Gartner Says Increases in IT Budgets Lag Behind Revenue Growth

Gartner Worldwide IT Benchmark analysis of more than 900 organizations worldwide helps IT decision-makers anticipate and plan for fluctuations in IT investment

STAMFORD, Conn., July 13, 2006 — IT budgets react less positively to revenue increases and are usually more negatively affected by revenue declines, according to a recent study conducted by Gartner. Even in organizations that experienced 10 percent revenue growth, most did not show IT budget growth beyond five percent.

The study, conducted by Gartner’s Worldwide IT Benchmark Service, involved the analysis of nearly 900 companies in more than 20 industries and sectors worldwide to explore actual and planned spending patterns versus revenue during the past three years.

“This analysis confirms that organizations are not increasing their investment in IT at the same rate as the business is growing,” said Jed Rubin, director of consulting at Gartner. “The results also show the extent by which IT investment is reduced within organizations experiencing revenue decline.”

The study found that IT spending in some organizations, like information technology companies, reacts more quickly and aligns closer to changes in its revenue. Others, like government agencies, show less fluctuation in IT budget despite changing organizational conditions. Table 1 highlights six industries/sectors from more than 20 analyzed in the report.

“Chief Information Officers (CIOs) and senior IT decision-makers can use this data to benchmark their IT budget against similar organizations and anticipate future fluctuations in IT investment driven by changes in revenue,” said Mr. Rubin. “The data provides a solid basis for CIOs to discuss realistic and competitive changes to IT budgets with executives in the organization.”

The study found that IT spending that aligned to revenue conditions often came as a result of greater communication between the IT organization and leaders in the business, and it is commonly found within organizations with more frequent budget review cycles. Organizations that have longer budget review cycles, as often found in Government agencies, will often not be able to respond to changing conditions as quickly.

Table 1

Expected Revenue Change for Coming Year	-10%	-5%	0%	5%	10%
Anticipated IT Spend Change Based on Expected Revenue Change
Banking & Financial Services	-5.86%	-3.35%	-0.84%	1.67%	4.19%
Government	-0.14%	1.07%	2.29%	3.50%	4.71%
Information Technology	-7.99%	-4.72%	-1.44%	1.83%	5.10%
Manufacturing	-7.32%	-4.59%	-1.87%	0.86%	3.59%
Professional Services	-3.65%	-1.67%	0.31%	2.30%	4.28%
Utilities	-8.24%	-5.21%	-2.17%	0.86%	3.89%

Source: Gartner Worldwide IT Benchmark Service (July 2006)

"In order to justify future IT investment plans to senior executives in growing organizations, CIOs should consider using competitive benchmarks and key business indicators such as employee growth and operational spending as a basis of fact for the discussion,” said Mr. Rubin. “In organizations that are not growing, or undergoing restructuring, CIOs can use this competitive benchmark data to anticipate and set realistic expectations for the reduction in IT investment within the business, rather than waste time and resources exploring the ways to meet the unrealistic demands of executives.”

Further detail on this report, as well as additional approaches to communicating IT growth and budget plans, will be made available in an upcoming Gartner teleconference titled: “How-To Session: Proving IT Worth”. To register, visit: http://www.gartner.com/teleconferences/asset_153353_75.jsp.

Contacts:


Laurence Goasduff
Gartner
+ 44 1784 267 195
laurence.goasduff@gartner.com

Christy Pettey
Gartner
+1 408 468 8312
christy.pettey@gartner.com


About Gartner:
Gartner, Inc. (NYSE: IT) is the world's leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the indispensable partner to 60,000 clients in 10,000 distinct organizations. Through the resources of Gartner Research, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 4,000 associates, including 1,200 research analysts and consultants in 80 countries. For more information, visit www.gartner.com.