Globally, corporate IT budgets continue to grow more slowly than inflation, says Gartner analyst Ken McGee. Speaking at the Gartner Symposium/ITexpo in San Francisco earlier this month, he said CIOs who want to snag more IT dollars need to come up with imaginative ways of helping their companies make money, not just save it.
Worldwide IT budget growth is projected to increase 2.7% this year over 2005, according to Gartner. "When you're below 3% and you factor in the inflation rate, that means IT budgets are essentially flat," says McGee.
By Gartner's calculations, 2006 will be the fourth year in a row that global IT budgets failed to outpace inflation.
The gap between business growth and IT budget growth is reflected across all major industries, though it's more obvious in some, according to Gartner. Manufacturing companies are expected to see revenue increases of 4.5% this year; their IT budgets, however, are only expected to grow 2.8%. The same trend is expected at high-tech firms, which are forecast to boost sales 6.7% this year, while their internal IT budgets will be capped at just 2.5% more than last year.
Some of the reasons for stagnant IT budgets are good: Technology products are "delivering better bang for your buck", McGee says, in part because of increasing use of open-source software. He downplayed savings from outsourcing and offshoring.
However, other reasons are less positive for IT departments. Business units within large companies are bypassing "IT gurus" to fund tech purchases themselves. Moreover, post-bubble regulations are "sapping" a lot of IT dollars and energy. Mostly, McGee says, many IT departments are still keeping a low profile after their perceived wastefulness during the dot.com boom.
To reassert themselves, McGee says, IT leaders must start thinking of themselves and their departments as revenue generators, not just cost centres. "We haven't solved all of the problems that IT can solve," he says, pointing to areas such as improving business intelligence or moving revenue-generating channels to a Web 2.0 network architecture as immediate ways of boosting the corporate bottom line.
For instance, the CIO at insurer MetLife is, in the aftermath of 2005's Hurricane Katrina, installing datawarehouse technology to improve the company's ability to anticipate natural disasters, McGee says, while the CIO at clothing maker Abercrombie & Fitch is leading the use of technology inside its stores to boost sales. "He's not just putting in point-of-sale terminals," McGee says.
McGee also downplayed the oft-mentioned difficulty of measuring the value IT is delivering.
"You could set a target of improving customer satisfaction by 3% a year," he says. "Or you could say, ‘I will contribute 2 cents per share.' "