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Midsize
Business IT Spending Priorities, Drivers and Impediments
By James A. Browning
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Twelve-month
projections for IT spending among midsize businesses (MSBs) have
remained static in the past year. Very few MSBs state that they
will decrease their IT budgets, while 45 percent will increase their
IT budgets to some extent. Key investment areas will be largely
driven by vertical and technology adoption profiles. In general,
investment areas will fall within the categories of security, architecture
optimization and upgrades. Those aiming to increase their budgets
by more than 10 percent will be seeking innovative and transformational
approaches to deploying IT for achieving or maintaining market leadership
positions.
Stated
drivers for IT spending have changed in recent surveys. Revenue
generation appears at the top of the list for IT investment drivers,
and lowering operating costs is the second most-important driver.
This is surprising because both primary and secondary research for
the past two years has shown that IT spending has been driven by
the desire to cut costs. IT vendors must realize that MSBs have
always had an obsession with cost efficiency because of their lack
of resources. A possible explanation for the shift in priority to
revenue generation is grounded in the fact that operations are running
as lean as possible and therefore, opportunities to improve the
bottom line must be sought through increased sales opportunities.
MSBs also are interested in opportunities to improve the performance
of technology investments, such as enterprise resource planning
(ERP) and customer relationship management (CRM). Regardless, MSBs
demand tangible proof of operational efficiencies for the majority
of their IT investments.
Many
novice vendors selling to the midmarket believe that dropping the
price of a given technology component will be enough to convince
MSBs to buy, when in fact, the cost of acquiring the technology
is secondary to the costs of implementing and supporting the technology
component. This has been a long-standing concern in the MSB market,
as executives are more concerned with whether they have the operational
resources to implement and support a given offering.
Another
impediment on the rise is the requirement to develop a business
case. This is typically a symptom of a shortage of financial skills
within the IS organization and the lack of coordinated incentives
and activities between IS and the business. Vendors and end users
alike can improve the challenge with business-case development.
Vendors should consider it a cost of doing business to include tools
(such as total cost of ownership calculation) and past performance
data for similar companies (based on region, size and industry)
during the sales and decision making process to best assist MSBs
in making the right investments.
Balance
between cutting costs and generating revenue, requirements for long-
and short-term returns on investments, and use of staff augmentation
and strategic/architecture design services, will be both a goal
and a challenge for MSBs. In many cases, the payoff will be in the
form of increased profitability, competitive advantage and increased
market share. The IT vendors that assist them achieve this balance
will obtain their loyalty.
James
A. Browning is Vice President and Research Director
in Gartner Research, where he is part of the Small and Midsize
Business Research organization at Gartner, Inc. Discuss your perspective
with Mr. Browning one-on-one at Midsize
Enterprise Summit this fall.
Reference
Gartner
Research Note
MSB
IT Spending Priorities, Drivers and Impediments
Publication
Date: March 13, 2003
Author:
Mika Yamamoto Krammer
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