Responding to Stagnant IT Spending

Despite an expected 2.5% increase at the median in the IT operational budgets of North American companies during 2013, those companies are not expected to make any significant increases in Empty-wallettheir capital budgets or headcount in the coming year. These are the main findings of a new report from research firm Computer Economics, “Outlook for IT Spending and Staffing in 2013.”

North American IT capital spending is only expected to rise an anemic 0.3% at the media during 2013. Nervousness among North American companies about uncertainties across the globe, including domestic budget deficit negotiations, ongoing recession in Europe and uncertainty about the Chinese economy, is reining in capital spending. Most IT capital spending that does occur this year is expected to focus on less costly and time-expensive software upgrades as opposed to more complex software upgrades.

During 2012, North American IT capital spending and IT hiring experienced healthy growth. In addition to stagnant capital spending, the North American IT community is also expected to maintain 2012 headcount levels, with average salary increases for IT employees ranging from 2-3%.

Looking at the one area where some spending increases are expected, Computer Economics predicts that cloud computing will be the area where most North American IT organizations dedicate increased IT operational spending. IT executives are also expected to investigate outsourcing as a means of improving agility and lowering costs, with possible increases in desktop support and help desk outsourcing.

Of course, predicting the future is always a dicey proposition. Computer Economics does note that if the US economy picks up, capital spending budgets could wind up growing and IT organizations could take on more permanent workers. On the other hand, if the US economic recovery weakens, there remains room for budget reductions, including a scaling back of expected growth in operational spending, which could slow down rapid expansion of cloud computing among North American business users.

So what should CIOs take away from this less than encouraging news? Following the crowd is not always the best tactic, but in this situation it appears that cloud computing and outsourcing can both offer cash-strapped IT organizations a way to improve performance while reducing costs. Cloud computing can incur significant upfront costs but produces significant longer-term savings in areas such as reduced overhead, elimination of unnecessary bandwidth and faster processing.

Likewise, outsourcing brings with it some inevitable transition costs but usually offers substantial labor arbitrage and can also produce a reduced need for overhead. Furthermore, outsourcing of lower-level tasks frees up employees to perform higher-level functions and may allow workforce reductions, while outsourcing of higher-level tasks avoids the need to hire new (and expensive) expert employees. 2013 may be a tough year for IT budgets, but the right response will allow smart and tough enterprises to survive and even thrive.