Signs of Life?

Information technology providers are hoping that the worst of the corporate belt tightening is behind them.

Enterprise information technology spending began to show some signs of life again in 2010 after a difficult 2009 when companies put the brakes on spending and managers had to make do.

In an August report, technology research firm Gartner said it was expecting enterprise information technology spending to increase by 2.9 percent in 2010. That's down from the 4.1 percent growth the firm had expected earlier in the year, but it's still growth and still represents a turnaround from 2009 when information technology spending fell 5.9 percent.

For the past few years, many information technology executives have had to put information technology projects on hold, knowing that any request for money would get shot down. Even projects that could be cost justified had little to no chance because they still required upfront capital expenditures and that money just wasn't in the budget.

After the meltdown of 2008, businesses have been in cost-cutting mode and in no mood to spend a dime on anything. That may work for awhile, but information technology spending can only be put off for so long before it starts to have some consequences.

And so as 2010 comes to a close, thoughts turn to the prospects for information technology spending in 2011. One thing that is certain is that there is a whole lot of uncertainty.

Going into 2011, businesses are expected to be worried on the one hand about a so-far anemic economic recovery, the potential for more taxes and regulation, and higher health insurance costs. Midterm elections, likely to put the country on a more conservative course, may also put a stop to some of President Obama's anti-business agenda.

Gartner's forecast for 2011 is for a 3.5 percent increase in enterprise information technology spending--up from the 2.9 percent projection for 2010.

Anecdotally, the head of one risk management technology provider tells me that he has been hearing a slightly more optimistic tone this summer. While no one is ready to go out on a major spending spree, at least people are willing to have conversations about projects. Nevertheless, many are waiting for January to get a better idea what's in their 2011 budgets.

Despite its prediction of an increase in spending, Gartner was also advising information technology providers to act now to develop contingencies to mitigate the risk of zero growth in 2011, a scenario that Gartner said has a lower probability but a much higher potential impact.

Kenneth Brant, a research director at Gartner, recommended promoting solutions that deliver "cost optimization" through 2011, which he says will be a persistent and overriding value for technology buyers even as markets return to growth.

Gartner also recommends technology providers focus on high-growth industry segments through 2014. In 2010, the top growth sectors were expected to be utilities at 4.7 percent and national and international government at 4.0 percent.

Gartner did not break out any figures for risk management, but in the insurance sector, information technology spending was expected to increase by just 2.1 percent, putting it second to last on the list, just ahead of local and regional government.

While budget pressures are a reality, companies that postpone information technology investments for too long could find themselves at a disadvantage as new technologies emerge that will deliver cost savings and operational efficiencies.

PATRICIA VOWINKEL has worked for national media outlets for more than 20 years.

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