The Economy May Suffer, but IT Will Survive
By P J Connolly
September 29, 2008 — I can’t conceive of a worse time to be thinking about an IT budget than these recent weeks. For example, I’m writing this on the morning after the government seized and sold one of the banks in which I keep money. I’m far from alone, of course; the current economic turmoil is playing havoc with everyone’s expectations and plans as summer turns to fall.
It’s clear that IT departments are generally going to spend 2009 making do with less; in some cases, a lot less. In uncertain times, businesses of all sorts traditionally reduce their expenses, and IT’s always a target for cost cutting.
But one expected 2009 to be a lean year already, based on what people were doing with their remaining budgets for this year. According to Forrester Research’s surveys from the second quarter, two-thirds of companies reported that they were either holding off on discretionary spending or had already cut their overall budgets for IT (see chart).
The figures, released in early September, indicate that companies are also looking at their budgets for IT services; seven in 10 indicated that they planned to go back to service providers in hopes of cutting better deals, and 16 percent said had they already reduced service levels.
This is grim, but it could be a lot worse for many of us. It’s not 1929, not by a long shot.
Although politicians are invoking the specter of the Great Depression, and many families are simply hunkering down and praying for better mortgage terms, one thing that I don’t see happening is the kind of bloodletting in IT that most of us remember from the dot-bomb days.
Here’s why: To put it simply, most businesses have not used the “Web 2.0” phase as an excuse to run hog wild on technology spending. There was a time about 10 years ago where that might have been the case, but from everyone I talk to and observe, what I’ve noticed has been the opposite. What I’ve seen over the last five or six years has been a steady, yet continuous, rationalization of IT operations.
The rationalization began as companies began to realize that many of the daily chores of IT are little more than grunt work, be it mental or physical grunting. Businesses began to outsource those parts of IT that could be considered as commodities—e-mail, hosting and systems maintenance were all easy targets for this—because as it turned out, very few companies were in business to “do” IT.
According to Forrester, the drive to outsource functions that can go out of the house continues. Almost half of the respondents to their inquiries said they were increasing their use of outsourced applications or infrastructure, or moving work offshore altogether.
Of course, since that’s the case, it’s tricky to make too many generalizations about how this is going to affect individuals. If your business is healthy and your partners are sound, you’ll probably come out of this without too much disruption. If your company’s business plan resembles that of the Underpants Gnomes from "South Park," well, good luck.
But to go out on a limb, I believe that IT departments in general should survive today’s economic uncertainty in fairly good shape. Shops that still have some fat will have to sacrifice, and the staff of others may very well join the ranks of investment bankers who thought that it could never happen to them.
In some cases, it may even turn out that a company’s IT investment is one of its most valuable assets. I’m sure nobody at Lehman Brothers thought that the investment bank’s data centers would turn out to be worth more than its North American business, but that seems to have been one of the attractions for its purchaser, Barclays PLC. (In fairness, though, it seems that Lehman’s New York headquarters was the true gem, valued by the bankruptcy court at just under US$1 billion.)
Although mentioning the Great Depression might get a candidate’s soundbite on the network news, we’re a long way from the kind of widespread economic collapse America saw in the 1930s. For one thing, although overvalued mortgages are what eventually broke the system this time around, the difference between now and then is that today, the underlying assets—in this case, the real estate—are still intact. They may have lost a significant chunk of their value in some cases, but only in the most extreme ones. Unlike 1929 or 1987, what we’re seeing this year is more about an overheated segment of financial markets rather than a general cessation of business activity.
Does this mean that everything’s all right and, if anything, businesses should keep their spending plans intact? Well, that depends. Since short-term credit is FUBAR and will probably stay that way for the rest of year, it’s dumb to spend more than absolutely necessary and it's smart to continue looking for opportunities to cut some costs.
Likewise, when you’re looking at your IT strategy for the next few years, it’s sensible to identify and mothball projects that may well be good ideas, but which aren’t necessary to the survival of the business. In some cases, that might mean waiting until the cost to service hardware exceeds the cost to replace it. But it’s wise to look at the overall picture, because plenty of cases exist where one can save money by spending money.
If I can pick only one example where this is likely, it’s how virtualization can make the most difference by consolidating underutilized hardware. With any luck, reducing electricity consumption both in terms of machine power and a lower heat profile leads to lower cooling requirements. This in turn saves money, as everyone pushing the technology will tell you.
To be truthful, I hope that you weren’t waiting for me to tell you this. Presumably, you’re already on the track to more efficient IT operations, and if you’re faced with an inflexible mandate to cut N percent from your budget, you’re going to cut it.
The point that I hope sinks in is what Bene Gesserit of the "Dune" universe taught: Fear is the mindkiller. Where the fear has gone, nothing remains, except us. In other words, “We’re going to ride this one out.”
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