Keep the Faith: CIOs Forecast Some IT Budget Growth in 2002

The news on the technology spending front isn't great, but it's somewhat better than expected, according to new research from two major investment banks. According to a survey from Morgan Stanley's CIO Outlook 2002 Conference, CIOs expect modest budget growth in 2002 and anticipate that spending will focus mainly on e-commerce initiatives, security software and enterprise application integration.

The Morgan Stanley survey also reports that CIOs are being forced to re-budget every quarter to adjust to the uncertainty in the business environment—forcing IT plans to change as the financial outlook changes. And because of the constantly changing economic climate, technology vendors may feel the pinch. The CIOs surveyed are seeing a flight to name-brand software because they are "clearly more risk adverse," states the survey summary.

CIOs are also structuring contracts to account for the unstable business environment, according to the Morgan Stanley research. They stressed the importance of creating contracts that are flexible enough to account for changing trends. For example, Morgan Stanley notes, one CIO reportedly structures contracts in a manner that does not lock him into agreements that would be harmful in bad economic times or in cases of mergers or acquisitions.

Also, faced with constantly changing IT budgets, CIOs are becoming bargain hunters. One CIO in the Morgan Stanley study described an online auction he held with three PC vendors, where the price per PC dropped 60 percent in three hours.

Meanwhile, Merrill Lynch forecasts that corporate spending on technology will grow slightly—three percent—in 2002, according to the firm's survey of 100-plus CIOs in the US and Europe. That's a modest improvement over last year's reported one percent decline in IT spending. The key factor in 2001's flat spending level was the Sept. 11 terrorist attacks, according to Merrill Lynch analyst Steven Milunovich, and the attacks also will have an impact on spending this year—at least to the extent they influence where scarce resources will be directed.

The CIOs polled ranked security as their top priority, with disaster recovery coming in third. They also indicated enterprise resource management systems, Web development, Windows 2000 and storage will be areas for spending in 2002.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio