over the next 12

months. 41% of the IT software budget was on applications last year, which is

likely to go down to 38% next year. Here, the most significant drops were seen

in BFSI and manufacturing.

Likewise, 33% of the software IT budget was spent on application development

tools last year, which is likely to go down to 31% over the next 12 months.

Here, the biggest drop is happening in the IT/ITeS segment.

The overall spending on system infrastructure software however, is seeing a

slight increase over last year, from 26% to 31%. Here, BFSI is likely to

increase its spends by 9%, IT/ITeS by 11%, and communication by 13%.

Services spending patterns



The services spends are divided into three parts. Project oriented services

(system integration, custom software development, network integration and

consulting, etc.), outsourcing (managed services, IS outsourcing, etc) and IT

support services, (hardware and software deployment, training, etc).

Unlike the hardware IT budget, the services budgets are also relatively

evenly distributed. Here, the IT budgets for support services and project

oriented services are likely to go down as compared to last year from 37% to

34%, and from 39% to 38% respectively.

Large organizations are looking at increasing their IT outsourcing budgets,

from 24% last year to 28% over the next 12 months. We did see greater interest

in IT outsourcing during the economic downturn, because organizations were

interested in reducing their CapEx and moving to a more OpEx oriented IT budget.

It looks like the trend will continue over the next 12 months as well.

Industry vertical wise, we only saw moderate rise or cut in budgets.

Where to spend next year?



Each CIO is likely to spend either on managing the existing IT setup or on

new projects. Here, the IT budgets of large organizations are higher for

managing the existing setup as compared to spending on new projects. As compared

to last year, there is a slight increase in the IT budgets for new projects.

Last year, 25% of the budgets were for new projects, while next year, it's

likely to be 27%. Likewise, 77% of the IT budget last year was allocated for

managing the existing IT setup, which is dropping to 73% next year.

Which technologies you should deploy?



There is lots of hype around a lot of technologies these

days-virtualization, information security, unified communications, Green IT,

open source, web 2.0, cloud computing, and so on. How do you separate the hype

from reality to decide which technology is right for you? The survey results we

received were very interesting, and completely different from what one would

expect. The good news is that organizations do plan to spend higher on all the

upcoming technologies as compared to last year.

The top technology that most large enterprises are likely to spend on in the

coming 12 months is Business Continuity and Disaster Recovery or BCDR. 78% of

the CIOs voted for it. The next area that closely follows BCDR is data center

built-up. This is possibly stemming from the result that organizations do plan

to spend a large part of their IT budget to maintain their existing IT

infrastructure. The third area in the list is managed services, which

incidentally is not a technology. There is a lot of interest in Open Source

technologies, with 54% of the CIOs likely to adopt it in the next 12 months.

Information security is next at 52%. Even Unified Communications is pretty high

at 49%. All other technologies were voted for by less than 50% of the CIOs.

Interestingly, cloud computing, which is the most hyped technology today, is

the lowest in priority for most CIOs. Only 16% of the respondents said that

they're likely to adopt it in the next 12 months. However, it is a quantum jump

over last year, when only 7% of the CIOs had adopted it.

Interest in tech as compared to last year



More CIOs are willing to embrace newer technologies next year. Unified

Communications for instance, seems to be the biggest crowd puller amongst large

enterprises. While only 26% CIOs embraced it last year, 45% are likely to do so

over the next 12 months. That's a 19% jump! The next big jump is in data center

built-up, with 17% more CIOs likely to deploy it next year over the 54% CIOs who

did it last year. BCDR follows with a 14% jump in CIOs over the 62% figure last

year. The other significant technology amongst large enterprises is information

security, with 48% CIOs wanting to deploy it-a 12% jump in numbers as compared

to last year. The jump in number of interested parties for all other emerging

technologies is less than 10%, but higher than 3%.

Amongst large enterprises, BCDR sees the largest jump in interest over last

year. There are 12% more CIOs who are likely to deploy BCDR over the next 12

months. Interestingly, Cloud services saw the next biggest jump. Only 9% of the

CIOs embraced it last year, while 20% are likely to do so next year-an 11% jump.

Surprisingly, the third largest jump in the number of interested parties was for

Open Source technologies. 50% of CIOs said they're likely to deploy Open Source

technologies, against 40% who deployed them last year. Other technologies that

saw a 10% jump in the number of CIOs interested in them were Unified

Communications, and BI and data warehousing.

Tech Adoption in BFSI



While BCDR is the technology that a majority of CIOs are likely to deploy

next year, it's Open Source that saw the highest jump as compared to the number

of CIOs who deployed it last year. While only 46% of the CIOs had embraced it

last year, 17% more are likely to deploy it next year. The next biggest jump was

in Unified Communications in this segment, followed by data centers, information

security, and cloud services. In the remaining technologies, the jump in

interest was 11% or lower.

Tech adoption in Manufacturing



Unified Communications is the technology that saw the maximum jump in the

number of interested CIOs against last year. Only 27% CIOs from the

manufacturing segment had adopted Unified Communications last year. Next year,

16% more are interested, so 43% of the manufacturing segment CIOs are interested

in this new technology. Likewise, 12% more CIOs are interested in data centers,

making that 73% of the total CIOs from manufacturing. Next highest jump is seen

in BI and data warehousing technologies. There were 10% more CIOs who're likely

to deploy it against the 38% who deployed it last year.

Tech Adoption in IT/ITeS



The largest chunk of CIOs in this segment are likely to deploy BCDR. Last

year, only 76% of the CIOs in this segment were interested in this technology,

while this number has jumped up to 99% for next year. The next highest jump is

for Cloud Services technologies. 14% more CIOs are likely to embrace it from IT/ITeS

segment as compared to last year. This is followed by Unified Communications,

with 66% of the CIOs likely to deploy it in the new fiscal.

Tech Adoption in Healthcare



BCDR again rules the roost in this segment, with the highest number of CIOs
likely to deploy it. This number has jumped from 53% last year to 77% for the

next year-a 24% jump. data centers is the next technology with 58% of healthcare

CIOs likely to deploy it next year. Unified Communications sees the next quantum

jump at 13%.

Tech Adoption by Media



The largest number of CIOs in this segment are likely to invest in data

centers. But, this segment is also worried about information security. Last year

45% of the CIOs had spent on this technology, which has jumped to 65% CIOs for

next year. BCDR is also important for this lot, with 74% of the CIOs

interested-a jump of 13% over last year. This is followed by virtualization at

52%, where the jump is again 13% over last year.

Why adopt new technologies?



'Show me the RoI' was the most popular phrase that we heard from CIOs last

year as IT budgets were squeezed due to the economic downturn. The primary

reason why CIOs are likely to deploy new technologies is to reduce cost and

expenditure. The next reason is to make the business more efficient. End-user

experience has also become important amongst CIOs now .

The reasons for deploying specific technologies are not very difficult to

understand. Organizations are likely to deploy managed services, unified

communications, virtualization, green computing, and cloud services because they

expect considerable cost savings in the same. In case of Open Source tech

adoption, the prime reason quoted by a majority of CIOs was to improve business

efficiency. The prime reason for deploying technologies like BCDR, Data centers,

Information Security, BI and Data warehousing was to improve application

performance and end-user experience. Interestingly, organizations have also

experienced maximum savings by implementing BI & Data warehousing. Likewise, UC

was deployed primarily to improve internal/external communication. The same

reason was given by a majority of CIOs for deploying Web 2.0 technologies as

well.

Emerging technologies



Why should or shouldn't you deploy a particular technology? This depends

upon the perception you've developed about it over a period of time, which could

be based on many factors. We found that technologies like Unified Communication

and Virtualization were considered as potential cost saving options. Deploy them

if you want to save costs. In case of virtualization, another perception is that

it helps to achieve optimal usage of resources. There were negative perceptions

about the technologies as well. For instance, there is quite a bit of

apprehension with respect to the investments required to deploy technologies

like Unified Communication and Virtualization. On the other hand, as expected,

data security is still a major concern when it comes to cloud computing.