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IT Spending Tight? Welcome to the “New Normal”

Joe McKendrick
Insurance Experts' Forum, October 7, 2009

As we emerge from the recent economic downturn, information technology spending appears to be fairly flat for the foreseeable future.

As INN's Carrie Burns recently reported, things are stagnant. For example, Gartner and the Property Casualty Insurers Association of America’s (PCI) recently issued estimates that IT spending among property/casualty carriers would be increasing by about 0.2%. Novarica's Matthew Josefowicz concurs, observing that large P&C insurers are foreseeing mostly level or slightly higher budgets.

InformationWeek's Rob Preston also sees a mixed picture emerging. He cites a recent survey of 350 IT execs and network administrators, conducted for security vendor VanDyke Software by Amplitude Research, that shows 58% of respondents said they're concerned or extremely concerned about the economic conditions of their companies, and 48% are concerned about the condition of their employer (58%), or the condition of the overall tech industry (48%).

Preston also pointed to a somewhat rosier survey from industry association CompTIA, which shows that at least half of survey respondents said they expect to increase investments in R&D and other revenue-generating initiatives over the next six months, while only one-third expect to increase spending on their own IT. Some 53% said they expect to hold staffing levels constant, while 29% plan to increase hiring over the next six months.

There's actually nothing new about flat IT spending and hiring. The reality is that IT spending has remained lean and mean ever since the dot-com bust in the early 2000s, and never fully recovered.

Companies have been keeping a more watchful eye over where IT dollars have been going, and IT departments have been stretched to their limits in terms of workloads. The emphasis over the past decade has been on strategies that can either trim or keep a lid on runaway IT costs, such as employing service-oriented architecture to better leverage and share existing systems and applications, virtualization to reign in server sprawl and, lately, cloud computing to avoid up-front capital expenditures. I've even seen reports of companies opting to employ public social networks, such as Facebook, as a replacement for their own Intranets.

The bottom line is that any and all IT investments need to demonstrate value to the business before they are approved and funded. This is still a challenge for many companies, as the Gartner-PCI study finds that the majority of IT dollars still are devoted to day-to-day maintenance and support. In other words, IT budgets are still funding IT internal operations versus actively supporting business growth and transformation.

This mindset is changing, and there is movement within the insurance industry. I have spoken with carriers that are increasingly linking IT project-finding requests to business needs. In some cases, if there is little or no demonstrable business value, the project is not funded. The new normal that is evolving is that IT no longer receives a blank check, but is expected to play a full role in driving the future growth of the business.

Joe McKendrick is an author, consultant, blogger and frequent INN contributor specializing in information technology. He can be reached at joe@mckendrickresearch.com.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

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