After holding its breath for most of the year, the supply chain may be able to breathe a collective sigh of relief. Following two years of zero growth, IT spending is expected to return to pre-recession levels, according to research and services company The Corporate Executive Board.
A poll of CIOs and IT managers at 133 Fortune 1000 companies indicates a 3.3 percent increase in IT operational budgets for 2011, the CEB reports.
IT spending is only one indicator of an industry rebound, but a welcome one nonetheless. Component makers and distributors have seen orders, shipments, and revenues climbing throughout the year, but there has also been a sense of uncertainty about a double-dip recession. Just recently, iSuppli forecast that semiconductor industry growth would soften in 2011. If IT budgets for 2011 are expected to grow, the pull-through effect will benefit the supply chain, from component makers through to IT and systems distributors.
For comparison, Forrester Research predicts IT spending next year will increase by 7.4 percent over 2010 levels, and Gartner Inc. expects global enterprise IT spending in 2011 to grow 4 percent year-over-year.
Moreover, according to CEB, IT investment will go into areas that foster better knowledge sharing, collaboration, and insight generation — areas that could benefit the supply chain indirectly.
“It's no coincidence that these capabilities often have the greatest impact in the areas organizations look to for growth, such as sales and marketing, customer service, and product innovation,” says Shvetank Shah, executive director of the Corporate Executive Board's Information Technology practice. Lack of visibility into end-customer forecasts is cited by the supply chain as one area that needs improvement. Another is collaboration, which works on a company-to-company level but not at a systemic level. “After two stagnant years, IT budgets are starting to reflect improvements in company performance,” Shah says.
Additional key findings of CEB's benchmarking research include:
- Broad-based growth among companies. Encouragingly, the trend of increasing IT operational budgets is broad-based, as two-thirds of CIOs will increase expenditures in 2011. This compares starkly with forecasts of last year, when 75 percent of CIOs expected operating budgets to remain flat or decline.
- Integrated IT services quickly becoming a reality. CIOs plan to integrate their traditionally siloed infrastructure and applications groups or merge IT into a cross-functional enterprise services organization. By 2012, 20 percent of organizations will be integrated into a multi-functional shared services organization, and an additional 35 percent of organizations will have integrated IT services.
- IT capital budgets remaining flat in 2011. Two-thirds of the total IT budget will continue to be consumed by “keep-the-lights-on” maintenance or costs associated with regulatory compliance activities. IT capital budgets will remain flat in 2011, at 0.6 percent of revenue, mirroring the lack of growth IT organizations saw in the last three years. Although this is not as optimistic as operating budget forecasts, electronics distributors and EMS companies are the significant providers of maintenance, repair, and operations (MRO) components and post-manufacturing sales and service to the electronics and reseller industries.
Is your company breathing a sigh of relief yet?