Pressure goes on in high level IT departments

Government and corporate information technology policies are undergoing a major upheaval as IT budgets rise and staff turnover accelerates. A new IDC study in New Zealand and Australia shows that IT spending, as a proportion of total business revenues, has reached its highest level in more than five years. The report echoes Ernst & Young's quarterly survey which found that more than 80% of CEOs who are looking at investing during the next quarter will do so in IT.

Government and corporate information technology policies are undergoing a major upheaval as IT budgets rise and staff turnover accelerates.

A new IDC study in New Zealand and Australia shows that IT spending, as a proportion of total business revenues, has reached its highest level in more than five years.

The report echoes Ernst & Young’s quarterly survey which found that more than 80% of CEOs who are looking at investing during the next quarter will do so in IT — a dramatic increase on the previous quarter’s survey. Peter Hind, manager of IDC Australia’s user programmes, says the outlook for IT budgets is growing year by year with the size of the increase also rising, from 4.61% this year to 4.89% the year after next.

However, while budgets are going up, the average head count is down by more than 25%. There has also been a noticeably higher average turnover in IT departments during the past 12 months.

“This seems surprising given the evidence of greater investment in IT,” says Hind. “Perhaps it is an indication that more new opportunities are arising to entice staff to apparently greener pastures, or perhaps companies are looking for greater returns on their IT investment, including the ability to replace staff.”

IDC New Zealand manager Graham Penn says the increase in the IT spend is an ongoing trend.

“Over the next five to six years we’ll continue to see IT spend increase faster than the GDP. There are some industries, such as finance, where the IT spend is already more than 5% of revenue,” says Penn. Other industry segments are down to 1% to 1.5%, for example, industries such as retail and manufacturing which move a lot of product compared to doing a lot of information processing.

“In all we will see at best an increase of 50% in terms of their IT spend. This will continue until 2005.

“People now have a genuine base in technology. As time goes by additional processes use IT services. People are not just replacing what they’ve got, they’re adding to it. Businesses are going beyond automating the back shop, and then the front of the shop. They are now extending IT out to their customers.

“The year 2000 problem also is arising in both countries and that will push IT spending up. About 60% of the year 2000 spend will come from diverting resources from other projects. The remaining 40% of the year 2000 budget will have to come from new funding. That will give a short-term boost to the IT spend. It also means that over the long run there will have to be an increase in normal spending to take care of the backlog created by pulling resources from other projects.”

Penn says that although turnover is high and IT staff head counts are down, IT professionals are not losing jobs. Instead they’re being hired on contract as organisations turn increasingly to outsourcing.

“There is major upheaval. Organisations such as Tritec, DSW and Police are having to justify their continued investment in IT.

“They’re looking at it as a way to save dollars and also at a way to deliver consistency between government departments. It’s happening in the private sector also.

“Worldwide there is a shortage of IT staff — partially heightened by the year 2000 problem but also because organisations are taking IT out into new application areas. Undoubtedly the number of IT employee contracts has increased despite the head count drop.”

The IDC report echoes Ernst & Young’s quarter CEO survey, which found that more than 80% of CEOs who are looking at investing over the next quarter will do so in IT, a dramatic increase on the previous quarter’s survey.

Department of Social Welfare IT director Neil Miranda says that generally speaking there is a higher reliance on technology.

“That goes right across the board whether it’s at home, in schools, or in business. As a result, people with skills in IT are in shorter supply than ever before. This has always been the case but now we’re really beginning to be aware of it. As a result we’re going to have to pay more for those sorts of skills although we’re paying less for hardware.”

For the past five years, IDC has surveyed New Zealand and Australian IT managers on all aspects of their IT operations from budgets to staffing to technology adoption. The results are compiled into the 1997 Forecast for Management: IT Management Metrics and Technology Adoption database and report. The report provides high-level analysis of sector trends and technology adoption, while the electronic database is equipped with a powerful search engine which enables the user to drill down into the data by industry sector, state, size of company and more.

It’s not all bad news for IT departments. The survey found a clear improvement in the understanding of the relationship between the IT department and the organisation’s overall health.

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