IT leaders defy their doubts on economy to up services spend

Delegates at IT Directors Forum look to boost performance in the face of costs squeeze

Delegates at IT Directors Forum look to boost performance in the face of costs squeeze

IT directors expect the UK economy to slow down over the next 12 months but their spending on IT services will grow.

In a poll of 500 senior UK IT leaders at this year's IT Directors Forum on board the cruise ship Aurora, 80% said they thought the UK economy would take a turn for the worse.

However, 70% of respondents believe spending on services from UK IT providers will rise over the next two years.

Bob Hawkins, IT strategy manager at Ford Europe, said, "These are challenging times for European manufacturing. Cost controls are paramount, not just in IT.

"So far, in Ford IT has taken less of a hit than other areas. That is because the product is king and we will protect next-generation development."

Mike Tonkiss, IT director at ADM Milling, which provides flour to the UK's supermarkets, said the past six months or so have been challenging for the food and beverage industry.

"Retail margins are tight," he said. "Budgets are held, and business cases have to be much greater because of the margins. Everyone needs to be more cost-focused."

Simon Fox, IT director at Virgin Atlantic, said pressure on margins could lead to more investment in IT. "There are always situations where investment in ITwill be used as one of the levers to compete better in a market that is under pressure," he said.

A focus on cost is essential, but IT directors should not let economic doubts undermine key projects, said Nigel Montgomery, European research director at analyst firm AMR. Instead, they should introduce strategies to ensure phased implementations that can deliver a quick return on investment.

"No sensible organisation should have to change their strategy if the economic climate changes - they should always be striving to find the best performance at the smallest cost in the shortest time," he said.

"Each of the phases of implementation should have its own payback period. Most companies in Europe want a return on investment in six months.

But many projects do not give a return in six months, so the question is how do you structure the project so it does give a shorter return, even if it runs for two years?"

Roger Fulton, vice-president of research at analyst firm Gartner, said a tighter economy would require IT directors to focus on their internal costs. "Offshore outsourcing is small beer compared to what can be achieved," he said. "The technology exists to deliver two times the performance at half the cost."

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SMEs drive growth in IT spending

Small and medium-sized businesses are driving IT spending growth, with their expenditure up by 8.2% in the first quarter of 2005, according to the latest Computer Weekly UK IT Expenditure Report.

Large firms saw more conservative growth in IT expenditure in the first quarter, rising from 3.7% to 4.2%.

Kris Wicka, managing director of Kew Associates, which conducted the research, said, "SMEs are still the fastest growing sector, and this is likely to continue - not because the number of SMEs is growing faster, but because they are taking on more employees."

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