Return of the Guru

Study Documents No Recovery in IT Spending

Ara Trembly
Insurance Experts' Forum, June 24, 2010

If you’re anything like me, you wish this whole recession thing would just shut up and go away. Eventually, of course, it will, but a new study of IT spending trends seems to indicate that the departure of these bad times is not yet imminent.

According to the “IT Spending and Staffing Benchmarks 2010/2011” study just released by Computer Economics, there has been no recovery yet in terms of IT operational spending. The study is based on a survey of more than 200 IT executives conducted in the first quarter of 2010, and includes individual chapters for 16 commercial and government sectors, including insurance.

“Only 45% of organizations are increasing their IT operational budgets in 2010, confirming a recession in IT spending,” the study notes. “Remarkably, even though the general economy is improving, this is the same percentage as were increasing their budgets last year. Even more striking, 42% of organizations are actually cutting their IT operational spending this year—a higher percentage than the 38% recorded last year. This is not a good outcome for those who were expecting an IT spending recovery in 2010.” The study adds that median IT operational budgets in 2010 are flat compared to the previous year.

Interestingly, and encouragingly, although I wasn’t able to access the full report, the Executive Summary of this study also notes that insurance companies are “among the highest in terms of IT spending per user for any sector in our study.” That said, however, we would be wise to remember that insurance as an industry is almost always a follower, rather than a leader, especially when it comes to technology.

Thus, when it comes to plunking down more cash for IT staffing and initiatives, insurers are much more likely to wait while others do it—and monitor the results—before venturing into those pricey waters themselves. This is not necessarily bad, however, because—as I have pointed out elsewhere—our caution as an industry has saved us from frenzy-driven tech disasters like the dot-com boom and bust.

The study sees some hope, however, in the finding that in the 2010 budget year, IT executives are far more confident that they will get to spend all of the money in their budgets. “Only 27% expect further cuts in this year’s operational budgets. This is an improvement over last year at this time, when 49% expected cuts in their 2009 budgets. Of the remainder, 58% expect to be able to spend all the money that has been budgeted and 15% expect to get a green light to increase their 2010 IT operational budgets.”

The again, is this the best we can do in terms of “hope”—that more than half of IT executives think they will be able to spend all of their budgets? Well, before you get too optimistic, the study also notes that although these results are encouraging, this outlook is not as positive as it was a few months ago. “When we asked this question in a special survey in the fourth quarter of 2009, only 16% expected their budgets to be cut, whereas now, this metric stands at 27%, an increase of 11 percentage points.”

Amazing, isn’t it, how we can flip-flop from doom to optimism and back in the space of a few short sentences? When I look at the summaries of studies like this, I sometimes wonder if the authors aren’t trying to offer us some bone of optimism amidst what are basically less-than-encouraging results. Or maybe those authors are just trying to cover all bases by saying something like: “It’s bad, but it could get better soon—and if it does, I want you to remember that I said it could get better soon.”

The numbers are what they are, and the spin will always be with us. The bottom line for the industry and our economy, however, is the numbers around actual employment levels, actual income, actual profits and actual cash in our pockets. Until those numbers start picking up, we would be wise to look at all other numbers with a jaundiced eye.

Ara C. Trembly (www.aratremblytechnology.com) is the founder of Ara Trembly, The Tech Consultant, and a longtime observer of technology in insurance and financial services.

Readers are encouraged to respond to Ara using the “Add Your Comments” box below. He can also be reached at ara@aratremblytechnology.com.

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

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

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