CIO Agenda: IT budgets up or down in 2005?

What's in store for IT over the next 12 months? To find out, we polled 12 members of silicon.com's CIO Jury about their outlook and key concerns for 2005. The results make up our first CIO Agenda series. Today Andy McCue takes a reading on what IT budgets look like this year.

The downward trend for IT budgets and pressure to reduce costs has been a fact of life for most CIOs over the last few years but 2004 saw signs that things might finally be starting to improve, with businesses again looking at technology to provide them with that competitive edge.

silicon.com surveyed 12 UK CIOs and heads of IT as part of our CIO Agenda series, asking about their key issues for 2005. The previous piece examined the hot technologies at the top of their shopping list and the over-hyped ones at the bottom. But for many the bigger question is - how much have they got to spend?

Since IT budgets can be measured in different ways, we asked our panel of CIOs what percentage of company revenue IT budgets were last year and whether that will rise or fall in 2005.

For 2004 there was a wide range - from less than one per cent in the public sector up towards seven per cent for one financial services firm. The average, however, was somewhere around three to four per cent of revenue.

Looking forward to 2005 about half expect the percentage to fall or stay the same and the other half expect a rise, bearing in mind that a fall in percentage of revenue does not necessarily mean a reduced IT budget if company revenues are growing.

We then asked the CIOs what percentage of their IT budgets was devoted to new IT investment in 2004, and whether this would rise or fall in 2005, with some interesting results.

In 2004 the proportion of IT budget devoted to IT investment ranged from as low as 1.5 per cent up to 35 per cent. But two-thirds expect the IT investment share of the budget to fall or remain the same in 2005. Those who expect it to rise said it will largely be due to new business-specific initiatives on the table.

Steve Ritchie, CIO at Investcorp, is predicting his IT investment budget will rise significantly. "There is the implementation of an entire technology infrastructure to support a new asset management-based business which will be split over two continents. This coupled with the current focus on corporate governance will keep life interesting," he said.

It will also be a period of significant change for Bill Gibbons, CIO at Abbey, following the company's takeover by Spanish bank Santander. He said his focus will be on "structured programmes of activity" to deliver value from the takeover.

Other panellists will be focused on difficult issues such as compliance. Peter Dew, CIO at BOC, said his top priority for 2005 will be "successful completion of Sarbanes-Oxley [implementation]".

Cost-cutting is on the agenda for some of the CIOs, including John Odell, group IT director at the BBA Group, and Ted Woodhouse, IT director at Leeds Teaching Hospitals NHS Trust, who is preparing for a big push related to the £6bn National Programme for IT in the NHS next year.

Neil Hammond, head of IT at British Sugar, said cost control will be a key part of his new IT strategy agreed with the business this year. "The strategy is based on consolidating systems and standardising services to bring costs under control and to focus more resource onto 'value add' activity," he said.

For Margaret Smith, outgoing director of business information systems at Legal & General, 2004 signalled something of a change in outlook for her business and the IT operation.

"We switched from a totally focussed cost-efficiency drive to a push for growth drive mid-year," she said.

Perhaps reflecting this change in the business climate and the fact firms are starting to engage in big IT transformation projects again, staff recruitment and retention was also tipped to be a hot issue for 2005 by our CIO panel.

Phil Young, head of IT operations at Amtrak, said improved training is part of plans for staff retention, while Legal & General's Smith said recruitment is needed for growth in 2005, coupled with skills development and retention "because everyone else is recruiting".

For more about silicon.com's CIO Agenda series, see our leader article. And stay tuned to find out what our panel have to say about the role of the CIO over the next 12 months.