Manufacturers To Shuffle IT Spending Plans In 2007

Nov. 10, 2006
Companies will concentrate their IT dollars on competitiveness and operational gains.

While many manufacturers earlier in 2006 had planned on robust increases in technology investment in the coming year, those plans have since been deflated as a result of rising fuel prices, continued unrest in the Middle East and a cooling economy.

"We're starting to see people scale back on their IT spending plans," says Karen Carter, quantitative research analyst at AMR Research, a Boston-based firm that tracks manufacturing technology trends.

Manufacturers' IT spending plans for 2007 demonstrate less than robust growth, judging by at least one indicator. According to the 2006 IndustryWeek/MPI Census of Manufacturers, 52.5% of manufacturers responding expect to maintain the same level of IT investment in 2007.

On the positive side, 40% of companies plan to boost IT spending next year. Among this group, 28.6% expect an increase in technology investment of up to 10%.

On the flip side, AMR Research is somewhat more bullish toward the IT spending outlook. One reason, according to Carter, is that many manufacturers have held back from investing in new software applications in recent years and now are ready to spend to improve operations.

"Some companies now need to refresh their technology," Carter says. For example, plans to invest in new computer hardware are up. "This is investment that was postponed, and now these companies must purchase new laptops and other hardware."

Anticipated Change In IT Spending From 2007 To 2008
Decreased more than 20% 2.2%
Decreased 11-20% 1.7%
Decreased 1-10% 3.6%
Stayed the same 52.5%
Increased 1-10% 28.6%
Increased 11-20% 6.2%
Increased more than 20% 5.2%
AMR, which polled more than 200 IT and business executives at large and midsize companies in the U.S. in April, found that 76% planned to boost IT spending at least between now and next spring. Those planning an increase in spending on technology reported an average budget growth of 19.5%, up significantly from the prior year's average growth rate of 5.9%.

Bullish or not-so-bullish, which technologies are manufacturers planning to invest in during the coming year? AMR found that for companies with more than $1 billion in revenue, the biggest single business initiatives will be IT outsourcing and supply chain transformation.

Among external factors affecting IT spending, the biggest single issue companies reported was increased competition. "As globalization creates opportunity for market growth, it's also forcing IT and line-of-business executives to focus more intently on increased competition," AMR observes.

It's no secret that manufacturers continue to aggressively seek out ways to leverage technology that will help reduce time to market, as well as increase market share. "One way to achieve faster product launches," AMR reports, "is by developing effective outsourcing strategies, which is the single most important business issue affecting IT investments."

As in recent years, enterprise applications continue to play an important role in manufacturers' spending plans, although as a priority, these technologies have slipped some. When asked which technology area will be their most strategically important investment in the next year, only 20% of IT and business executives responding to the AMR survey said enterprise applications were on top, down from 34% a year earlier.

Among enterprise applications, 23% of companies reported that the most strategically important investment in the coming year will be for performance management systems.

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