A bright outlook on tech investment.

WHILE THE CURRENT OUTLOOK in the corner office may be cautious at best, chief executives are decidedly bullish in their plans to invest in technology in 2005. More than 71 percent of CEOs say they expect to increase their companies' technology spending next year, while just 8.3 percent foresee a decline, according to the latest CEO Confidence Index survey (see chart, middle). One in four CEOs predicts that his or her tech budget will grow by more than 10 percent.

The additional spending will be spread across many sectors of the technology industry, CEOs noted in response to a question on the subject in our October polling. The leading targeted areas include hardware, technology protection, software integration, network development and enterprise software (see chart, right).

The projected increase in tech spending seems to reflect a time of transformation at many companies. "New business models are being built and tested, utilizing more technology and innovation," said Michael Schreurs, CEO of Strategic America, a Des Moines-based marketing communications firm. "These new models are fostering new alliances and new readiness for growth."

CEO optimism on the technology front--and the promise it holds for economic growth in the year to come--is striking against the backdrop of stagnant confidence in the short-term U.S. and global markets. The benchmark CEO Confidence Index remained virtually unchanged in October, dipping less than half a point, to 159.4 (see chart, left). It was the smallest monthly change since the survey began in October 2002.

Other major indices, including Current Confidence, Future Confidence and Employment Confidence, also declined by a hair, doing nothing to brighten the picture. Continuing a trend that began in January, CEOs' view of the current state of economy surpassed their expectations of conditions three months ahead, 173.5 versus 150.0.

The general malaise among CEOs stemmed from several factors, notably uncertainty on the eve of the presidential election, persistently high oil prices and continued violence and unrest in Iraq.

Also weighing on many chief executives' minds is the state of the nation's labor and management pool. Scott McWilliams of Ozburn-Hessey Logistics, a Nashville-based third-party logistical services provider with operations in 20 states, said his company is experiencing "a critical shortage of qualified mid-level managers who are willing to relocate," Russell Huffer of Apogee Enterprises, a Minneapolis glass manufacturer for the architectural, automotive and imaging markets, agreed. "Hiring is tightening up," he said. "The pool of employees seeking jobs is not the same quality it was six months ago."

To the extent that it's possible, CEOs are both cautious and aggressive in their outlook for next year, as Robert White of ARC Worldwide, a Denver-based consulting firm that works with executives, put it. "I'd feel bad about that kind of paradox," White said, "except that I note that our clients are telling me the same things about their hiring plans."

RELATED ARTICLE: THE NUMBERS

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But '05 Spending Will Be Up

Will decrease   8.3%
Stay the same  20.4%
Will increase  71.3%

Note: Table made from pie chart.

What the Priorities Will Be

Hardware                  17.5%
Technology Protection     15.9%
Software Integration      15.8%
Network Development       14.4%
Enterprise Software       14.2%
E-Commerce                12.6%
Manufacturing Automation   6.8%
Other                      3%

Note: Table made from bar graph.