An improving economy has slowed the move toward centralized management of IT and increased the involvement of leaders outside of IT in overseeing and prioritizing IT, according to a new survey from Forrester Research, Inc. (Nasdaq: FORR). For the survey, Forrester interviewed more than 1,300 technology decision-makers from North American and European enterprises. A majority responded that cross-functional committees set IT direction. At the same time, these groups are thinking more strategically about IT, demonstrated by an increase in the percentage of IT budgets going toward both new IT investments and R&D from 2003 to 2004. A sneak peek at 2005 IT budgets indicates that the economy is continuing to improve — more than one-third of enterprises plan to increase IT spending in 2005.
“After three years of a massive shift toward centralization of IT departments, the trend appears to be slowing. Sixty-six percent of North American enterprises described their IT organization as centralized, which is down from 74 percent last year,” said Tom Pohlmann, vice president and research director, Forrester. “This means that leaders outside of IT are playing a key role in setting IT direction and driving vendor selections, and it may lead to an increase in overlapping IT spend by the business units.”
Governance By Committee
Top-level business executives are dirtying their hands in IT.
- Many North American and European enterprises still require CEO sign-off on new IT investments — 31 percent and 38 percent, respectively.
- Governance by committee has become the norm — 67 percent of large companies have committees of senior business leaders that oversee and prioritize IT investments.
- Business units play a role in purchasing enterprise applications that directly affect their business processes — such as CRM, HR, finance — and are often involved in vendor selection. Twenty-six percent of enterprises include their business units in selecting software vendors, while 21 percent help select IT consulting vendors.
As enterprises are entering into the 2005 budget season, Forrester asked technology executives about spending plans for the coming year. Overall, 37 percent will spend more on IT in 2005 than in 2004, led by large North American businesses and financial services firms. Only 15 percent of respondents expected to decrease their IT spending in 2005.
In addition, the findings revealed that the respondents had similar sentiments regarding spending priorities and vendor management, including the following:
Europeans Are More Optimistic About IT Spending
Compared with their North American counterparts, European enterprises spend a higher percentage of their IT budget on new investments and R&D, and they spend a greater percentage of their revenues on IT.
- European enterprises are spending 37 percent of their IT budgets on new investments, compared with 30 percent for North American enterprises.
- On average, 36 percent of budgets for new investments are not earmarked for a specific project.
- Allocations for R&D increased to 6.2 percent of IT budget in North American, but that still lags behind the 8.5 percent allocated by European enterprises.
- The percentage of company revenue spent on IT is similar in both geographies — 4.8 percent in Europe and 4.2 percent in North America.
Even enterprises without centralized IT have implemented centralized vendor management groups. Slightly more than half of the North American and European large businesses have centralized vendor management groups to achieve greater leverage and cost savings.
- While European enterprises lead in deployment of these groups, North American firms take an all-or-nothing approach, with 75 percent using them to manage all IT vendor relationships.
- Thirty-five percent of respondents indicate the centralized vendor management strategy was successful due to better discounting terms this year.
To learn more about Forrester’s Business Technographics® July 2004 North American And European Study, please read “Governing IT In The Enterprise.” It is available to WholeView 2™ clients and can be found at www.forrester.com.