Chief information officers are continuing to scale back IT spending plans for 2002, and a pick up is unlikely until 2003, according to a new study from Merrill Lynch.
The financial analyst has downgraded its predictions for IT spend over the year after a study of 50 companies with an average IT budget of £487m showed that firms intend to review technology spending plans and focus on getting more from their existing IT investments.
European companies plan to increase IT budgets by approximately three per cent in 2002, down from 4.7 per cent in a similar survey in August, with the majority of technology investments focusing on security, customer relationship management and enterprise resource planning.
Ariel Bauer, report contributor and head of the IT services team at Merrill Lynch, suggested that the results highlighted widespread pragmatism but also showed that the market could not see the emergence of a new killer application over the next 12 months.
"There's no big technology disruption like the one we saw with the internet, so it makes sense for companies to improve the efficiencies of their existing systems," he said.
But the deepest cuts are expected across consulting and staffing, with applications and hardware least affected by the belt tightening exercise.
"Consulting is highly people intensive. But companies have compensated by outsourcing more to third parties and that's a long term trend that's set to continue," explained Bauer.
The proportion of IT budget given to outside service providers will increase from its current level of 21 per cent to 30 per cent in two years' time, according to predictions from Merrill Lynch.
But two thirds of respondents insisted that they would prefer using a syndicate of best of breed services companies rather than a one-stop shop approach.
And respondents plan to spend only 16 per cent of IT budgets on global contracts, supporting the view that IT services are most affected by local conditions.
The analyst also predicted renewed interest in portals as a key area of software spending after what it describes as a year of being left on the shelf.
More than 60 per cent of respondents intend to adopt portal technology for their company, accessible for an average 74 per cent of employees.
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