CIOs plan sharp reductions in contract staff, professional services, and hardware -- and almost no investment in cloud computing
IT staff jobs are at increasing risk -- both for contractors and in-house workers -- according to a survey of top CIOs by Goldman, Sachs & Co released last week. Global services companies will also feel the pinch because of the slowing economy.
A second survey showed that basic PC and network hardware, as well as professional services providers, would bear the largest proportion of spending cuts. It also showed that CIOs planned to emphasize economizing measures over investments new technologies, with cloud computing emerging as the last item on their priority lists, despite the hype around it.
IT contractors to bear the brunt of cuts
"Demand for discretionary IT projects dropped to its lowest point" in the 41-study history of the Goldman Sachs staffing survey, which asked 100 managers with strategic-decision-making authority (mainly CIOs at multinational Fortune 1000 companies) about their about IT staffing plans for 2009.
The Sachs report states that "in a cost-constrained IT budget scenario, CIOs will most likely look to cut their resources first from lower-value augmented [contract] IT staff." The company also describes its survey as "an early warning flag" for service providers' 2009 bookings of new projects.
These intended cutbacks are a change from last fall. When the managers were asked in October which area of IT service delivery resources they would cut for application-related development or maintenance work, the answer was 0 percent for in-house staff. However, with a declining economy, a February survey's results saw 8 percent of respondents saying in-house IT programming staff would be cut. In April, 15 percent of respondents said in-house staff would be cut. That dropped to 11 percent in the June survey (the most recent), which was released last week.
But contract staff fare much worse, with 48 percent of the respondents saying that such staff would be cut. And 30 percent of the responders said on-site third-party service provider staff would also be cut for application-related development or maintenance work. Twelve percent of the managers said they would cut staff from offshore third-party service providers.
Consultants, hardware targets of spending cuts
The second survey by Goldman Sachs probed 2009 spending plans based on type of IT projects. This survey also showed cuts are in the offing. "ROI is the name of the game. CIOs have emphasized to us that they are buying on a need versus want basis, are often downsizing deals to fit with current budget constraints, and are searching for solutions with a high and fast ROI," the survey authors wrote.
The spending survey indicated CIOs see the "greatest potential for cost reduction in IT in the area of networking equipment." A full 47 percent of the responders said the most likely area where spending would be slowed would be on purchases of personal computer systems, servers, and storage.
Spending cuts won't be limits to equipment: 42 percent of the CIOs indicated that "they are reluctant to spend money on third-party professional services." This is in keeping with the decline in interest for discretionary IT projects and could indicate more of a reliance on in-house IT staff.
Cloud computing may get buzz, but it won't get spend
The CIOs surveyed indicated that server virtualization and server consolidation are their No. 1 and No. 2 priorities. Following these two are cost cutting, application integration, and datacenter consolidation. At the bottom of the list of IT priorities are grid computing, open source software, content management, and cloud computing (called on-demand/utility computing in the survey) -- less than 2 percent of the respondents said cloud computing was a priority.
Charles King, a principal analyst with Pund-IT, said that such hot-button technologies like cloud computing deployments may slow down. "The message here is CIOs are looking primarily to tested, well-understood technologies that can result in savings or increased business efficiencies whose support can be argued from a financial point of view," he said.