Two-thirds of European firms will either cut IT spending or hold it flat this year, but they expect their budgets to be 13 percent higher in three years. To exploit the coming upturn, vendors must adapt to what Forrester calls “Organic IT” to ease users’ organizational pains, according to a new report by Forrester Research B.V. (Nasdaq: FORR).
Forrester surveyed 212 CIOs, CTOs, and IT directors throughout Europe about their technology spending in March 2002. The executives indicated that most companies either shrank or held steady their IT budgets in the first three months of this year, and they do not anticipate a change in the immediate future. An overwhelming 72 percent said they had encountered new, specific pressure to reduce IT costs; one in four respondents had delayed projects; and and one in five are now canceling projects. Of those that had decreased their budgets, the top two reasons were the overall economic downturn and weak individual company performance — only 14 percent said eBusiness was less important to them this year. Indeed, companies are still relying on technology for growth, as evidenced by their future spending plans: Three-fourths of respondents expect increased IT budgets by 2005 and nearly half expect to increase headcount by an average of 43 percent.
“Significantly for vendors, European firms plan to grow IT spending faster than IT headcount, wringing more productivity out of fewer, higher-skilled people,” said Matthew M. Nordan, Research Director at Forrester. “The average respondent will employ only 5 percent more IT staff in three years but will pay these employees 20 percent more. “Executives plan to jettison low-level IT administrators from the corporate payroll,” said Nordan. “As they do so, they¿ll expect IT products to require less maintenance and support. Vendors can answer the call by delivering self-management solutions that proactively monitor, tune, and reconfigure systems to preempt problems before they occur.”
Forrester argues that companies’ staffing changes will translate into organizational shakeups: 40 percent of executives expect to reorganize the IT department over the next 12 months with 54 percent of them citing increased use of outsourcing as a driver. The in-house IT organization that manages these outsourcers will become increasingly centralized and detached from business-unit control. For technology services vendors, this means more business; for hardware and software vendors, it means another intermediary en route to the end customer. Like it or not, big outsourcers like EDS and Perot Systems increasingly will influence European IT spending decisions.
“We estimate that European firms overspent on IT by €33 billion in 2000 alone,” Nordan added. “Along the way, European firms accumulated a multivendor morass of systems and software — and they’re fed up with it. Executives tell us that overpriced products and services, high maintenance costs, and integrating heterogeneous systems all conspire to limit the value of IT. Crucially, as executives prepare for renewed growth, they will gravitate toward vendors that can mask complexity, reduce the staff-to-systems ratio, and adapt pricing and packaging for outsourcing and recentralized IT environments. As European IT budgets kick back into growth mode over the next three years, successful vendors must tap into these hidden needs to beat out rivals.”
Vendors can ease complexity and win customers by delivering a radically simpler computing environment — Organic IT. Organic IT will use abstraction to hide multivendor complexity behind simple interfaces. The enablers of Organic IT are shared, consistent interfaces that make the whole more than the sum of its parts — such as Web services for business applications and InfiniBand for server components.
For the report “Vendors’ Guide To Europe’s Tech Recovery,” Forrester conducted an online survey of 212 CIOs, CTOs, eBusiness directors, and other technology leaders across Europe.