Enterprises spend over a third of their IT budgets on internal development and maintenance. This makes sense given that the in-house team is usually the first choice to address an organization’s IT needs. This method is often used due to cost-effectiveness and the fact that developments can be carried out faster due to the staff already being in place and having a better knowledge of the business.
Vendors must work hard to secure business and target particular verticals and geographies where economies and IT budgets are strong.
Financial and energy/utilities organizations most likely to increase budgets
A Datamonitor survey of 500 IT decision makers in enterprises across the US, Europe and Australia, undertaken in the first half of 2007, reveals that the majority of enterprises’ IT budgets have increased from last year and a high proportion are expected to increase in 2008. The largest proportion of enterprise IT budgets will be spent on internal development.
Over half of the surveyed firms in retail banking, energy/utilities and financial markets indicate that they will be increasing their budgets in 2008. Financial institutions typically have higher revenues and the strong economies in the surveyed countries, meaning this result is unsurprising. More interestingly, the planned increase in energy/utilities organizations’ budgets coincides with the recent consolidation among enterprises in this market. Standardizing and replacing old systems are clearly high on their agendas.
Expenditure on hardware may begin to decrease
Hardware has always taken up the largest proportion of enterprises’ IT budgets and is still reportedly over one third in this survey. However, software and services may be gaining more traction as the proportion of budgets spent in these areas appears to be gradually increasing.
This is largely due to the regular updates needed by software and new investments in enterprise resource planning (ERP), customer relationship management (CRM) and business intelligence (BI), as well as a higher demand for services. This is likely to be a result of increased complexity in the IT infrastructure and vendors promoting their managed and professional service solutions effectively.
In-house team approached first and consumes most of IT budget
The survey results indicate that enterprises will select their in-house team to address IT needs where possible, and the largest proportion of their budgets is spent on internal development and maintenance.
Variations by country are useful in pinpointing areas for vendors to target: Italian enterprises are more likely to approach technology vendors before their own in-house team, whereas enterprises in Benelux and Australia are far more likely to use their internal IT staff.
This information also links in with another Datamonitor survey, which reveals that Italian enterprises prefer both hosting and outsourcing in order to reduce pressure on their in-house teams. Other regions are more reluctant to give up control and the management of processes and therefore are less likely to use these models.
IT budgets do not always allow for the highest level of expertise and since there are a number of technologies and issues to manage, technologies must be prioritized for internal development so the costs can be carefully balanced. With this in mind and the regional variations, vendors will need to work harder to prove the value of their solutions.
