By Alan Joch

Telecommunications provider BT Group counts itself among the fortunate. The U.K. market leader’s broadband networking, Internet and phone systems are often the last things cash-strapped businesses and consumers cut from the budget. BT’s products are necessities — not something easily affected by number crunchers looking to whittle down discretionary spending. Even so, the organization understands that as the entire U.K. economy continues its current stall, the climate is anything but business as usual. “Our customers want the same or more services for less cost,” says Himanshu Raja, CFO of BT Design, the company’s IT design and delivery business.

BT isn’t alone. The U.K. is seeing economic sluggishness in financial services, manufacturing and other sectors. In fact, the European Union now forecasts a 3 percent drop in the overall U.K. economy this year. But IT industry analysts say the news isn’t all bad. Pockets of spending strength still exist in certain industries, thanks to forward-looking CIOs who believe IT investments today can pave the way for faster growth when the economy turns around in the future.

IT managers in the U.K. — those willing to invest now — could see the most benefit. In some areas of the country, the IT downturn is more severe than it is in other areas of Western Europe. Notably, IT hardware sales in the U.K. will fall by 7 percent this year, compared with a 5 percent drop for its neighbors, predicts Marcel Warmerdam, Associate VP of IDC’s Europe, Middle East, and Africa IT markets.

That only seems to be a rallying call for the U.K. government led by Prime Minister Gordon Brown. In part, the government is buoying public-sector spending, including IT-related elements, to stimulate the overall economy. Another goal is to keep preparations for the London Summer Olympics in 2012 on track, explains Roy Illsley, Senior Research Analyst for IT researchers Butler Group. The U.K. government recently bailed out two private development companies to the tune of £461 million (approximately $674 million), with large chunks of that money going toward an Olympic-wide infrastructure, including an HDTV-ready broadcast and media center, biometric security systems, and more than 1,000 servers and 10,000 PCs.

In the private sector, British CIOs are responding with a wide range of actions, says Clive Longbottom, Service Director for business and IT researcher Quocirca Ltd. “You’ve got the brave companies that are ‘full speed ahead and damn the torpedoes,’ ” he says. “And you’ve got the knee-jerk reactionists who say, ‘Don’t spend anything until we can see the light at the end of the tunnel.’ The savvy ones are saying, ‘The world has changed, so we’ve got to change.’ They know they’ve got to spend their money in a completely different way than they have in the past.”

Part of that change is a closer-than-ever scrutiny of return on investment (ROI) for new IT projects. “Chief financial officers want zero total cost of ownership and an ROI yesterday,” Longbottom says. “There are a lot more hoops CIOs have to jump through to get money.”

This is why “nice-to-have” projects are falling by the wayside, says Christine Jack, Surveys Research Manager for the U.K.’s National Computing Centre (NCC). Such projects include large-scale refreshes of desktop PCs, she says, which many U.K. companies are delaying by at least a year.

Conversely, British CIOs who focus on projects with potential returns coming within six to nine months stand a good chance of getting them approved, says Butler Group’s Illsley. “If [ROI] is over a year,” he explains, “then the project is going to be done only if it’s required because of legislation, or it’s a perennial item like security that’s needed for compliance.”