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3/21/2003
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Anxiety Economy

Confidence wanes as fiscal worries grow, spending slows to a trickle--and now war

A jittery economy and an extended wait for war have taken their toll on business-technology managers' morale. The InformationWeek IT Confidence Index--a measure of IT managers' expectations for the economy, their businesses, and their IT budgets based on interviews with 300 IT executives--plummeted this quarter to the lowest level in its 2-1/2-year history, falling 21% from last quarter and 37% from this time last year. The executives, polled two weeks ago, are much more negative than in previous quarters about the overall U.S. economy and the economic outlook for their industries. Still, they aren't quite as gloomy about prospects for their companies or IT project initiatives.

The start of the war with Iraq last week certainly didn't quell fears. Nearly a third of 260 IT professionals responding to an InformationWeek Research poll last week about the effects of the war expect it to have a negative impact on the economy, and nearly a quarter say they'll postpone some or all of their near-term IT spending because of it. Both studies reflect a pervasive pessimism that's got some companies putting IT work on hold

ADRIAN DANESCU PHOTO

Manufacturers Bank of California's Danescu renegotiates vendor contracts frequently to make up for a tight budget.
KeyCorp's IT shop is in "hunker-down" mode, and the economy and the war will keep it there for a while, says Bob Rickert, chief technology officer at the financial-services company. The strong consumer market has protected KeyCorp from a more painful downturn, but there's no telling what will happen next. "Uncertainty about the war is slowing down economic activity," Rickert says. "I hope we'll have a short war, and things will revert to normal, but I don't want to presume that things will be quick."

Concern about the war's duration is one of several factors lagging the economy and corporate spending. Only 21% of executives polled for the IT Confidence Index have a positive outlook on the economy in the next three months, compared with 55% a year ago. "Companies have a wait-and-see attitude," says Gene Huang, chief economist at FedEx Corp. "It would be weird for anyone to announce increased spending now."

Increased spending isn't even a choice for Adrian Danescu, CIO at Manufacturers Bank of California. Lack of funds has forced him to postpone some projects, including an imaging project related to online banking. He also renegotiated contracts with vendors to free up funds to improve customer service. Three months ago, Danescu was more optimistic. He expected that savings generated from IT investments would let him move forward without increasing his budget (see "Thrift Shop," Dec. 23/30, p. 18).

As IT managers get more picky about which projects they can afford, vendors feel the pinch. A year ago, troubles stemmed from the dot-com fallout, a backlash from heavy Y2K spending, and the sliding economy, says Paul Otellini, Intel's president and chief operating officer. "Today, you have to add terrorism and war," he says. "Until we get these things behind us, checkbooks will be constrained."

Many checkbooks, but not all. Fingerhut Cos., with much cost-cutting behind it, will increase IT spending this year, says Frederic Argir, senior VP and CIO. The catalog merchandiser has slashed its IT staff and reduced other costs by consolidating servers and software. Now it needs to optimize what remains, Argir says. Neither the economy nor the war with Iraq has yet affected Fingerhut's plans to hire 19 IT workers this year or continue its projects.

That tracks with more than three-quarters of respondents to last week's survey about the war, who don't think it will negatively affect their companies' business. And 62% of the IT Confidence respondents are positive about their business prospects, down only slightly from a year ago, while more than half are bullish on their companies' IT project starts and initiatives, nearly the same as last year.

Community Health Partnership Inc., a small health-care management company for the elderly in Eau Claire, Wis., plans to increase IT spending by 50% this year, financial director Dan Jones says. The focus is on clinical and decision-support systems to help the 5-year-old company make better decisions as it grows. "We're handling a lot of data, and we're doing it poorly," Jones says. "We want to do a great job of it." The war hasn't changed the company's plans, but it could if health-care funding comes under pressure.

The near term is tenuous for many companies, but longer-term prospects may be brighter. "If you look out far enough, we feel things will be grand for the economy and our company," KeyCorp's Rickert says. "We need to see some tangible evidence that the economy is improving before we feel like we're on a good swing."

For many companies, those good times are still several months away, and the question remains, just how far out will they have to look for them?

--With John Foley, Aaron Ricadela, and Paul Travis

Check out some exclusive research from InformationWeek Research.

Photo by Gilles Mingasson/Getty Images

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