InformationWeek: The Business Value of Technology

January 8, 2001

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Outlook For 2001

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By Marianne Kolbasuk McGee

More on IT spending:

sidebar:Outlook 2001 Methodology sidebar:E-Business Push Means Outlook For Services Firms Is Bright sidebar:Demise Of Dot-Coms Eases IT Talent Crunch IT Budgets Expected To Rise In 2001 (11/27/00) Increases Seen For Customer-Focused IT Spending (IWK10/24/00) Computer Reseller News: Compaq CEO: IT Spending Is Still On Track (12/8/00)

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As for the technology efforts taking priority, Prudential will focus on improving online trading and other E-services for its retail customers, including customers of Prudential Securities and the company's real-estate businesses. This strategy builds on Prudential's E-commerce initiatives, as well as its five-year effort to equip employees with the equipment needed to be more mobile.

The reduction in Prudential's IT spending will come from relying more on its in-house IT staff for application development and maintenance, and less on outside services, says Friel. In turn, Prudential's IT salaries and benefit costs are increasing slightly, so that the company can remain competitive on the hiring and retention front, he says.

Among other companies taking a more conservative approach to 2001 IT spending is General Motors. "There has been a bit of a downturn in the auto industry on top of having a few good, record years," chief technology officer Tony Scott says. "That translates into cost reduction in the environment. IT spending will be tighter this year, that's very clear." Last year, GM spent about $3.2 billion on IT.

GM has reduced its IT costs by nearly $1 billion during the last few years, in part through more competitive bidding from IT vendors wanting GM's business, particularly on the services side. But now, harder-to-find IT spending cuts will need to balance slowing revenue growth. "Cost improvements need to come from redoing business processes" related to the use of the technology, Scott says.

For GM, the cost-cutting in IT won't come in the form of across-the-board reductions. "We won't be cutting [the same percentage] off everyone's project budget," he says. That's because GM would rather allocate the right level of spending to get top priority projects done right. Instead, lower-priority projects will be cut or put on hold, Scott says.

But overall, the biggest cuts in spending will come from GM's putting additional demands on its vendors and integrators for better rates and methodologies. Says Scott, "They'll have pressure like they've never seen before."

Software vendors in particular have been regularly hiking software license fees sharply over the last few years, he says. "My prediction is that those days are over," Scott says, admitting that large technology buyers such as GM generally have more clout than smaller companies in demanding a combination of price reductions, flat rates, and lower price increases from their key vendors. If GM doesn't get the deals it's looking for, Scott says projects will be put on hold.

For services, not getting price cuts might mean GM will hire more offshore programming services in India and Ireland where coding is less expensive, he says.

On the other side of the business spectrum, the dot-coms that have survived so far are also being careful about their IT spending. Many Web startups overprojected their immediate Web traffic and built IT infrastructures that exceeded their needs, says Royal Farros, CEO of iPrint Inc., a Menlo Park, Calif., provider of print services over the Web. While scalability is important to dot-coms, their emphasis now should be on having infrastructures that support their business in the next six months, rather than the next 12 to 18 months, he says.

For its part, iPrint, a public company that's growing but isn't yet profitable, will focus on profitability, Farros says. IT spending at iPrint will be lower this year, mainly because the company's infrastructure was adequately built last year, including the purchase of a $500,000 storage system.

"Last year, many dot-coms were spending blindly, but now everyone needs to be profitable," he says. Farros expects that tough times for dot-coms will continue through the first quarter, but that companies still around by the middle of the year will survive near-term.

Despite the dot-com shakeout, some corporate buyers say they still have confidence in online marketplaces and other Web sites when it comes to buying their companies' supplies, including office supplies and IT products. In fact, the InformationWeek Research Outlook For 2001 Study reveals that E-business will continue to evolve as both a viable selling and buying tool in the coming year. Three in four respondents anticipate E-business transactions to exceed last year's volume.

"E-business is less vulnerable," says Giga Group's Bartels. Funds slated for E-business are harder to cut because that's where companies can find new revenue or market opportunities, as well as improve service and reduce costs. In all, 83% of large companies surveyed expect annual revenue from E-business transactions to increase this year. Nearly 80% of midsize companies say the same, and 65% of small companies concur.

Ordering office supplies is predicted to be the most common of E-business transactions this year, leaping from 57% of respondents procuring such necessities online last year to nearly 80% in 2001. The purchase of networking gear over the Web will double in 2001 from 1999, as will the online procurement of operating systems. Development tools, desktop PCs, peripherals, desktop applications, and PC notebooks are other favorites that will have companies prowling the Internet to acquire.

To ensure the best deals possible, whether buying or selling electronically, three in four companies in this year's Outlook survey will become users of E-marketplaces in the next 12 months. Seventy-two percent of sites plan to make such partnerships a company objective, with 60% ranking the initiative as a high priority and 12% making it a goal, though not a key one.

Scott Gericke, VP of operations for hotel-management company Stonebridge Companies Inc., says he still has faith in online purchasing even though his former online distributor of hotel supplies, Hsupply, ceased operations in November.

"Hsupply had given us one-stop shopping with less invoicing for everything we need," says Gericke. "I'm not at all discouraged from using another site in the future. It's a great concept." As for the Denver company's own IT plans, spending will remain about the same for the 31-hotel operation. One of the company's possible IT investments this year: high-speed networking in guest rooms.

Whatever technologies companies target this coming year, they'll most likely do so with an eye on the bottom line. For now, IT spending is on the upswing, but a downturn in the economy could dampen even the most optimistic of plans. Perhaps the best advice for the new year is to take it one day--and one dollar--at a time.

Illustration by D. Kingsley

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