IT users prepare to buy as budgets thaw

Von Thomas Hoffman

A thaw in the four-year IT spending freeze is becoming more evident as enterprises slowly begin to look at replacing core applications with newer systems that offer improved functionality and scalability, IT managers and analysts said this week.

At the same time, some organizations are using Web services and service-oriented architectures (SOA) to extend some older applications in addition to installing new ones.

For instance, DTE Energy Co. in Detroit is in the process of implementing ERP software from SAP AG to replace five different financial systems, two mainframe supply chain management systems and one human resources system, said CIO Lynne Ellyn. The energy supplier is also replacing two distribution operations systems and nine implementations of a plant work management system with Maximo, an asset and service management system from Bedford, Mass.-based MRO Software Inc.

DTE Energy is simultaneously harnessing Web services to help it develop applications for functions that few, if any, commercial systems can automate, said Ellyn. She pointed to a corrective-action reporting system her organization developed using Web services to replace a hodgepodge of discrete systems that either offered limited security safeguards or were expensive to license.

A survey of 118 senior financial executives published late last month by Iselin, N.J.-based Siemens Financial Services Inc. found that 73 percent of the respondents expect to have shorter replacement cycles for software over the next five years. The remainder expect to lengthen the cycle.

But Bill Zadrozny, president and CEO for the unit of Siemens AG that offers financing for hardware and software purchases, said he hasn"t seen any significant increases in software spending from Siemens" clients so far this year. "We"re hearing it from customers, but we"re not seeing it yet," Zadrozny said.

Fenella Scott, an analyst at AMR Research Inc. in Boston, said the frequency of software replacement cited in the Siemens survey "seems a little aggressive." She estimated that roughly 5 percent of AMR"s manufacturing industry customers plan to replace their core packaged applications over the next 12 months.

Harrah"s Entertainment Inc. is making increased use of middleware products from vendors such as Tibco Software Inc. to more closely integrate its existing systems, said Tim Stanley, vice president of IT and CIO at the Las Vegas-based gaming and hotel company. But Harrah"s is also upgrading its core off-the-shelf applications more frequently in order to implement updated versions that Stanley said he hopes will contain fewer bugs "and put us on a more predictable path."

Other CIOs, such as John Schille at American Fidelity Assurance Co. in Oklahoma City, aren"t planning to increase software replacement over the near term because applications are working as expected. "If an application is delivering the projected value, we generally see no value in accelerating replacement," he said.

"What I"m seeing is that a lot of companies are selectively replacing software depending on the business need," said Kathy Quirk, an analyst at Nucleus Research Inc. in Wellesley, Mass. This includes instances where companies are consolidating multiple packages of CRM and other types of software onto a single platform or are upgrading various business users onto the same version of a system, she said.