Whether the result of bad federal policy or just the natural cycle of things, IT and BI prospects for 2008 are scaring the bejeezus out of more than a few corporate executives I talk to. And when you add up the inputs - the sub-prime crisis, the debt, consumer confidence, the dollar, oil prices – the “R” word sits on the tip of many tongues with good reason.
If sentiment is our guide, we are probably already in a recession, since recessions are often self-fulfilling prophecies of collapse. Sentiments aren’t always rational and are occasionally hysterical; just yesterday the Dow Jones Industrial Average fell 320 points before it closed up about 300 points on no particular news. If you got in during lunch, you were up 5 percent on the day. That's more than half of the compound annual return of the stodgy old Dow index going back to 1930.
So if we step back from the wrenching gyrations, the breathless coverage and dissection of daily events, where do we stand for the coming year? Well, we're surely not in October, 2007 anymore. In the last 30 days some leading market research firms – Forrester, IDC, AMR – have revised IT spending estimates of 6 to 8 percent growth in 2008 to more like 4 to 6 percent, IDC a bit lower still. (Gartner seems to be holding back on its revision.)
If the numbers hold, the news would be disappointing as opposed to devastating. “We don’t look too far ahead and in financial services there is gloom and doom that hasn’t hit bottom yet,” says Forrester Research analyst Andrew Bartels. “That sector had outpaced the economy and is now falling back. But manufacturing, especially the export sector, look at Boeing or John Deere or Caterpillar, that’s doing quite well. Governments are feeling some pain but the federal government probably isn’t. Health care will be what it will be, education isn’t tightening, telecom seems to come through and utilities are doing pretty well. Business services will see some tightening but will keep chugging away.”
Even with rate cuts, the tendrils of banks extend into business plans, and Goldman Sachs analysts are especially dour. But Bartels told me his analysis shows that actual IT spending in sensitive industries of financial services, auto manufacturing, retail and construction together add up to about 11 percent of total IT dollars. Not only was that surprising, by his estimates, “probably 60 to 70 percent of IT spending is in sectors that will keep growing.” It reminded me that during the last "official" recession of 2001, a lot of people outside my line of work weren’t nearly as gloomy as I was.
If there’s another ray of hope, it’s in software spending, which Forrester forecasts at 7 to 8 percent growth in 2008, including the tick-tock of maintenance. “CIOs will look at areas that can be readily cut, including spending on contractors and consultants, or deferred as in capital investment in computer equipment,” Bartels says. He does think CIOs are going to protect software investments in semi non-discretionary items such as compliance, disaster recovery and security. Plus there will be spending in software that makes the business more efficient and lowers cost, including procurement, sourcing, supply chain, CRM and BI.
Finally, Bartels says there is a "strong understanding" among CIOs that the next generation of technology, represented by server virtualization, SOA, unified communications and the like will need to stay on the table for fear of falling behind. “To net it out,” Bartels says, “software in general looks least likely to be cut since so much of it aligns with business and increases productivity.”
If you read his blog, you'll see ex-Gartner analyst, ex-Hyperion chief strategy officer and now consultant Howard Dresner predicting a recession. From anecdotal data he sees budgets holding the line with last year with no increase in spending. “I think sales cycles for vendors are lengthening and deal size is coming down,” Dresner told me this week. “A shift of focus to the business makes sense, if you can find ways to increase productivity you’re more likely to close business than if you’re dealing with IT which is once removed.” On the other hand, projects tied to ROI and P&Ls will go forward as enterprise-level projects for the common good stall out. “In BI, anything that has a strong business focus like finance or sales productivity continues to get funded. It’s going to be tactical, functional, departmental, but not enterprise.” Unlike Bartels, Dresner sees a strong year for systems integrators and consultants who will be in demand amid hiring freezes and pay-as-you-go strategies.
