State of the enterprise tech economy

State of the enterprise tech economy

Summary: Almost a month has passed since technology demand fell off dramatically; the stock markets tanked and worry about the credit crisis moved from Wall Street to Main Street to your company. Despite this perfect storm it's hard to generalize the enterprise technology economy.

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TOPICS: CXO, IT Priorities
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Almost a month has passed since technology demand fell off dramatically; the stock markets tanked and worry about the credit crisis moved from Wall Street to Main Street to your company. Despite this perfect storm it's hard to generalize the enterprise technology economy. Simply put, it's not all gloom and doom. And technology executives seem calm--in IT there's no panic. But there is a general feeling that the tech sector and all the executives in the ecosystem have been here before and will manage through a downturn again.

You could get a feel for the pulse of the enterprise technology economy at the Gartner Symposium ITxpo. CIOs weren't exactly going on the record about their plans--to be honest they didn't know their plans since just born 2009 budgets have already been scrapped--but it's slightly comforting that technology executives were steady hands. Yes, the budget is uncertain. Yes, technology managers will have to modernize their systems, do it on a shoestring and revamp staffs. But this industry has been through this before--just five to six years ago. In fact, technology budgets haven't exactly been swelling since the dot-com bubble.

Gartner's worse case is that technology budgets will fall 2.5 percent in 2009, but that isn't so bad. Both Forrester Research and Citigroup also highlight a shaky outlook for 2009 in recent CIO surveys.

Meanwhile, Gartner is telling clients to prepare a scenario where budgets will fall 20 percent or more. Gartner's presentations had a few common threads: Cut costs, be prepared for the worst and reload on the technology that matters. In other words, downturns can be transformational IT events. The funny part: The technology executives in the audience at these powwows were almost mocking Gartner's guidance. These IT veterans weren't joking because they didn't buy into the downturn. They were saying, "we're prepared." Meanwhile, it's not like information technology spending has been going through the roof anyway.

What exactly we're preparing for is unknown. The deleveraging of the economy will hurt, but it's unclear how much. At this point in time, here are a few emerging tech economy trends that'll likely move to the front burner in the not too distant future.

Visibility = Nil.

Game theory and scenario planning will become crucial to technology management. Why? You have no clue what will happen to your customers, your management and your plans going forward. Intel CEO Paul Otellini summed up the state of affairs:

Q3 played out mostly as we expected it to when we began the quarter. We saw some softness in September in the corporate segment while consumer was more seasonal. As we head into Q4, we see some mixed signs. We expect the corporate segment to continue to show some softness as IT spending gets rationalized in this macro environment...It’s clear that the financial crisis may impact our business but the extent of that is difficult to quantify. As a result, we’ve made two changes for this quarter -- one, our outlook has a wider range than normal, reflecting our view of the boundaries of the risks, and two, we’ve decided to provide a formal mid-quarter update scheduled for December 4th to allow us to give you additional information about the state of Q4 business trends as the business and financial conditions unfold.

In other words, stay tuned. Other technology giants are likely to say the same thing. And it makes sense. Any company that says it can nail its earnings guidance to the penny is lying. SAP saw the same slowdown at the end of September and the credit crunch will impact multiple vendors as customers are hit by a credit squeeze.

On the IT buying side of the equation the visibility is also fuzzy at best. It's likely that 2009 budgets may be open-ended affairs that change quarterly. That doesn't bode well for big technology projects.

Vendor-customer relationships may become strained.

This chart from a Gartner presentation sums up the current state of vendor customer relationships:

Simply put, customers are being milked. The software industry has boiled down to four huge software vendors--SAP, Oracle, IBM and Microsoft. You have no leverage in many cases. However, customers are likely to be pushing to renegotiate existing deals to save money. Vendors want to keep their profit margins. Something has to give. My hunch is you'll see a lot more customer pushback on everything from software licensing to IT services to hardware upgrades. Gartner counts renegotiation with vendors as the second most important thing you can do in the downturn--right after implementing a hiring freeze.

 

Everyone is cleaning house. 

Depending on the extent of the downturn enterprises will look to "mothball" systems and decommission legacy apps that cost more to support than run. Any projects on the drawing board that don't deliver returns quickly will be jettisoned. In other words, the projects that really matter survive. And the ones that don't get the boot. Shouldn't this be the way all IT is managed all the time?

This massive prioritization will create some winners and losers. Cisco CEO John Chambers noted that its collaboration software was the equivalent of an enterprise planning system without the years to implement, expense and consultants. Of course, Chambers was talking up his company's wares, but he has a point. Perhaps a downturn ushers in new delivery models and enterprise 2.0.

Go-to technologies will still matter.

There will be pockets of strength in the technology sector. It's not like everything will fall apart. The top four technologies in Gartner's top 10 disruptive technologies list will save you money and are possibly cheap to implement:

  • Multicore and hybrid systems
  • Virtualization and fabric computing
  • Social networking
  • Cloud computing

In recent years, it has been almost impossible to generalize IT spending. While the overall budget growth has been low single digits each year, there has been a lot of movement under the surface. A downturn will only intensify that trend.

We've been here before and some people know what they are doing.

I'm not optimistic about the economy, but come away feeling pretty good about technology executives. They have been through technology's Armageddon before--2001 to 2003--and this industry isn't in the epicenter this time. Sure, everyone is going to take a hit, but I get the feeling that Gartner's Symposium would have had a different vibe if it were a financial services industry powwow.

Advice is plentiful. Take it and read:

Topics: CXO, IT Priorities

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  • IT Exec's!

    I have to agree with your assessment concerning the state of the IT industry as a whole.
    Most It exec's have years of experience at working with less to do more, so it seems that this recent turn of events will not deter most from continuing on with business as usual.

    I feel the areas that will suffer are those that do not have a competent IT staff that has experience in dealing with this challenging time.

    If you notice, just as it occurred in those troubling times a few years back, this is the kind of situation that weeds out those individuals that are harmful to the IT industry.

    Most companies HR departments also change how they criticize potential IT candidates for their company, but this is also how OUTSOURCING became a major issue.
    Hopefully, it will put a major dent in how companies consider outsourcing instead of staying local?
    mdhemphill
  • RE: State of the enterprise tech economy

    i agree in priciple but not in practice
    unless the economy does an about face over the holidays i believe IT spending will take a nose dive yes CIOs understand but CEOs control the purse strings and they only look at the bottom line for this or that quarter and IT will be the first or second area to be slashed
    cwhull
  • RE: State of the enterprise tech economy

    The sum total of the assets of an individual or business minus the total amount owed to creditors is called Net Wealth. The average amount of net wealth has been dropping since the economy took a downturn, but at the same turn less people are turning to personal loans. The idea now is to save, which is not exactly a bad idea. The savings rate is up, and building up a stockpile of cash is a good way to boost your assets. Cash after all, is cash, or in finance terms, ?liquid assets,? though it hardly resembles a liquid.(Anthropologists have often pointed out that money functions similarly to magic in other cultures.) Whatever you do to boost your <a rev="vote-for" href="http://personalmoneystore.com/moneyblog/2009/03/12/household-net-worth-takes-record-plunge/">net wealth</a>, don?t give it to Bernard Madoff.
    KaedenK