'Theres still a concern of double-dip in economy'

Written by Rachana Khanzode | Updated: Dec 13 2010, 07:11am hrs
Research firm Gartner recently trimmed its forecast on worldwide enterprise IT spending and predicted that it will touch a $2,500 billion mark in 2011, which is a 3.1 % increase from the 2010 spending of $2,400 billion. In a bid to spend marginally, organisations are going to cut down spending on adoption of existing technologies and will take up newer technologies that would demonstrate efficiency at lower costs. Besides, organizations want tech firms to take up risks and invest in contracts they want to acquire, says Stephen Prentice, vice president at Gartner. In an interaction with FE's Rachana Khanzode, he adds that this will lead to more of vendor consolidation as well.

Gartner cut down its estimates on IT spending for the coming year. How does the entire scenario look like at the moment

Globally, it is a confused situation and the year 2011 is not going to be very different. The developed economies are struggling to return back to growth and there is still a concern of a possible double -dip. But markets in Asia are growing. So firms are spending but the issue is how do you keep them capital intensive. We anticipate that IT budgets are going to be essentially flat. There is no big increase in performance in variable growth. Basically it means that if companies want to invest in one technology they need to first dis-invest in something else. So this brings challenges and firms already have a focus on cost control and cost management. But now there is an increase incentive to start taking little more risk to look at innovation and focus on the outcome. Firms are now worrying much more on what IT is delivering rather than just saying we have servers or applications. That means IT functions have to be more conscious in what they are delivering and what role they play.

So what kind of spending should the firms cut down on

Basically, we need to see it in a perspective that firms are now going to look at existing technologies in a new way. Like organisations now look at cloud-computing more seriously. That makes organisations less concerned about servers and running of data centers as they are buying services on demand. They are taking up a new set of risks of sourcing critical services using the same technology but not directly responsible for it. And they may be doing that for cost effectiveness to buy, to scale quickly and to bring flexibility. And it is not necessarily going to be adopted because it is cost effective. But because it is going to be a more efficient service. However, the adoption is broad and narrow at the moment. Corporates that are adopting it are doing it in a very small way.

How are limited budgets going to impact the process of giving away contracts

Organisations are starting to realize that business risk implications of technology adoption could be loud. So they have started asking much more serious questions and are putting investigations on how the service is going to be maintained. The contractual terms are more stringent. Organisations have become risk averse and that is driven from share holders point of view of having steady returns. This is leading to IT firms and vendors to work out more and more strategic partnerships. As most projects have a technology part, tech firms are going to be increasingly involved in risks management and scrutiny. We are starting to foresee a future of formalized assessment of IT performance, risks and capabilities. These will be part of due diligence so that IT is much more demonstrable in showing the value. And tech firms are not going to win contracts unless they provide greater assurance of liability.

Is this expected to drive vendor consolidation more

The impact of economic conditions have left IT vendors in a vulnerable position while some have been able to survive as stronger players. But some have gone weak too. So the larger ones will take advantage of the weaker ones and we will see increasing weakness of some vendors coming from the economic downturn and because investments in sales have not been driving growth.. There will be still problems ahead so this will drive more and more of vendor consolidation. We also see decreasing differentiation as technology becomes more commoditised.

And it is much more difficult to maintain competitive differentiation especially in a personal computer market.