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.