Large firms cut IT spending

More than two-fifths of large companies have cut IT spending in the current economic climate, with the US harder hit than Europe, research has found.

The Business Data Services report from research house Forrester quizzed 950 senior IT managers in Europe and North America on their financial and strategic outlook. 43 per cent of businesses revealed they have already cut their overall IT budget this year in response to the economic slowdown.

Discretionary spending has been put on hold by 24 per cent of firms, while just 28 per cent claimed the economy had not had an impact on their IT budget. IT departments in the financial services arena were worst-affected with 49 per cent claiming to have reduced their budget.

North American firms' IT departments were in worse shape than their European counterparts. In Europe, 31 per cent have cut their budget, compared to 49 per cent on the other side of the Atlantic - although Forrester took pains to point out that the study was conducted in Q2 2008 while European economic conditions were somewhat more robust.

Demand for services remains solid, with 45 per cent of firms intending to increase their use of applications outsourcing. Increasing infrastructure outsourcing is planned by 43 per cent of companies and the same amount are moving more work offshore.

Nine per cent of companies claim to use offshore resources whenever and wherever possible. 19 per cent are piloting offshoring schemes while 14 per cent are actively ramping up their use of offshore resources. Only 22 per cent of companies do not send any work offshore, with the questionable quality of work being their biggest concern.

Despite firms claiming they are generally happy with their decision to use a third party, 52 per cent cite cost savings being lower than expected as their biggest problem with outsourcing. Two-fifths of respondents cited inconsistent or poor service quality as a concern and 35 per cent were worried by the inflexibility of contract structures prohibiting a rapid response to changing business needs.

Forrester vice president John McCarthy said: "With regard to the services sector, the slowdown has firms renegotiating rates, being more selective in choosing vendors and examining spending plans more thoroughly, but they are still expecting to pay more for services. The demand for enterprise IT services has not dropped significantly.”