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Report: IT Budgets Are Being Reduced But Not All Because of Sept. 11

    Online News published in DMReview.com
November 6, 2001

A new survey shows that the number of large companies in North America that have cut their eBusiness budgets has nearly doubled in the past five months. More than half the respondents cite the weak economy -- rather than the September 11 terrorist attacks -- as driving budget cuts in their technology spending this year. At the same time, more than 60 percent think that the recent tragic events will exacerbate current economic conditions.

Forrester Research surveyed more than 800 Global 3,500 firms (businesses with more than $1 billion in revenue) in May to understand their budget and spending changes since the start of the year. In the wake of the terrorist attacks, Forrester went back into the field in late September and early October to assess how these firms continued to adjust budgets and spending.

Specifically, Forrester found in May that only 17 percent of large companies had decreased their e-business budgets since the beginning of the year. By last month, nearly one-third of Global 3,500 firms reported such reductions. Furthermore, the amount by which their budgets decreased is significant. The average reduction was only 0.3 percent last spring, whereas this fall, big companies said that they predict a nearly 6 percent budget drop this year.

Few Technologies Escape Budget Cuts

"Many industry observers expected that September 11 would result in a drastic drop in business travel, prompting a big influx in spending on such remote-meeting offerings as videoconferencing and instant messaging," says David E. Weisman, vice president, global research, at Forrester. But the survey revealed a different trend: an anticipated 6 percent decrease in remote-meeting technology and a more than 6 percent increase in business-travel spending among big companies this year.

"Take a closer look at that technology," says Weisman, "and you'll see it's still too clumsy, awkward, and impersonal to spark a major investment. Furthermore, company travel budgets are up because although many people remain too frightened to fly, businesses are still committed to allocating travel resources to keep employees in the field."

As part of the shrunken eBusiness budgets, 44 percent of Global 3,500 firms plan to increase spending on disaster recovery by an average of 18 percent. Nearly 30 percent say they'll spend an average of 22 percent more on security. Generally, however, major companies plan to decrease their spending in the following categories: server hardware, customer relationship management (CRM) software, and wireless and mobile data products.

The labor market has also experienced significant changes since May. Consultants are hit hardest, as 60 percent of large companies reduce their consulting and implementation services budgets by an average of 30 percent. In addition to existing layoffs, 25 percent of big businesses plan to cut more headcount, and nearly 20 percent will reduce salary expenditures further.

The Forrester report also revealed that as of October, all industry segments have cut their e-business budgets.

The most significant reductions are in technology and business services, which reported a 0.3 percent budget increase last spring; their budgets now have been cut by an average of 12 percent.

In May, the financial sector saw a 1.5 percent budget increase; now they are experiencing a 1.7 percent decrease since the beginning of the year.

In May, the distribution industry said that their budgets fell about 2.5 percent; now they're looking at a 3.3 percent reduction. Manufacturing budgets went up 0.4 percent in May; now they have decreased 6.3 percent.


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