Information Week has a great piece out on how IT CEO’s are riding out the rough economy. Surely, the 266 hike in the Dow Jones Industrial Average today, thanks to lower oil prices and a report indicating increased consumer sentiment, should soothe the jangled nerves of even the most downcast boardroom baron.
The IW piece, written by Marianne Kolbasuk McGee and John Soat, includes a survey of 600 business technology decision-makers that shows things may not be as bad as the pundits want us to think.
In the survey, 40% of respondents say they decreased IT spending this past quarter relative to their original 2008 budgets. At firms with annual revenue of more than $500 million, 50% of respondents say they dialing back on IT purchases.
But McGee and Soat say the future is looking a bit brighter.
“Still, there are plenty of business technology executives going forward with big projects, even adding to their IT workloads--and budgets--with new projects, backed by managements that see a chance to invest in technology-driven efforts to leap ahead of weakened competitors. CIOs are protecting customer-facing projects--they're about half as likely to be cut as ones that don't touch customers. Not only that, smart CIOs are looking for ways to use the IT tools at their disposal to cut costs in their organizations and in other parts of their companies.”
That doesn’t mean you should stampede to your broker and start loading up on shares of your favorite tech company, because I’m not sure we’ve seen the bottom of the market year.
In an email to IW’s Soat, Denis O’Leary, the former CIO of the investment banking firm JPMorgan Chase, says that things will get better, but not until the end of the year.
"In financial services--and many other industries (airline, auto, retailing, housing)--the current pressure on expenses is nothing short of acute. While things have deteriorated, they still remain well short of bottom from my perspective."
"I would expect a fair number of firms to put all non-mission-critical IT spending on hold at this stage. Mission-critical would include daily operation of the core network and data processing, compliance systems, key risk management systems, disaster recovery, and security. Numerous data mining and CRM projects will likely slow or stop, as will upgrades and efforts around visualization--unless the payback period is within 12 months or less."
"While many see this period as an exceptional credit cycle event with an energy twist, in financial services it is more fundamental. I believe the profit margins and revenue sources of the past decade have shifted fundamentally--meaning more substantial decisions about strategy and operating architecture are required."
"A migration to a far more simple business and back-office design, with increased use of third-party processing, is likely to occur. For IT, fewer vendors doing fewer things is the call of the next decade in financial services."
Now, that’s just one man’s opinion – granted, O’Leary’s opinion carries a great deal of weight. If you can get past his analyst-speak, what he’s saying is that the shift in credit practices among major financial institutions will tighten the money spigots for businesses looking for loans or lines of credit to invest more in IT products and services. So even when the economy starts to calm down, we’ll still have to wait for the credit markets to exhale before we’ll see real growth in IT spending.
The good news? More and more, slowly and surely, IT managers want to spend and invest. The bad news? By and large, the banks and lender aren't letting them.