The global credit crunch is likely to have a significant effect on IT budgets, but difficult times present an opportunity for IT managers to drive innovation as companies look for ways to save money.

Research from employers’ body the CBI suggests that IT budgets in financial services, for example, will remain flat over the next year. But many banks fear the situation will worsen.

“Plans for capital investment in the year ahead are very weak, with plans for spending on IT flat,” said the CBI report.

Separate research by analyst Gartner says global IT spending in financial services will increase in 2008, but the rate of growth will be $6bn (£3bn) less than it was last year.

The credit crunch has yet to bite in the UK with the full force that the US has experienced, so IT directors still have time to plan a strategy of damage limitation, said Gartner analyst Mark Raskino.

“Those in the UK have the advantages of time if they act now,” he said.

Companies often turn to outsourcing in hard times, but third-party service contracts need to be planned carefully.

“A rushed contract in a time of economic crisis can end up costing more money than it saves ­ – if you spend three to six months planning a contract it will be much more effective,” said Raskino.

As well as cutting unnecessary projects, companies under pressure often look for cheaper ­ – and frequently more innovative ­ – ways of spending on IT.

The credit crunch could see more organisations moving towards a software as a service (SaaS) licensing model ­ – using applications hosted on the web rather than buying licences.

More than 65 per cent of IT directors thought the economic climate would lead to greater SaaS uptake, according to a survey for vendor BIW Technologies.

“I think the crisis will definitely drive some companies towards experimentation with SaaS ­ – people often have to innovate in these ways when constrained,” said Raskino.

SaaS licensing models spread cost over a longer period of time and can be cheaper than buying software licences ­ – but many companies are nervous of changing their habits, said Ollie Ross, director of research at blue-chip user group The Corporate IT Forum.

“The shutters are not down on people looking to new and innovative IT, but we have not seen any major moves in this area yet,” she said.

Another area for potential innovation is investment in Web 2.0. A report from the Economist Intelligence Unit this month said that 85 per cent of board executives see the sharing and collaboration aspects of Web 2.0 as an opportunity to increase revenue and margins.

And the trend for green IT could be further driven by the credit crunch as companies look to reduce their costs by improving energy efficiency.

“Green IT is about good business and being economic and efficient,” said Adrian Davey, chief information officer (CIO) of Tube Lines, which is undergoing a green IT transformation.

Nationwide Building Society recently started a £300m IT-enabled company overhaul. Director of business systems transformation Darin Brumby said planning is essential to surviving any downturn.

“There’s no substitute for good planning. And there will definitely be tough times ahead for businesses lacking that skill, because they will not be able to catch up on that overnight,” he said.

“Organisations that had their investment plans tight, with clearly-defined growth strategies and are managing them prudently will continue investing in areas that really matter and see through difficult times.”

The economy could be used as an opportunity to focus on what is important when it comes to an organisation’s IT projects, said former Egg CIO Tom Ilube.

“Be more ruthless and use your limited leftover resources to push forward one or two strategic projects that really matter ­ – then cut all the rest,” he said.

“If innovation stops completely, it can be very difficult to get the momentum going again.”

Five tips for saving money in a downturn

• Cut projects with no strong business case.
• Make sure you prepare outsourcing contracts before a crunch hits to get your money’s worth.
• Look at improving the efficiency of hardware and virtualising your datacentre ­ benefits can be achieved quickly.
• Think about new, innovative licensing models for software that could spread costs over a longer period of time.
• Remember: now could be a good time to drive forward projects that will boost the competitiveness of your business while others stand still.