IT spend accelerates as users get the upper hand

IT directors press for better value from suppliers as growth rate tops 7%

IT directors press for better value from suppliers as growth rate tops 7%

IT spending in the UK is growing at its fastest rate for three years as businesses take advantage of an improving economy to replace outdated IT infrastructure.

Organisations increased their IT expenditure in the third quarter at a rate of 7.3% a year, the highest level since mid-2001, according to the latest Computer Weekly IT expenditure report, produced with Kew Associates.

The upturn comes at a time of intense competition among suppliers, leaving IT directors opportunities to drive some tough bargains and get far more for their money than in previous years.

The growth in spending is driven by pressure on organisations to reduce rising operating costs by outsourcing systems and services, and investing in IT systems with a rapid return on investment, according to analyst firm Gartner.

Companies with up to 500 staff are leading the upturn, increasing their IT spend at an annual rate of 8.1%. The rate for larger firms is 6.9% a year. The public sector reported the biggest rise in IT spending, up from 5.1% in Q2 to 8.8% this quarter. The figure excludes the government's multibillion-pound national programme for IT in the health service.

Ben Booth, chairman of the BCS' Elite group and IT director of market research firm Mori, said businesses were being more careful about how they spend their budgets than in the past. "We are not in dotcom and y2k lunacy, people are looking to where they can get best value."

Gartner analyst Roger Fulton said, "Although the economy is feeling more comfortable, prudent cost management has become a way of life."

Elsa Optiz, an analyst at research group IDC, said, "Over the past three years we have seen underinvestment in IT infrastructure. Firms have started spending on IT now but they are focusing on what needs to be replaced."

IDC said there were early signs that businesses were beginning to consider more strategic IT projects, such as CRM, automated systems for sales forces and business intelligence.

Booth warned that many IT directors were treading cautiously amid concerns that the economy might slow again.

Mark Gorringe, head of IT at building services firm Halcrow, said that he had been able to secure more for his money. "We took out an enterprise agreement with Microsoft and we standardised on Dell. I am not having to request more budget because we are getting better value for money," he said.

Leader >>

Ben Booth on staffing strategies >>

Spending trends

  • IT spend is being driven by a desire to cut IT and business costs
  • Organisations are investing in outsourcing to reduce costs
  • Operating costs have risen as companies extend the life of existing IT equipment
  • Desire to become customer-centric is spurring interest in CRM
  • Organisations are evaluating business intelligence systems to improve profits
  • Compliance legislation is soaking discretionary spend in finance
  • Prudent cost management is now a way of life.

Source: Gartner

Read more on IT strategy