Results Show "IT Spending Squeeze" is Over

During the recession, companies cut IT spending as they focused on cost reduction to stop the bleeding in earnings. Doing more with less, businesses put strategic projects on hold. However, according to the recently launched Maven Wave Partners IT Investment Index (the "MIT Index"), a new measure of investment in information technology spending, the IT spending squeeze is officially over. From its low in 3Q 2009 at the depths of the financial crisis, the MIT Index, representing aggregate enterprise spending on IT, is projected to increase by 16.9% to an all time high by the end of 2012.

During the financial crisis, the MIT was crushed by sharp reductions in hardware and software spending. Spending on headcount suffered too, just not as much. In a so-called "normal" market, spending on headcount and tools moves together—it takes people to make the technology work. But the disruption resulting from the collapse of the credit markets opened up the largest gap between these two components of the MIT in at least 10 years, creating the IT spending squeeze.

A new study released in connection with the launch of the MIT Index reveals that the gap between spending on tools and spending on headcount opened in 2Q 2009 and reached a 10 year high of 7.1% in 2Q 2010. However, by 4Q 2010, the gap had closed, signaling increased appetite for corporate spending on information technology through the end of 2012. Strong Q1 earnings announcements from IT giants such as IBM, Intel, Microsoft and Oracle support these findings that, despite the largest "IT Squeeze" in years, spending on hardware and software is back in 2011.

Additional key findings from the study show how IT investments affect earnings including:

-- March 2009 marked the bottom when companies earned $12.67 for every $1 spent on IT headcount.

-- Maven Wave Partners predicts that corporate earnings from

IT investment will reach a 6-year high of $21.80 for every $1 spent on IT headcount by the end of 2012.

In a contracting market, the earnings generated per IT worker decreases because earnings fall faster than headcount. In a growing market, IT skills become scarce, and the opportunities to improve earnings through technology innovation are often growth dependent, so earnings per IT worker go up. Given the depth of the recent contraction, big earnings gains are available for companies that invest wisely.

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