Gartner : IT Budgets Are Low Priority

Monday, July 31, 2006

IT budgets are the first to get the ax when company revenue drops and late to rebound when the coffers are full.  That’s the conclusion of a new study from Gartner.  The study analyzed spending patterns over a period of three years at some 900 companies worldwide in 20 different industries.  Even at companies where revenue grew 10%, the increase in IT budgets rarely topped 5%.  Case in point: the financial services sector, where IT spending increases were less than half the revenue growth, at 4.2% versus 10%.

…The disconnect has less to do with the importance of IT to a given business than with the crude – or nonexistent – cost models most companies use to budget for IT…..Companies don’t have an IT cost structure that can follow revenue.  The problem is that if the revenue doesn’t materialize, IT can’t back off and reduce expense quickly.  If you look at technology spending over time, occasionally technology spending accelerates ahead of business growth…..What happens is that they build up a lot of fixed expense, and when the economy gets rough, they can’t shed expense fast enough…..What we’re seeing now is an unfortunate economic circumstance where companies have not mastered the art of IT finance, they don’t have good cost transparency, they haven’t been able to build fixed versus variable cost models, like companies have done in manufacturing.

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