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 arent 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 dont look too far ahead and in financial services there is gloom and doom that hasnt 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, thats doing quite well. Governments are feeling some pain but the federal government probably isnt. Health care will be what it will be, education isnt 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 werent nearly as gloomy as I was.
If theres another ray of hope, its 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 youre more likely to close business than if youre 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. Its 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.
Rick Sherman, founder of Boston-based consultancy Athena IT Solutions sees foot dragging on projects, but no let-up. For the last two or three years people have been cautious, and coming into the new year nobody seems to want to go wild right away, he told me yesterday. Im not seeing things postponed though and none of my consulting peers seem to be having any issues; all the ones I know have no capacity.
From a data perspective we will see people who try to come up with some new and iterative ways to come up with things that will show up in revenue, says consultant James Taylor, whos big on decision automation. I think if you have practical things to do you will be heard. Its blocking and tackling, get it done, make the business run more effectively.
Industry analyst Mark Madsen, founder of consultancy and research firm Third Nature, told me he notices the gloom but hasnt yet seen it corporate plans or vendor financials. Youre talking to someone whos a cynic and tends to fall on the doom and gloom side, but I kind of thought things would be down a year ago or even two years ago. The markets are so fundamentally different and companies seem to have an international component to their revenues that its almost arbitrage playing the U.S. versus global markets. Once people start feeling bad the drums start sounding. The tech vendors I talk to are sort of planning for the possibility but nobody Ive talked to is laying off or canceling events or cutting back spend.
Certainly sentiment depends on where you sit. Gartner Inc. did update its BI forecast this week, and predicts five-year CAGR of 8.6 percent over the next five years, declining gradually from 2007s 12.5 percent growth. Its part consolidation, part maturity, and pretty darned healthy, all things considered. Plus, the way Gartner cuts its figures, theres no accounting for the broader scope of information management, which began to consume and commoditize traditional BI reporting some time ago.
One of the things Andrew Bartels at Forrester told me was that IT spending statistically tends to match GDP growth during predictable periods of technology digestion and outstrip GDP by two-to-one during technology evolutions, which he figures we're just coming back around to. If that happens to be virtualization or information management, I'm all for it.
I did receive a newsletter today with the headline BI No Longer Next Big Thing based on Gartners BI report, which struck me as odd, given that business intelligence has been around for close to 20 years (and two recessions). Without being unduly sunny about prospects for the coming year, I have to think many of us will remain standing in 2009. For companies with the right balance sheets, those that spend on wisely amid the pessimism can take advantage of a time out to gain a competitive edge, risky as it might sound now.
And don't equate projects on the "back burner" with a cold dinner. What comes around, goes around. I think Ill take a deep breath, settle back down and let the markets do their thing. On the other hand, just to be safe, if I could figure out how all this sentiment stuff really works it would be a great time to take a whack at day trading.
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