Special Report: Critical Budget & Staffing Trends for 2007 ...static.infotech.com/samples/it_budget_and_staffing_report.pdf · that provide benchmark data for nine industry sectors.

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Info-Tech Research Group regularly polls IT decision makers about their staffing and spending decisions. This information is used for IT Budget and Staffing reports that provide benchmark data for nine industry sectors. The 2007 IT Budget & Staffing Reports drew on a sample of 1,712 IT decision makers. The results include a broad representation of enterprise sizes ranging from small to mid-sized to large.

Inside this report:

Make Wise Use of External Benchmarks

Moderate Spending Increases Amidst Strong Growth

Innovators and Integrators Associated with Higher Revenues

Special Report: Critical Budget & Staffing Trends for 2007-2008

Info-Tech Research Group is a professional services firm dedicated to providing premium research and objective advice to IT managers of mid-sized enterprises, serving more than 25,000 clients worldwide. Our purpose is to provide practical and thorough solutions that enable IT managers to bridge the gap between technology and business.

www.infotech.com

888-670-8889 (North America) 519-432-3550 (International) © Info-Tech Research Group, 2007

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Table of Contents

Executive Summary ..........................................................................................................................1

Make Wise Use of External Benchmarks........................................................................................2

A Rich and Expanding Source of Benchmark Data ...............................................................3

Tracking Averages in the Midst of Variability ...........................................................................5

Very Different Company, Same Number of PCs .....................................................................8

Principles for Wise Use of Benchmarks ....................................................................................10

Manager Takeaways: Plenty of Ammunition. Use it with Caution......................................12

Moderate Spending Increases Amidst Strong Growth .............................................................13

Laggards: Choked for Resources or Lean and Mean?........................................................17

Staff Increases Negligible..........................................................................................................20

Where the High Growth Enterprises Spend (Proportionally) More......................................24

Manager Takeaway: A Time for Cautious Optimism............................................................25

Innovators and Integrators Associated with Higher Revenues................................................26

Innovation Focused vs. Operationally Focused ....................................................................27

Application Development an Innovator Focus.....................................................................29

Integration Improves Staff and Spend to Revenue Ratio....................................................31

Manager Takeaways: Integrators Do Better than Innovators .............................................34


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Figures and Tables

Figure 1. Survey Respondents by Number of Full-Time Employees ...........................................3

Figure 2. Survey Respondents by Industry Sector.........................................................................4

Figure 3. Breakdown of Sectors and Segments ...........................................................................4

Figure 4. Survey Respondents by IT Budget Size...........................................................................5

Figure 5. Survey Respondents by IT Department Size..................................................................6

Figure 6. IT Budget Allocation by Number of Full-Time Employees ...........................................7

Figure 7. IT Budget Allocation by Revenue Growth ....................................................................7

Figure 8. Parallel Correlation of PCs with Staff Size in Professional Services.............................9

Figure 9. Correlation of PCs with Staff Size in Manufacturing ....................................................9

Figure 10. Proportions Reporting Spending Increases/Decreases ..........................................14

Figure 11. Mean % IT Spending Change by Industry .................................................................14

Figure 12. Spending Increase/Decrease/No Change by Industry..........................................15

Figure 13. Enterprise Revenue Growth for All Industries ............................................................16

Figure 14. Anticipated Spending Increases by Revenue Growth...........................................16

Figure 15. Anticipated Spending Increases by Revenue Growth...........................................17

Figure 16. Discretionary Spending and Enterprise Growth.......................................................18

Figure 17. Proportions with Medium to High Revenue Growth................................................19

Figure 18. Staff Growth by Industry...............................................................................................21

Figure 19. Overall Staff Increases by Revenue Growth.............................................................22

Figure 20. Staff Turnover Averages by Industry...........................................................................22

Figure 21. Staff Turnover Averages by Strategic Focus.............................................................23

Figure 22. Global Budget Allocation by Revenue Growth.......................................................24

Figure 23. Global Budget Allocation by Revenue Growth.......................................................25


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Figure 24. IT Spending per Employee by Strategic Focus.........................................................26

Figure 25. IT Complexity and Spend as % of Revenue..............................................................27

Figure 26. Respondents by Strategic Innovation Focus ............................................................28

Figure 27. Mean IT Staff Growth by Strategic Focus..................................................................28

Figure 28. Change in Spending by Strategic Focus ..................................................................29

Figure 29. IT Spend as Percent of Revenue by Strategic Focus...............................................29

Figure 30. Staff Time Allocation by Strategic Focus...................................................................30

Figure 31. Spending Areas by Strategic Focus...........................................................................31

Figure 32. Respondents by IT Infrastructure Complexity ...........................................................32

Figure 33. Spending Areas by Infrastructure Complexity..........................................................32

Figure 34. Spend Per Employee by IT Complexity......................................................................33

Figure 35. IT Staff Percent to Total Staff by Size ..........................................................................33


1 © 1998-2007 Info-Tech Research Group

Executive Summary Info-Tech Research Group regularly polls IT decision makers about their staffing and spending decisions. This information is used for IT Budget and Staffing reports that provide benchmark data for nine industry sectors. The 2007-2008 IT Budget & Staffing Reports drew on a sample of 1,712 IT decision makers. The results include a broad representation of enterprise sizes ranging from small to mid-sized to large.

This report provides analysis of trends across all survey respondents and identifies critical issues that IT decision makers should consider in their budgetary planning. Findings and analysis are grouped into three sections:

1. Make Wise Use of External Benchmarks. Info-Tech’s Budget and Staffing reports provide a rich and detailed view of staffing and spending patterns across nine industry verticals. New benchmarks included estimated increase/decreases in spending and staff as well as staff turnover estimates. There is also a new size variable – number of PCs. However Info-Tech recommends that great care be taken in using this data. Five key principles for benchmarking will be reviewed.

2. Moderate Spending Increases amidst Strong Growth. IT departments are increasing their spending by a moderate 4.5% overall in 2007-2008. Overall revenue growth has been strong. Primary Industries, Business and Professional Services, and Financial Services are more likely to be increasing spending. Government and Education sectors are least likely to be increasing spending. We’ll look at how growth impacts budget flexibility and spending patterns.

3. Innovators and Integrators Associated with Higher Revenues. Innovators focus on the use of technology to improve competitiveness and enterprise revenue potential. Innovator IT departments spend more per employee than those focused on cost control and Info-Tech finds that innovators are associated with enterprises with higher revenues. However, innovation may not be paying off as much as it could. Integration of complex infrastructures also has had a greater effect of reducing IT spend relative to revenue as well as IT staff relative to total staff.

This report can be used either standalone – for its analysis of general IT budget and staffing trends – or as an added-context companion piece to one of Info-Tech’s nine detailed and sector-specific IT Budget & Staffing Reports.

All statistics in this report are general averages for all survey respondent and findings speak to general trends across all industries. Findings for individual industries, as well as segments within industries, will vary. For more specific benchmark figures for a given industry, look to the relevant 2006 IT Budget & Staffing Report for a given industry sector.


Make Wise Use of External Benchmarks Info-Tech’s 2007-2008 IT Budget and Staffing reports provide a rich and detailed view of budget and spending patterns across a range of industry verticals and enterprise sizes. Each report is specific to one of nine industry segments:

• Business & Professional Services. • Education. • Financial & Insurance Services.


• Government. • Health Care. • Manufacturing. • Primary Industries. • Transportation/Utilities/Communications

(T/U/C). • Wholesale & Retail.

With a large (1,712) survey sample and 11 different benchmark categories, these reports can provide the IT decision maker with valuable contextual understanding of allocation patterns in peer enterprises. However, even with solid statistically valid and industry-relevant figures, care must be taken about making blanket assumptions or assertions based on the data.

While benchmarks can be highly informative, they must be treated with caution. Use benchmark comparisons as directional indicators. A benchmark reflects an average for a given group of IT departments. There can be wide variability from one IT department to another.

Budget and Staffing Benchmarks

1. Mean IT Spend as Percent of Revenue

2. Average Estimated Increase in Spending

3. Mean IT Spend per Employee 4. Maintenance vs. New Spending 5. Budget Allocation by Global

Category 6. Spending by Hardware/Software 7. IT Staff as Percent of Total Staff 8. Average IT Staff Growth 9. Rate of IT Staff Turnover 10. IT Staff Time Allocation

Benchmarks can be seductive, particularly for business leaders looking for a single simple performance metric by which they can judge IT value – a magic number. For IT leaders, benchmarks can be distracting, or worse, result in actions that destroy business value. Info-Tech recommends that benchmark data be treated as a high-level overview of budget and staffing priorities. IT decision makers must first factor the unique characteristics of their own IT department and enterprise situation before evaluating the contextual value of the benchmarks.

In budgeting, focus on increasing the efficiency of IT services while looking for the areas where new investment can have the greatest business impact. Use a variety of both internal and external benchmarks to provide context for this process. Avoid being pegged to a single specific external benchmark number. Building budgets around a single external benchmark does not work. Internal priorities and targets (as well as external best practices) are more meaningful to budget setting than external peer benchmarks.


A Rich and Expanding Source of Benchmark Data

Info-Tech’s 2007-2008 IT Budget & Staffing Reports include new benchmarks for Average Estimated Increase in Spending, Average IT Staff Growth, and Rate of IT Staff Turnover. In the reports each benchmark is compared to other industry sectors and is parsed by ten variables that account for issues ranging from size and growth rate to strategic focus. These include:

1. Industry Segment 2. Full-Time Employees 3. Number of PCs 4. Estimated Annual Revenue 5. IT Budget Size

6. IT Staff Size 7. Three-Year Revenue Growth 8. Strategic Focus 9. IT Infrastructure Complexity 10. IT Investment Orientation

Across all industries there is a balance of respondents from enterprises of various sizes. Sizes ranging from very small enterprises of up to 50 employees (16% of respondents) to large enterprises of more than 5000 employees (17% of respondents) (see Figure 1).

Figure 1. Survey Respondents by Number of Full-Time Employees

Across the nine industry sectors there is a statistically significant representation in our survey data. Business and Professional Services (normally labelled simply Business Services on the charts) was the largest respondent group and Primary Industries the smallest (see Figure 2).


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 2. Survey Respondents by Industry Sector

The industry sectors were each further parsed into “segments” representing some (though not all) of the more specific industry types within the broader sector (see Figure 3).

Figure 3. Breakdown of Sectors and Segments

Financial & Insurance Services.

Retail Banks (Commercial & Private); Credit Unions/Savings & Loan; Insurance Brokers/Agents; Insurance Carriers/Plans; Accounting; Securities/Investments; Real Estate; and Other Banking, Insurance or Financial Services not defined above.

Government Municipal, State/Provincial and Federal levels; Social Services & Associations; Charitable Organizations; Policy/Fire/Public Works; and Other agencies not defined above.

Business & Professional Services

Software Companies; Marketing/Media Services; Legal Services; IT Consulting; HR/Management Consulting; Entertainment/Hospitality (including hotels, tourism firms, entertainment and restaurants); Engineering/Science firms; Computer Services; and Other services firms not defined above.

Education Elementary/Secondary schools; Universities; Colleges; School Boards; and Other educational institutions or bodies not defined above.

Health Care Pharmaceutical/Devices/Labs; Nursing Homes/Home Care; Hospitals; Clinics/Private Practices; Miscellaneous Medical Services/Organizations; and Other health-related enterprises not defined above.

Manufacturing Manufacturers of Telecommunications Equipment; Residential/Commercial Construction; Medical/Pharmaceutical; Light Manufacturing/Media/Packaging; Steel/Metal; Chemicals/Plastics; Electronics/Computer Hardware; Consumer Packaged Goods/Non-Perishable Goods; Beverages/Perishables/Food; Automotive/Transportation; and Aerospace/Defence.


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 3. Breakdown of Sectors and Segments (con’t)

Primary Industries

Mining; Forestry; Agriculture; Oil & Gas: Refining/Processing/Production; Oil & Gas: Distribution/Transportation/Storage; and Exploration.

Transportation/Utilities/Communications (T/U/C)

Gas/Water/Other Utilities; Electric; Trucking; Marine & Air Cargo Services; Delivery & Logistics Services; Wireless Services; Telecom Services; Data & Cable/Satellite; and Other Transportation and Communications companies not defined above.

Wholesale & Retail

Wholesale: Goods; Wholesale: Software/Hardware; Wholesale: Industrial/Commercial; Retail: Goods; Retail: Hardware; Retail: Software; and Other Wholesale and Retail goods purveyors not defined above.

The market covered in the survey is extremely diverse, with many niche industries within the nine industry sector groupings. Even with so many segments named in the survey, each sector had a fairly substantial set of respondents in the catch-all “other” category. In most industries, the relative proportion of industries that identified themselves as within the industry, but not one of the segments named (“other”) ranged between 5% and 25%.

Tracking Averages in the Midst of Variability

In terms of IT staff and budget sizes there was also fairly balanced representation across shops of different size. About half (49%) of survey respondents had IT Budgets of more than $1 million. The largest single reporting group in Figure 4 were budgets of $1 million to $5 million (24%). However there is also a large contingent (38%) that has modest budgets of $500,000 or less.

Figure 4. Survey Respondents by IT Budget Size


Special Report: Critical Budget & Staffing Trends for 2007-2008 In IT department sizes there is also a large proportion of small IT departments with one quarter of respondents are between one and five IT staff. However there are solid proportions of respondents across all staff sizes. The second largest group have an IT staff of more than 200 (see Figure 5).

Figure 5. Survey Respondents by IT Department Size

Especially in modest IT staffs and budgets there can be a great deal of variation in budget profile from one IT department to the next. Significant in-year investment in one area (such as a major storage investment, a desktop PC refresh, or a major application development project) can substantially change the allocations for a given smaller IT department.

Benchmark data on budget and staffing allocation should always be treated as a relative average and not a prescriptive absolute. For example, if enterprises of 200-500 employees allocate 19% of their purchasing budget to PCs, it does not mean that an individual enterprise should plan to spend 19% of its budget on PCs. An individual enterprise may have just completed a major PC refresh and plans to spend only an incremental amount on PCs this year.


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 6. IT Budget Allocation by Number of Full-Time Employees

What the figure means is that on average 19% is the hardware spending attention is being paid to desktops across all enterprises of this size. That is less attention than enterprises of 50 employees or less, who are averaging 22% of spend on desktops. But these smaller enterprises are devoting far less attention to servers (10%) than the 201-500 employee enterprises (15%) (see Figure 6).

Looking at the allocation through a different lens, higher-growth enterprises (more than 5% annual revenue growth over the past three years) are generally devoting a smaller proportion of their spend to PCs (16%) while devoting more spending attention to servers and storage (15% and 11% respectively). (See Figure 7).

Figure 7. IT Budget Allocation by Revenue Growth




These are relative averages. For example, we shall see that higher growth enterprises are increasing their IT budgets by a larger percentage than average (7.2%) and they are spending more per employee than average. They are therefore not necessarily spending less on PCs than lower growth enterprises but rather devoting more attention to servers and storage. High growth enterprises are also apt to devote proportionally more spending attention to mobile technologies such as notebooks.

Very Different Company, Same Number of PCs

The different views offered by multiple size and situational variables can provide a better picture of IT infrastructure budget and staffing priorities for peer comparison. For example, it has been noted in previous budget and staffing reports that the size and complexity of an IT infrastructure correlates differently with enterprise size by number of employees across different industry sectors. A 500 employee manufacturer, for example, might have a more complex infrastructure than a 500 employee retailer.

New this year is a “number of PCs” (and supported workstations) metric. Number of PCs can be an interesting differentiator between enterprises and can say more about the nature of IT management than generic corporate measures such as revenue size or the total number of employees.

A 500 employee manufacturer, for example, and a 500 employee professional services firm will likely have very different IT infrastructures. The 500 employee manufacturer will have more complex centralized infrastructure while the 500 employee services firm will likely have a simpler distributed infrastructure. The two will probably have different PC counts.

Among the Business and Professional services, 62% of respondents average one employee per PC. By contrast the majority of manufacturing firms (55%) report two to three employees per PC. A large proportion business and professional services (37%) have IT infrastructures focused “primarily on individual client applications and/or relatively simple server applications.” By contrast almost three quarters (74%) of Manufacturers have complex infrastructures (see Figure 8).

Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 8. Parallel Correlation of PCs with Staff Size in Professional Services

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0-50 51-200 201-500 501-1000 1001-5000 5001+

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The vertical axis in Figure 8 is percent of respondents. The horizontal axis is both number of PCs and number of employees. When the proportion of respondents by number of employees and the proportion of respondents by number of PCs are co-related the lines run nearly parallel, suggesting that the ratio of PCs to employees remains relatively constant with growth.

Figure 9. Correlation of PCs with Staff Size in Manufacturing

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At first glance Figure 9 may seem to indicate that smaller manufacturers have more PCs than people. However, the chart shows aggregated totals for the industry, not per enterprise measures. There are more manufacturers with only 50 PCs than there are manufacturers with only 50 employees. Some of the 1000 employee manufacturers, for example, may only have 50 PCs.




With the majority (53%) of manufacturers having more than 500 staff, it takes more employees per enterprise to generate the same number of PCs as found in professional services. By contrast, most business and professional services firms have less than 500 employees.

Principles for Wise Use of Benchmarks

We have seen how benchmarks are best treated as relative averages and how parsing the data by different variables can help tell a story about each industry. This is valuable data, however, great care must be taken in how benchmarks are used in budget planning. In planning, a variety of internal and external benchmarks, as well as a clear understanding of internal business imperatives, should be used. Unfortunately, top executives are often attracted to the single “magic number” benchmark.

A single benchmark can be like fly paper to a fly. It seems sweet and inviting, but once the victim lands on it they are stuck there to die. Once an IT department attaches itself to a particular number, it is very hard to move away from that number. The IT department becomes viewed as a cost center and the single benchmark is the measure of its annual cost. Trying in a subsequent year to shift the focus to another measure – such as the impact of IT on efficiency or enabling new business – will be perceived as slight-of-hand to avoid being held to the established measure.

Info-Tech recommends keeping the following five principles in mind to ensure benchmarking is an effective tool in optimizing IT performance. For more detail on these principles – as well as illustrative examples – refer to the MacLean Report research notes “Five Principles of Benchmarking: A Guide for IT Management” and “Avoid the Single Peer Benchmark Flypaper.”

1. Treat benchmarks as directional indicators, not as a prescription for change.

When using benchmarks, be aware of two very important characteristics of benchmark data: inconsistency of measurement and variation of company responses. As noted above, a specific benchmark is usually the average of data reported by the companies surveyed. It is unlikely that any individual IT organization reports data that exactly mirror the reported averages.

Companies also do not measure IT spending and staffing the same way. Two companies can respond to the same benchmarking survey question with differing assumptions about the meaning of the question or with seemingly minor differences in how each company measures costs in a certain area.

Use reported benchmarks as directional indicators to identify performance areas that require further examination to determine whether improvements should be made or not. Do not use the reported benchmark as a prescribed target for IT performance.

http://www.infotech.com/MR/Issues/20070424/Articles/FivePrinciplesofBenchmarkingAGuideforITManagement.aspx

http://www.infotech.com/MR/Issues/20060808/Articles/Avoid%20the%20Single%20Peer%20Benchmark%20Flypaper.aspx

http://www.infotech.com/MR/Issues/20060808/Articles/Avoid%20the%20Single%20Peer%20Benchmark%20Flypaper.aspx



2. Recognize how interdependencies between the business and IT affect costs.

Benchmarking addresses the question, “How much is being spent on IT?” There are other important questions that need to be considered such as “What value is being received for what is spent on IT and how can this value be increased in the future?” While benchmarks do address the efficiency or cost side of the value equation, they do not address the benefit side. Taking action based on a benchmark, without an understanding of the business value involved, can lead to unintended consequences.

Balance what benchmarks imply about efficiency with an assessment of whether and how changes in IT may impact top-line value directly. Use a combination of top-down ratios, such as total telecommunications cost as a percent of total IT cost, and unit cost benchmarks, such as network cost per user, to corroborate findings and validate conclusions.

Determine which business behaviors are driving IT costs. Some IT costs are not entirely within IT's control. Benchmarks mask unique business characteristics that can drive IT spending patterns. Assess what unique business characteristics may be driving IT costs beyond benchmark norms. Communicate to business and IT stakeholders which business changes are a prerequisite to improvements in IT cost or staffing performance.

3. Interpret benchmark results within the context of key business or market trends.

Other factors are important to consider when interpreting benchmarks and debating the action to take. Among these factors are company performance and market forces. When a company is in the midst of difficult times, all departments will be called upon to help reduce costs for the company to survive. Benchmarks, good or bad, cannot be relied upon to justify spending. Remember that benchmarks are lagging indicators, measures of historical performance. Changes can be occurring in the market at large that will not be reflected in current benchmarks.

Use business judgment when selecting benchmarks for comparison and in interpreting benchmarks. Double-check market trends and business performance, strategies, and priorities before drawing any conclusions from benchmarking results.

4. Focus on areas with greatest potential.

As mentioned above, it is unlikely that any single organization mirrors the benchmarks across all categories. When differences are found between IT cost and staffing metrics and the relative benchmarks, it is essential to determine which ones matter.

Triage the results of benchmark comparisons. Focus on those areas that offer the greatest gain for the least effort. Additionally, assess the investment required to meet the ideal implied by the benchmark. Will existing service or maintenance contracts need to be cancelled or renegotiated? What process improvements or automated tools are required to achieve increased productivity? If resources are diverted to IT internal efficiency initiatives, what business initiatives are deferred or delayed? Answers to these questions will help determine whether the benefits of reaching a benchmark can justify the cost and effort required.



5. Use benchmarking as one component of a broader diagnostic program.

Without additional examination and diagnosis, taking action based on benchmark comparisons alone can lead to disaster. Benchmarking can inform management what IT costs are and how they compare externally. Benchmarks cannot explain why IT costs are what they are. Where benchmarking does identify areas where costs and staffing appear out of line, high or low, additional examination is required to determine what action to take. Further examination can include:

• Stakeholder satisfaction. How do our key stakeholders (company management, users, suppliers, customers) perceive the quality of the IT services they use? How does service satisfaction correlate to service cost?

• Assessment of IT capability. Are the processes, practices, tools and talent sufficiently mature to be efficient?

• Health of applications. To what extent are weaknesses or gaps in applications driving high support costs?

• Health of technology. What improvements, additions, or replacements in IT infrastructure may result in reduced operating costs?

• Value assessment of new spending. How well are new spending initiatives aligned with business priorities? How will these initiatives add value to the business?

Manager Takeaways: Plenty of Ammunition. Use it with Caution.

• A Rich Source of Benchmark Data. Info-Tech’s Budget and Staffing reports provide a rich source of data on IT budget and staffing patterns at peer enterprises. With this data we can see relative averages across numerous enterprise sizes and from a number of viewpoints. Care has been taken to provide a full range of benchmark data sets and to contextualize the data by an extensive set of size and situational variables.

• Benchmark data is contextual, not prescriptive. Benchmarks should be treated as relative numbers and evaluative stalking horses in a budget process focused instead on growing revenue, lowering cost, and improving operational efficiency. The planning process must also take into account internal business priorities and targets. External benchmarks must only be part of the picture.

• Use multiple benchmarks and the most specific benchmarks possible. Instead of focusing on one benchmark, IT decision makers should look at a range of benchmarks. Look for benchmarks that are closer to their own enterprise context. This is why Info-Tech offers 10 different benchmarks that are parsed by 11 different industry, size, and situation variables.



Moderate Spending Increases Amidst Strong Growth In an overall environment of solid revenue growth, IT departments are spending more in 2007. On average the increase across all industries is a modest 4.5 percent. Industry sectors more likely to be increasing spending include Primary Industries, Business and Professional Services, and Financial Services. Government and Education sectors are least likely to be increasing spending. These two spending laggards are also experiencing the lowest revenue growth.

Survey respondents estimated the proportion by which their total spending on IT and communications products, services, and staff is likely to change in the coming year. Ranges included:

• Increase by more than 10%.

• Increase by 6-10%.


• Stay roughly the same.

• Decrease by 1-5%.


• Decrease by more than 10%.

By multiplying proportions who answered for each range by a mean for that range, an overall estimated spending increase can be calculated. Almost two thirds of enterprises (64%) are increasing their spend in 2007-2008. A solid 43% are increasing spending significantly (more than 5%) and 19% are increasing by more than 10%. Only 8% are reducing spending (see Figure 10).

Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 10. Proportions Reporting Spending Increases/Decreases

(19%)

(2%)(2%)(4%)

(28%)

(21%)

(24%)

Increase >10%Increase 6-10%Increase 1-5%No ChangeDecrease 1-5%Decrease 6-10%Decrease >10%

The 4.5% increase is an average for all respondents to the Budget and Staffing survey. The averages for each individual industry sector vary more widely. Most industries are above the 4.5% average though the Education, Government, and Manufacturing sectors are below the average.

An increase of 4.5% is considered modest because this average is based on respondent estimates of how much more they will spend in 2007-2008 and is not adjusted for inflation. If inflation were to be 3%, for example, an IT shop spending 4.5% more dollars only be increasing 1.5% above inflation.

Figure 11. Mean % IT Spending Change by Industry


Special Report: Critical Budget & Staffing Trends for 2007-2008 Primary Industries, Business and Professional Services, and Financial Services all have average increases of 5% or more. Significantly behind the average are Government (2.8%), Education (3.4%), and Manufacturing (3.7%).

Figure 12. Spending Increase/Decrease/No Change by Industry

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0% 20% 40% 60% 80% 100%Educa

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IncreaseNo ChangeDecrease

As IT departments are increasing spending their enterprises are also experiencing solid revenue growths. Respondents were asked to characterize enterprise growth over the past three years. Specifically, they were asked to characterize growth in terms of revenue increase/decrease over the past three years:

• High growth (15%+ revenue growth per year).

• Medium growth (5-14.9% revenue growth per year).

• Low growth (0-4.9% revenue growth per year).

• Revenues declined.

A solid majority of respondents (58%) are experiencing medium to high growth. Only 9% are experiencing declining revenues (see Figure 13).


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 13. Enterprise Revenue Growth for All Industries

In terms of spending increases, there is a definite correlation between growth and increases with high growth enterprises increasing their spending by significantly more than low growth or revenue declining enterprises (see Figure 14).

Figure 14. Anticipated Spending Increases by Revenue Growth

Significantly by other size and situational variables there is no correlation with more spending. For example, there is no correlation between anticipated spending increases and the size of enterprises as measured by annual revenue. Small enterprises are only slightly more likely to be increasing their IT spending as large enterprises (see Figure 15).


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 15. Anticipated Spending Increases by Revenue Growth

Laggards: Choked for Resources or Lean and Mean?

Among those that are increasing their spending by less than the average, Education and Government simply don’t have the resources to invest. These are the two industry sectors with the lowest relative revenue growth. Manufacturing, on the other and, is driven more by a conservative, lean and mean approach that comes from managing complex and expensive IT infrastructures in a volatile market.

While the majority of all respondents characterize themselves as medium to high growth, the majority of Government respondents (52%) characterize themselves as “low growth” and a further 15% are in a revenue declining position. The growth position of the Education sector is slightly better however 50% are in a low growth position with a further 9% in revenue declining positions.

The low growth aspect for these sectors has a constricting effect on spending, limiting options and flexibility. This is particularly evident in the Government. For example:

• Government’s general approach to spending is conservative and cost conscious with the largest proportion of respondents who describe themselves as primarily embracing cost control (as opposed to a focus on innovation). In terms of their tolerance for risk in new technologies, they have the second highest proportion of respondents describing their IT investment approach as conservative.

• Government has the lowest proportional spend of all sectors in notebook computers, handhelds and “other” client devices in comparison to desktop PCs. This indicates a lag in the empowerment of employees with tools that are elsewhere improving productivity and collaboration.

• The level of non-discretionary spending (i.e. spending that IT decision-makers are unable to alter) is higher in Government than in any other industry sector (87%). This limits the ability of Government IT departments to embrace new productivity technologies or to try out new methods of operation.


Special Report: Critical Budget & Staffing Trends for 2007-2008 Across all industries the proportion of budget available for discretionary spending increases with growth. The portion of mandated new spending also increases with enterprise growth. High growth companies have the lowest relative proportion devoted to ongoing maintenance (see Figure 16).

Figure 16. Discretionary Spending and Enterprise Growth

Where Government and Education are seeing lacklustre revenue growth, a solid 60% of Manufacturers are experiencing medium to high growth. This is offset to some degree by a higher than average proportion of Manufacturers (14%) in a declining revenue position. IT in the Manufacturing sector operates in a more volatile environment with higher highs and lower lows (see Figure 17).


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 17. Proportions with Medium to High Revenue Growth

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Government

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Wholesale/Retail

Business Services

Transp/Utilities/Comms

Financial Services

Primary Industry

As was noted above, the Manufacturing sector is dominated by complex infrastructures. Investment focus is more on integrating central systems than on end-user systems. The numbers suggest that the focus in Manufacturing IT investment is on being lean and mean in a more volatile market. Manufacturing has the smallest IT staff complements when measured as a percent of total staff (3.0%). Manufacturers are also holding the line when it comes to growing their staffs with an average overall estimated increase across the sector of 0.8%.

Manufacturing tend to be more focused on operational efficiency than on applying IT to business innovation. In terms of their IT investment stance, manufacturing tends to be more conservative with 44% tending toward conservative and a further 28% very conservative.




Staff Increases Negligible

Manufacturing may have the most negligible staff increases at less than 1% but all industries are very modest in their current staff increase plans. Survey respondents estimated a range by which their total staff complement will increase/decrease in the coming year. Ranges included:

• Increase by more than 5%.


• Stay roughly the same.


• Decrease by more than 5%.

By multiplying the proportions who answered for each range by a mean for that range, an overall estimated percent increase was calculated. By this measure the largest overall estimated staff growth was in Primary Industries with a very small 3.0 percent. Most enterprises are not growing their staff in 2007-2008.

Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 18. Staff Growth by Industry

0.6%

0.8%

1.0%

1.2%

1.2%

1.4%

1.4%

1.7%

3.0%

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50%

Government

Manufacturing

Education

Wholesale/Retail

Financial Services

Healthcare


Business Services

Primary Industry

As with spending increases, there is a correlation between revenue growth and staff increases, though the increases themselves are almost negligible. Revenue decliners correlate with decreases in staffing.


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 19. Overall Staff Increases by Revenue Growth

The relatively small staff growth figures suggest relatively constrained job opportunities in IT across all industries. This does not mean, however, that there is no movement as staff turnover rates are somewhat higher.

Figure 20. Staff Turnover Averages by Industry

7.6%

9.1%

9.3%

9.8%

10.7%

11.9%

13.1%

18.7%

27.6%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

Manufacturing

Government

Wholesale/Retail

Healthcare

Education

Financial Services


Business Services

Primary Industry


Special Report: Critical Budget & Staffing Trends for 2007-2008 There is no one situation which tends to relate to higher staff turnover. For example, enterprises with moderate revenue growth have only slightly higher turnover than revenue decliners. As seen in Figure 21 below, enterprises with a strategic focus on innovation for business advantage have only slightly less turnover than enterprises with a more conservative focus on operational efficiency (though turnover generally trends down with innovation).

Figure 21. Staff Turnover Averages by Strategic Focus

Staff turnover appears to have different causes for different industries. For example:

• High growth enterprises (more than 15% revenue growth per year) have roughly twice the turnover as other industries (20.3% where most hover around 10%). The Primary Industry sector has an inordinate proportion of high growth enterprises and also has the highest turnover rates (see Figure 20). High growth likely leads to rapid expansion as well as rapid change in IT infrastructures, leading to greater IT staff churn.

• Simple distributed infrastructures with a greater focus on networked end-user computing have greater turnover (15%) than those focused on complex data center infrastructures (11%). Business and Professional Services, which has a higher proportion of simple infrastructures, has the second highest turnover rate. Simple infrastructures require less advanced IT skills. With less skills investment comes less need for retention. For more information on this topic, refer to the McLean Report research note, “Is High Help Desk Turnover a Good Thing?”

• Enterprises that have a heavy focus on investing in leading-edge technologies have significantly higher turnover (24%) than those with conservative and middle-of-the-road stances. New cutting-edge technologies often require new and expensive staff skills. This can lead to greater staff churn. Primary Industries have the highest proportion of leading-edge investors (23%); the lean mean and conservative Manufacturing sector has the lowest (4%).


http://www.infotech.com/MR/Issues/20070717/Articles/IsHighHelpDeskTurnoveraGoodThing.aspx

http://www.infotech.com/MR/Issues/20070717/Articles/IsHighHelpDeskTurnoveraGoodThing.aspx


Where the High Growth Enterprises Spend (Proportionally) More

Higher growth enterprises are spending more and hiring more than low growth enterprises. However, in relative terms higher growth enterprises do not spend a greater proportion of their budget dollar on personnel. In fact, there is little difference in proportional personnel investment across enterprises of different growth profiles.

Figure 22. Global Budget Allocation by Revenue Growth

So what does differentiate the higher growth IT investors? It was noted above, in Figure 7, that IT departments in medium to high growth enterprises invest proportionally more in servers and storage than low growth or revenue declining enterprises. Medium and high growth enterprises also generally invest a greater proportion in mobile technologies and a lower proportion in desktop PCs.

In terms of proportional allocation of staff time, higher growth enterprises tend to devote more staff resources to application development as well as project management (see Figure 23). Back office operational roles such as data center operations and network administration do not change with growth. Help desk and desk-side support get proportionally less attention in higher growth enterprises.


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 23. Global Budget Allocation by Revenue Growth

From a project investment point of view, higher growth enterprises are likely to be investing in areas such as server virtualization, storage consolidation (in the form of network storage), and information lifecycle management. More application development time is likely going toward projects that promote business/IT alignment, such as business intelligence and HR systems.

Manager Takeaway: A Time for Cautious Optimism

• High Growth Creates Investment Opportunities. IT departments in enterprises with higher revenue growth have more flexibility in terms of discretionary spending. They have more opportunity to be innovators. Enterprises that have constrained revenues need to focus their attention on cost containment and operational efficiency.

• Nevertheless Spending Is Cautious. Though revenues are up for the majority of enterprises, spending increases remain cautious. The current environment is not one of free and uninhibited spending. Enterprises in more competitive and volatile markets (such as Manufacturing) remain conservative in their spending, continuing to focus on being lean and mean see Figure 18). Enterprises that do have more budget flexibility due to strong enterprise growth should choose their investments carefully.

• Staff Churn Highest with Largest Growth. Staff increases are even more modest than spending increases in the current environment. However, staff growth is higher in higher growth enterprises. High growth enterprises also have roughly twice the turnover as others (see Figure 20). Enterprises that have a heavy focus on investing in leading-edge technologies have significantly higher turnover (24%) than those with conservative and middle-of-the-road stances (see Figure 21). New cutting edge technologies often require new and expensive staff skills. This too can lead to greater staff churn.



Innovators and Integrators Associated with Higher Revenues High-performance IT departments excel at leveraging technology to create strategic advantage for the enterprise. They are active participants in the business development process, exploring “the art of the possible.” They identify opportunities to innovate, and execute them in harmony with other corporate groups.

IT departments that identify themselves as strategic innovators are more likely to be increasing spending than those that see themselves as focused more on operational efficiency and cost control. Innovators are also spending more per employee than the operationally focused (see Figure 24).

Figure 24. IT Spending per Employee by Strategic Focus

However, innovators on average spend about the same percentage of revenue as those focused on operational efficiencies and cost control. Innovators are spending more on IT but their enterprises are either making more overall or at least making more revenue per employee.

Another area where we see a delta between spending per employee and spend as a percentage of revenue is in the area of integration of complex infrastructures. IT spend per employee is higher in complex infrastructures than it is for simple distributed client-oriented infrastructures. Spending is even higher per employee for tightly integrated complex infrastructures.

However, IT spend as a percent of revenue is much lower for those with complex infrastructures and significantly lower for those with tightly integrated infrastructures (see Figure 25). Integrators are doing better than innovators in terms of spend per revenue.


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 25. IT Complexity and Spend as % of Revenue

Innovation Focused vs. Operationally Focused

Respondents to Info-Tech’s IT Budget & Staffing survey were asked to characterize their strategic focus on this four-point scale:

• Heavily focused on innovation/unique products.

• Leaning towards innovation/unique products.

• Leaning towards cost control.

• Heavily focused on cost control.

Those heavily focused on cost control are termed “Operational Focused” as they are most interested in driving down the cost of operations and increasing efficiency. Those heavily focused on innovation/unique products are referred to as “Innovation Focused.”

Most IT departments fall somewhere between these two ends of the spectrum, although they may be inclined toward one end or the other. Generally, the tendency is more toward operations (62%) than innovation (38%) (see Figure 26).


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 26. Respondents by Strategic Innovation Focus

An IT organization focused on cost control will be looking to drive costs out of IT operations. It is not surprising then that the operationally focused are spending significantly less per employee (Figure 24 above). Those focused more on cost control are having success in their primary goal.

Across all respondents, staff and staff development account for approximately 40% of total IT spending (see Figure 22). This, presumably, would be a major area to which the operationally focused would look to save on costs. Operationally focused IT shops are also holding the line on staff growth (see Figure 27).

Figure 27. Mean IT Staff Growth by Strategic Focus

In overall estimated spending increases, the operationally focused are also expecting more conservative increases than the innovation focused. Generally, those focused on cost control are increasing spending by less than the average of 4.5% where the innovation focused are increasing spending by more than that average (see Figure 28).


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 28. Change in Spending by Strategic Focus

Yet, in spite of more spending per employee and a greater likelihood of greater spending and staff increases, there is negligible difference between the innovation focused shops and the operationally focused shops in terms of IT Spend as a percent of Revenue. Those heavily focused on cost control are spending only slightly less as a percent of revenue than others (see Figure 29).

Figure 29. IT Spend as Percent of Revenue by Strategic Focus

Application Development an Innovator Focus

When we look at IT budget and staffing through the lens of IT staff time allocation, there is a clear progression to more attention being focused on application development as enterprises become more innovation focused (see Figure 30).


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 30. Staff Time Allocation by Strategic Focus

Think of the IT enterprise as being composed of two layers – an operational layer and a strategic layer. The IT manager has to manage both layers to be successful. Using IT to improve competitiveness and grow the business is part of the strategic layer.

Strategic Layer Enabling Innovative Business Processes Aligning IT to Business/Strategy Goals

Promising Emerging Technologies Business Intelligence

Knowledge Management Operational Layer

Asset Management Desktop Computing

Data Centers Networks Storage

Enterprise Applications Policies

Standards

The strategic layer contains smaller and more focused areas of competitive opportunity. IT departments will identify the vast majority of the work they do as being part of the operational layer. Accordingly, budget allocation areas in our budget and staffing reports align closely with the operational area.

Application development, however, is one budget area that relates more to the strategic layer. It is the element that determines how information technology is used for a given purpose. It is through enterprise applications that IT is purposed to enable or improve business processes. In order to align business and IT, it is necessary to model an enterprise’s inputs, outputs, and business processes.


Special Report: Critical Budget & Staffing Trends for 2007-2008 In line with a heavier focus on application development, innovators also tend to give greater proportional attention to server infrastructure and software in their budget spending (see Figure 31).

Figure 31. Spending Areas by Strategic Focus

Integration Improves Staff and Spend to Revenue Ratio

The delta between spend per employee and spend as a percent of revenue is even greater for infrastructure integrators than it is for IT innovators. Complexity can be a key driver of IT costs. However, back office integration is associated with better revenue per IT dollar spent.

Respondents were asked to characterize the complexity of their IT environment by choosing one of the following statements that best describes their situation:

• We focus primarily on individual client applications and/or relatively simple server applications.

• We use one or more complex server applications, which are not tightly integrated or interconnected.

• We use multiple, complex server applications, which are tightly integrated and/or interconnected.

Most IT decision makers manage complex IT infrastructures. Only 27% manage simple infrastructures (see Figure 32).


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 32. Respondents by IT Infrastructure Complexity

Infrastructure complexity is generally characterized by greater relative investment in the “back office” infrastructure of servers, storage, network gear and centralized application software (see Figure 33).

Figure 33. Spending Areas by Infrastructure Complexity

The shift in emphasis from the desktop to the back office generally correlates with enterprise size, however, there is considerable variability between industries. Financial Services institutions, for example, require fairly complex infrastructures right from the get-go. Business & Professional Services firms, on the other hand, can scale their enterprise size on relatively simple client-focused infrastructure.

In terms of spend per employee, complex infrastructures are generally more expensive than simple infrastructures and tightly integrated infrastructures cost the most on a per employee basis (see Figure 34).


Special Report: Critical Budget & Staffing Trends for 2007-2008 Figure 34. Spend Per Employee by IT Complexity

Yet, as noted in Figure 25 above, tightly integrated complex infrastructures have the lowest relative cost when measured as a percent of revenue. One area where integration appears to mitigate the cost of IT complexity is in staff. Tightly integrated infrastructures have the best ratio of IT staff to total staff (see Figure 35).

Figure 35. IT Staff Percent to Total Staff by Size

The smallest enterprises – for example those under 50 employees – will likely have simple infrastructure and high staff ratios. For example five IT staff in such a business would be 10%. However, among larger and more complex enterprises the total number of employees will have less impact on ratios. Here, tight integration is clearly having an impact.




Manager Takeaways: Integrators Do Better than Innovators

• Strong Growth Encouraging Innovation Investment. It was noted in the previous section that strong growth creates more flexibility for discretionary IT investment. Clearly a solid proportion of enterprises are taking advantage of revenue growth by making increase investment in innovation and unique products to improve competitiveness and IT/business alignment. An area of increased attention for both innovators and enterprises with strong growth is application development.

• Innovators Could Do Better. Innovators are spending significantly more per employee than those focused on operational efficiency. They are also increasing spending at a higher rate than the operationally focused. However all groups spend about the same proportion of revenue (between 5.8% and 6.5%). This means that cost control or innovation investment are essentially a wash on this measure. One is making more but spending more while the other is spending less but making less.

• Integrators Are Doing Better. If innovative investment were more successful, innovation focused enterprises would see significantly less spend as a percent of revenue. This is the case where complex infrastructures are tightly integrated. Complex infrastructures are more costly in terms of spend per employee however tightly integrated complex infrastructures are associated with a spend per revenue percentage of only 4.8%. This is lower than simple infrastructures and, more importantly, loosely integrated complex infrastructures.



Title Special Report: Critical Budget & Staffing Trends for 2007-2008 Author Bio John Sloan is a Senior Research Analyst with Info-Tech Research Group. Major Info-Tech publications authored or co-authored by Sloan include: Building a Comprehensive Disaster Recovery Plan and Strategic IT Planning & Governance. He also served as a pioneer analyst for Info-Tech’s advisory products Info-Tech Advisor and McLean Report. Prior to joining Info-Tech, Sloan worked for more than 12 years as an IT and business journalist. John’s current research specializations include networked storage technologies and trends in processor virtualization. Cover Page Summary Info-Tech drew on responses from more than 1,700 IT decision makers for its 2007-2008 IT Budget & Staffing Reports. This capstone report provides further analysis on these findings, examining trends across all survey respondents and identifying critical issues that IT decision makers should consider in their budgetary and staffing planning.



Info-Tech Research & Analysis This is an independent, non-sponsored research report. It was not funded by any vendor or other party.

Disclaimer This material is for the general information of clients of Info-Tech Research Group. It does not constitute a personal recommendation or take into account the particular objectives, situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The information contained herein has been obtained from sources believed to be reliable. Info-Tech disclaims all warranties and conditions as to the accuracy, completeness or adequacy of such information. Info-Tech is not liable for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection and use of these materials to achieve its intended results. Opinions expressed are our current opinions as of the date appearing on this material only. The opinions expressed herein are subject to change without notice. We endeavor to update on a reasonable basis the information discussed in this material, but for certain reasons we may be prevented from doing so. © 2007 3409945 Canada Limited, operating as the Info-Tech Research Group (“Info-Tech”). All rights reserved. Reproduction in any form without prior written permission is forbidden. Note: All Web links in this document were checked for accuracy and functionality at the time of publication. We cannot, however, guarantee that referenced Web sites will not change the location or contents of linked materials, and will not be held responsible for such changes.

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