More than 40 per cent of large businesses have cut their IT budgets this year due to the global economic slowdown, according to a new survey by Forrester Research, Inc, that surveyed over 950 senior IT managers across North America and Europe regarding their IT services spending and overall services strategies and priorities.

The Forrester Business Data Services report says the affect of the economy on IT spending is evident in some specific data points contained in the report:

43 per cent of firms have already cut their overall IT budgets in 2008 in reaction to the slow down in the global economy, while 24 per cent of firms have put discretionary spending on hold. Twenty-eight per cent of respondents said the economy has had no impact on their IT budgets.

Asked how the economy will affect IT services spending, 70 per cent of respondents said they will likely negotiate lower rates with suppliers, and 16 per cent said they have already cut their IT services spending.

IT departments in the financial services industry were hit hardest - 49 per cent of IT shops in the financial services sector have cut their budgets. At the other end of the spectrum is the media, entertainment, and leisure industry, where only 39 per cent of respondents said they have had to reduce spending.

IT departments in North America have been affected by the economy more than their European counterparts: 49 per cent of North American firms have cut their IT budgets compared with 31 per cent of respondents in Europe; although it should be noted that the Forrester survey was fielded in Q2 2008 prior to the deteriorating economic conditions in Europe.

"This is not an across-the-board spending slowdown; the impact of the economy on IT budgets varies widely by industry and geography," said Forrester Research Vice President and Principal Analyst John C. McCarthy. "With regard to the services sector, the slowdown has firms renegotiating rates, being more selective in choosing vendors, and examining spending plans more thoroughly, but they are still expecting to pay more for services. The demand for enterprise IT services has not dropped significantly."

Regarding the state of spending on enterprise IT services, the report illustrates a number of trends:
The demand for services holds steady. Forty-five per cent of firms plan to increase their use of applications outsourcing, while 43 per cent of firms are increasing their use of infrastructure outsourcing. Forty-three per cent of respondents said they are moving more work offshore.

Infrastructure outsourcing expects to grow. Convergent telecommunications and network management is a hot area of growth as 20 per cent of firms will outsource this service in 2008.

Few firms have fully tapped into offshore resources. Only 9 per cent of firms use offshore resources wherever and whenever possible. A growing number of firms are interested in exploring more offshore work, with 14 per cent ramping up use, 19 per cent piloting, and 22 per cent not using offshore but actively tracking developments. Of those firms not sending work offshore, a majority cite the questionable quality of the work done.

Satisfaction with outsourcing remains low. While overall firms are satisfied with their decision to use a third party, 52 per cent say their biggest challenge with existing IT services and outsourcing relationships is that cost savings are lower than expected. Other noteworthy challenges include inconsistent or poor service quality (40 per cent) and the inability of the vendor or contract structure to respond rapidly to changing business needs (35 per cent).