Welcome Guest. | Log In| Register | Membership Benefits

News In Review

January 5, 1998

IT Spending In '98: Full Speed Ahead

Despite the global e conomy's volatility, most senior IT managers plan to boost IT spending. A new survey by InformationWeek and VARBusiness provides details.

By Rusty Weston

E ight years into a record period of expansion, the U.S. economy is taking another of its joyrides into uncharted territory. Economists are expecting 1998 to basically reprise 1997. The upshot: Even though the stock market plummets by hundreds of points and Asian currencies collapse, almost no one is backing off on investments in IT.

In fact, it's investments in IT that will help customers navigate through a maze of complex global business issues.

In a survey of 250 senior IT managers by InformationWeek and sister publication VARBusiness on IT spending plans for 1998, two-thirds of the companies surveyed say they plan to boost their 1998 IT budgets. The average outlay: 18% more than last year. "People are not building traditional factories or oil wells, but they're spending a huge chunk of money on information technology," maintains David Blitzer, VP and chief economist at Standard & Poors in New York. IT investment is stronger, he concludes, than what is expected in a typical business cycle.

Another surprise: More than 70% of those surveyed say they'll spend as much or more on IT through computer resellers. The closely watched PC market still looks robust, too. More than four out of five IT managers surveyed say they plan to buy PCs for their organizations this year. But in the PC space, a slice of purchases are shifting from the reseller channel to a more direct sales model, one that includes the World Wide Web. In fact, one in four IT managers surveyed say they plan to buy PCs via the Web in 199 8.

Also topping IT management agendas:

  • Training. Nearly 70% cite staff training as a key 1998 expenditure. IT managers are realizing there's a direct correlation between application productivity and training.

  • Network storage. It's necessary for exponential growth of intranets and other electronic-business applications. In all, 58% of the IT managers plan to buy more network storage in 1998.

  • Windows NT 5.0. Topping the wish list of brand-name products, more than half the managers expressed an interest in Microsoft's newest operating system, which is still in beta testing.

  • NetWare 5.0. Plans for NT 5.0 haven't stymied interest in this Novell upgrade; 44% of IT managers named it to their project lists.

  • Network computers. NCs appear on 36% of the managers' buying lists, about a 10% higher level of interest than InformationWeek found in a poll in November.

Overall, however, IT managers say the year 2000 date-conversion project is their most critical investment of 1998. Faced with a looming deadline, the date-conversion projects are helping to drive IT spending higher than ever before. A number of IT shops are redoubling their commitment to a solution. DHL Worldwide Express is one example. The multinational package courier plans to spend $25 million on year 2000 date-field compliance efforts over the next two years. Most of the money is going into evaluating and fixing 20 million lines of code.

There's a sign that the issue is being resolved-albeit slowly: IT shops converting year 2000 date fields will, on average, spend 29% of their year 2000 budgets this year testing their revamped applications, according to the InformationWeek and VARBusiness survey. That percentage can be expected to rise even further as IT organizations clear their backlog of affected applications.

"The biggest time-consumer is in the testing-testing end-to-end systems around the world to make sure everything works right," says Joseph Riera, CIO and senior VP of DHL Airways Inc., a unit of DHL Worldwide Express, in Redwood City, Calif. "We could do other things faster if we didn't have to spend the money on the year 2000 problem. It's got a deadline and it's a money drain, but it's got to be done."

Riera is not alone. One in five IT managers say they expect their company's year 2000 conversion investment to affect their company's ability to complete other important IT projects.

But while IT managers have their checkbooks ready to finish resolving the nagging year 2000 problem, they're also preparing to spend plenty on technology for the future. The survey confirmed that electronic commerce remains red hot-26% of the IT managers say their companies plan to invest in this technology in 1998. DHL, for example, plans to create new ways to increase customer access to the company's Web site.The goals, Riera says, are to lower costs and make it easier to do business with DHL. "The use of that technology--even if you [didn't implement it optimally]--would drive your costs down . There's tremendous opportunities to save operating expenses," he says.

New Expectations
Mergers and globalization seem to go hand-in-glove in the wired economy, and spending on smooth transitions and IT to drive innovation will continue apace with consolidation. Since his company, Smith Barney, combined with Salomon Bros. last year, Peter Remch, a first VP in New York, is learning to deal with new expectations.

"I'm focusing on the internationalization of our business," he explains. "Smith Barney was always a domestic firm, but with Salomon there's many international opportunities, some of which mean taking on new systems that weren't developed by me but need support." Suddenly, Remch's 1998 calendar includes the challenge of tweaking trading system software to support Europe's forthcoming Euro currency.

But as U.S. businesses warm to the prospect of converting their systems to process Euros, IT manage rs will face the prospect of having still more key acquisitions put on the back burner. After all, IT budgets aren't a bottomless trust fund.

"Somebody who is growing always runs out of money," cautions S&P's Blitzer. "If they don't, they're not thinking hard about where they want to be in five years."

See related story: " Resellers, Integrators In Demand "
Back to News in Review

Send Us Your Feedback

Top of the Page