Forrester also found that many large companies plan to upgrade their ERP and customer relationship management (CRM) systems while simultaneously beefing up security of infrastructure software and middleware deployments.
"Business intelligence software will represent the top application purchase, and enterprise resource planning will remain the top major upgrade, while messaging, email and collaboration software will lead the pack for minor upgrades," Forrester research analyst Ray Wang said in an interview.
When it comes to 2007 software projects, 27% of large firms say improving integration between applications is the top priority, followed by upgrading security environments and adopting service-oriented architecture (SOA), at 21% and 12%, respectively.
Forrester says Software-as-a-Service (SaaS), which tends to be most popular with smaller organizations, is starting to take off at large firms as well. Large firms are mostly interested in SaaS for human resources applications, followed by ERP and CRM. Wang said that the survey results showed a significant shift from 2006, when respondents were far more likely to adopt SaaS for CRM over ERP.
Overall, Forrester predicts that the amount of money large enterprises will earmark for new software projects and initiatives will increase by about 10% in 2007, while the typical budget for ongoing IT systems maintenance will decrease by the same amount. The analyst firm says this trend is proof that large companies are reaping the financial benefits associated with such things as offshore outsourcing and SaaS.
Many firms have recently undertaken ERP and CRM installations or upgrades, according to Wang, leading to the growing interest in BI software, which helps users predict future company needs by analyzing and reporting on data from disparate systems.
"People are buying BI because they've put all of this data into the system and now they want data out," Wang said. "Without the BI piece, it's kind of hard to justify your investment."
The ironic thing about the survey results, he said, is that while BI continues to grow, interest in Master Data Management (MDM), which helps align data across an organization to avoid erroneous duplication, appears to be confined to the "early adopter" set.
"It's ass backwards at the moment," Wang said. "If you really wanted your BI to work, you'd solve the master data issue."
Many companies are reluctant to take on MDM at the moment, he said, simply because it's a mammoth project that involves creating and implementing a host of new data-management rules and governance policies.
"Companies don't really have the time to think about this yet," he said.
SMBs get vertical
A separate Forrester survey of IT decision makers at 812 North American small and midsized businesses (SMBs) found that many smaller organizations are looking to purchase software with vertical, or industry-specific, functionality. For instance, Wang said, companies in the banking industry want banking-related functionality, and so on.
Among SMBs, 10% plan to make a first-time investment in software that supports industry-specific processes, he said, while 43% hope to upgrade current applications with vertical functionality.
"This highlights SMBs' overall willingness to invest in technology, provided these investments get to the core of their businesses' operations," the report says.
Overall, Forrester finds that new software licenses will consume 33% of SMB IT budgets in 2007, while license maintenance and code maintenance fees will eat up 27%. About 22% will go to new software development.
Meanwhile, as with their larger counterparts, many SMBs have application integration in mind, with 21% of SMB survey respondents saying it is the top software priority for 2007.
SaaS hits its stride
For the first time, interest in SaaS appears to be greater at larger organizations than at SMBs, according to Wang.
Analysts say large companies are starting to consider SaaS because they're short of resources but still want to add layers of functionality and flexibility.
"One of the interesting things is the role that HR applications will play in SaaS in 2007," Wang said. "CRM used to be the poster child for SaaS. It's now HR apps areas like performance management and talent management, all these ancillary pieces, where people are using hosted applications."
Despite the increasing interest in SaaS, barriers to adoption remain, including integration issues and total cost concerns, according to the report.
Martin Schneider, a senior enterprise software analyst with the New York-based 451 Group, agrees that interest in SaaS is rising among large enterprises. He said two main factors are contributing to the trend: The systems have grown more sophisticated, and they can help large enterprises more easily integrate new acquisitions or business groups.
"When you want to get [a new division] up and running in a system, it's really hard to go through the motions of buying software licenses, provisioning within the client-server model, creating logins, training -- all of the things that really go along with provisioning software seats," Schneider said. "The SaaS model kind of takes a lot of that time and money out of that."
And five years ago, application service providers weren't providing the types of robust applications that SaaS vendors like Salesforce.com offer today.
"The tools are getting better at taking the data out of those [SaaS] systems and putting them into on-premise systems for historical reporting, analysis and things like that," Schneider said. "Five years ago, [the] ASP model was a very static system. Getting the data in and out was very difficult, and the functionality of these systems wasn't very great because there wasn't a lot of integration."
Some other examples of SaaS providers are Netsuite Inc., Everest Software Inc. and Workday, the new company of former PeopleSoft Corp. honcho Dave Duffield.
Outsourcing pays off
In 2007, North American enterprises will significantly increase software spending for new software initiatives and projects, according to Forrester.
Last year, large firms spent an average of 23% of their IT budgets on new software initiatives, while 77% went to ongoing maintenance and operations. This year, the numbers have shifted to 33% and 67%, respectively.
"That is significant because what [it] means is that offshoring, outsourcing, Software as a Service, [and greater] efficiency in the IT department using new development kinds of tools has come together and … reduced the cost of maintaining existing operations, freeing up the budget for new purchases," Wang said. "We looked at this data left and right to see if it's true, and we still can't find a hole in it."
Wang said that interest in outsourcing is greatest at Global 2000 enterprises. About 44% of those firms outsource for ongoing custom application development, 38% for maintenance and support of packaged applications, and 34% for maintenance and support of custom applications.