VideoAs IT director of NYK Business Systems Americas (a unit of Tokyo-based NYK, a global container-shipping company), Kurt Schubert has a list of things he'd like to do, and a list of things he needs to do.
He may have to forgo both.
Even essential projects, such as shoring up the redundancy and availability of NYK's custom applications, or developing a new disaster-recovery plan, now look like extravagances. The executive management of parent company NYK is asking for cuts across the board in next year's IT budget. Schubert is in a tough spot: instead of allowing the IT director to improve system availability, the 2010 budget could actually worsen it if the budget forces him to cut support staff for key applications.
Many CFOs and CIOs face similarly difficult scenarios and constraints as they look ahead to 2010. After nearly two decades of continuous increases, IT budgets have finally proved that they aren't immune to market forces. According to research firm Computer Economics, 2009 will mark a holding pattern for IT capital budgets, which will match 2008 levels, and for IT budgets as a percent of revenue, which will remain at an average of 1.5%. A report from Goldman Sachs is more grim: it says U.S. IT spending will fall by more than 10% this year.
Those figures may represent a bottoming out. Or maybe not. Goldman Sachs projects IT spending to rise 2% globally in 2010, but estimates that U.S.-based buying will contract by nearly 1%. Forrester Research is more optimistic, seeing an 8% increase in 2010 IT spending, a level reminiscent of the glory days of the dot-com boom.
As they finalized their budgets in October, however, CFOs and IT executives sang a different tune. IT spending will be flat to down for 2010, they say. And capital investment in IT will be almost nonexistent — only the most necessary of projects are winning approval for next year from executive management and boards of directors.
"We don't have any major needs to expand our network or do any big software projects; we have completed most of our major infrastructure projects over the last three years," says Brad Buss, CFO of Cypress Semiconductor. "And we expect to hold head count relatively flat over the next year."
Unkindest Cuts
Capital investment is on the back burner at companies of all sizes. At Baptist General Convention of Texas, a religious organization that supports the ministry work of churches, universities, and hospitals, the IT budget for 2010 has been cut by 10%. Director of IT Dave Lyons supports 280 PC users. He has changed a couple of staffers from full-time to part-time and plans to refresh fewer PCs next year than scheduled.
But those savings are offset by having to buy seven or eight new servers and paying more for software contracts. "Since the ministry has to run lean, I want to be there with them. But at the same time we can't go below a certain level and provide the services we have to provide," he says. Lyons would love to buy an e-mail marketing server because the current service he uses is not integrated, but that's out of the question.
NYK Business Systems Americas, which serves a much larger company, will also have a smaller budget in 2010, calculating in already-announced head-count reductions in application support and a drive to save on server infrastructure. "There is not a lot of capital spend," Schubert says.
Other companies may be investing, but not in discretionary projects. Nick Caplanson, CFO of Norwich, Connecticut-based Dime Bank, is due to deliver the community bank's IT budget later this month, and when he does, it will reflect a "loosening up of the purse strings — just a bit."
But whatever modest increase there may be owes something to timing: when the financial-services meltdown hit in 2008, the community bank postponed projects it had budgeted for in its 2009 tech-spending plan. Now some of them may finally get funding, but the proposed new outlays for 2010 hardly represent a return to normal levels of investment.
Dime will spend more on software licensing and maintenance to support an expanded user population resulting from the opening of a new branch. In addition, the bank will roll out a fraud- and security-detection system next year, which it deems necessary due to an industrywide increase in bank fraud that has coincided with the recession. The new system can be justified by its focus on keeping losses low, protecting customers, and helping Dime maintain high ratings during regulatory exams, Caplanson says.
Priority Areas
Where else might companies plan to spend their limited IT allocations in 2010? The release of Microsoft's Windows 7 operating system could lift spending on PC hardware and software, says Andrew Bartels, an analyst at Forrester Research. "For many companies, it's time to buy new PCs," he says, "because they have desktop computers that are three and four years old."
But corporate customers typically delay buying Microsoft's latest OS until its durability is proven, so the bulk of that spending might not take place until after 2010. Indeed, Dime Bank will likely do a major network and desktop infrastructure upgrade pending the release and broad acceptance of Windows 7, says Caplanson, but not until 2011.
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