Chief information officers in the United States say that their plans for 2006 include significantly larger investments in several focused areas. These include upgrading hardware, optimizing systems that serve specific industries, and improving security and reliability—all areas where CIOs can make a strong business case (Exhibit 1). But thanks to cost cutting and productivity improvements, their overall budgets won't rise by much.
Our forecast, based on our survey of 77 US senior IT executives,1 is that IT budgets will grow by 3 percent on an accrual basis across industries (Exhibit 2). However, this modest increase masks reductions in overall IT operating costs from process improvements (such as streamlining mainframe operations), offshore outsourcing, and new technologies that enable companies to raise their processing capacity without buying more hardware. These savings will allow capital expenses to increase by 13 percent.
A critical piece of this spending is a new wave of enterprise-resource-planning enhancements: 47 percent of the respondents say they are budgeting substantial investments in ERP for the coming year. The top priority...