Health Care to Avoid Global IT Budget Crunch

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Technology vendors are up against a struggle with growth in IT budgets expected to fall in 2009. This is according to the latest report by independent market analyst firm Datamonitor. The report, “Technology Trends: Analyzing Global Enterprise IT Budgets 2008,” reveals that the majority of enterprises globally are planning to cut back increases in IT expenditure.

The exception, however, is the health care sector which, contrary to other verticals, is planning a significant number of increases in IT spend in 2009. The report also points out that contrary to what many may think, the downward trend is not solely due to the current economic climate. It has in fact been evident during the past couple of years.

“Vendors should be wary in assuming that the recent downturn in IT budgets is a short lived phenomenon” said Daniel Okubo, technology analyst with Datamonitor and the report’s author. “For the past couple of years enterprises have been cutting back IT budget increases as they adopt a more cautious viewpoint of the global economy.

“More recently, the financial services market, as seen by the recent collapse of Lehman Brothers, is suffering from a crisis in confidence caused by a spate of write-downs and concerns over liquidity.”

The Majority Will Halt Increases in 2009

Datamonitor has analyzed the responses of more than 8,000 IT decision makers between 2006 and 2008. For the fourth consecutive year, the number of enterprises planning to significantly increase their IT budget has fallen. This suggests there are deeper concerns in the IT market than just the recent economic problems.

More than 50 percent of respondents stated they expect to keep their IT budgets the same in 2009 as in 2008. Thirty-seven percent of the respondents expect to see their IT budgets increase in 2009, and 13 percent are anticipating IT budget cuts. This appears to be a mixed message for technology vendors and service providers. It indicates that, on the whole, enterprises are not planning to decrease their IT expenditure despite the current economic climate.

Downturn Masks the Downward Trend
However, when the results from previous surveys conducted by Datamonitor in 2006 and 2007 are analyzed, there is a noticeable downward trend in the proportion of enterprises planning to significantly increase (by 6 percent or more) their IT budgets, from 20 percent in 2006 to less than 10 percent in 2009. This suggests growth in the amount spent by enterprises on IT is on the decline, which would indicate that growth in the IT market overall is going to slow down.

“These results should be a warning sign for vendors”, said Okubo. “An analysis of forward0looking statements in enterprises’ annual reports reveals deep concerns over future prospects as domestic demand in developed economies falls.”

Despite this, there are still enterprises planning to significantly increase their IT expenditures in 2009. Therefore, it is still possible for vendors to experience solid growth if they target the right vertical markets with the correct market strategy.

Health Care Industry Plans Significant Spending Increases
While the retail and manufacturing industries are suffering from high interest rates, falling domestic demand, inflation and higher commodity prices, the health care industry is planning significant spending increases in 2009, with 57 percent of respondents in the industry saying they plan to expand IT expenditure.

In Western Europe, the U.S. and Japan, the aging baby-boom generation is starting to increase demand on the health services, leading to rising costs for national and private health systems. In an attempt to address this, the health care industry is investing in new technologies that will enable it to cut costs and provide more efficient care.

Okubo concluded: “In a global economy, it is important to realize how vertical markets are performing because, at times, an analysis at a country level can be misleading. Simply because some IT departments in a given country are planning budget decreases it is incorrect to assume that all industries within that country are suffering. Vendors that understand the nuances in domestic economies will be best positioned to exploit growth opportunities.”

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