Small Businesses Fuel Projected Rise In IT Spending

The economic recovery is having a positive influence with executives who make IT spending decisions. Global spending on IT by businesses will increase by 6% in 2004 over 2003 levels, according to an analysis of first-quarter spending trends by IT advisory firm Meta Group. Three months earlier, Meta had predicted that 2004 IT spending would increase by 5%. For 2005, Meta analysts see overall IT spending rising by 7.1%.

The increased spending reflects IT organizations moving on new projects, many of them delayed during the economic slowdown that followed the dot-com bust. Traditionally, companies spent about half their IT budgets on new projects and half on maintaining existing systems, says Meta executive VP Howard Rubin. But in the past few years, the proportion of spending dedicated to new projects fell to about one-third. The new projects being funded are ones designed to improve businesses processes and customer service, not the big enterprise ones popular in the late 1990s.

The biggest increase in spending this year--11.2%--will come from organizations with annual revenue below $100 million. "The smaller companies are playing catch-up," Rubin says, investing in technology that larger companies implemented years ago. "But smaller ones will recover faster; they're more agile. The largest companies, those with annual revenue of $1 billion or more, will increase IT spending this year by just 2.5%, Meta projects. Companies with yearly revenue of $100 million to $1 billion will increase IT spending by 3.6%. In 2005, IT spending will increase 11.4% among smaller businesses, 5.3% among midsize companies, and 3.6% among large companies.

Other findings of Meta's monthly review of its Worldwide IT Benchmark study:

• 8.4% of an organization's internal support is made up of hourly contractors. A few years ago, about 5% of a company's internal support came from hourly contractors. Most other types of IT investments are fixed costs. "If companies want to shed IT expenses quickly," Rubin says, "hiring contractors are a way to go. Companies may pay a premium for their services, but they don't have to deal with severance and other issues when they want to cut costs."

•Sixteen percent of all application efforts is dedicated to package installations. That's down from about 30% several years ago, when many companies installed big enterprise resource planning and customer-relationship management systems. Sectors dedicating the most time to package installations--such as consumer products, 55%, and electronics, 33%--don't have as many enterprise systems as industries investing the least amount of time to installing packaged apps: IT, 12%, and health care, 13%. But that percentage should rise again as companies begin to increase more of their IT dollars into long-term business-technology projects, Rubin says.

• Scaling up a platform often results in per-unit savings--but that's not the case in networking, Meta contends. A company with 10,000 users should spend about $15 million on its data networks; that amount doubles to $30 million for organizations with 20,000 users. Geography, number of sites, employees' skill sets, and intensity of business need all contribute to networking costs and performance. Understanding cost tends can help a company know where it might achieve economies of scale, Meta reports, but does not guarantee them.

• The average cost to support a desktop is $47.50 a month.