Down To Business: Amid Fears Of Recession, Don't Run And Hide - InformationWeek

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2/7/2008
04:45 PM
Rob Preston
Rob Preston
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Down To Business: Amid Fears Of Recession, Don't Run And Hide

2008 represents something of a perfect storm in terms of economic and political uncertainty. But technology paralysis isn't a viable option.

CFOS aren't generally a bubbly bunch, nor are they inclined to go off half-cocked on serious subjects. So when the master bean counters of 100 U.S. technology companies say they foresee healthy growth and vibrant industry activity in the year ahead, we should take notice, especially as this optimism comes amid widespread fear of a recession and financial industry meltdown.

In a January survey by accounting and consulting firm BDO Seidman, 73% of tech CFOs said they expect their company revenue to increase in 2008 over 2007, while only 15% forecast flat revenue and 6% a decline. They're not predicting a boom year by any stretch--those CFOs who see revenue increasing are forecasting 10% growth, on average, while a subset based in Silicon Valley are looking at 15% growth. Still, it's a positive sign.

Compare that tech CFO outlook with the Conference Board's most recent measure of broad-based CEO confidence, which reached a seven-year low in the fourth quarter. Only 15% of the CEOs surveyed thought economic conditions were on the rise in their industries, down from 17% in the previous quarter. And only 17% of those CEOs expected conditions to improve in the next six months, down from 27% previously.

So why are tech industry CFOs seemingly more sanguine than business leaders across the board? In the BDO Seidman survey, 39% of the CFOs said they expect consumer demand for innovative personal technology to be the biggest driver of industry growth in 2008, followed by international expansion (32%) and higher IT budgets (17%).

Clearly, the major tech vendors aren't sitting around waiting for a recession to dictate their next move, as evidenced by the blitzkrieg-like consolidation in the business intelligence sector last year, Oracle's $8.5 billion deal in January to acquire BEA Systems, and Microsoft's current $45 billion takeover bid for Yahoo. Most of the tech CFOs surveyed expect mergers and acquisitions to either accelerate (41%) or stay about the same (42%) this year, while only 17% expect them to slow down. There's nothing particularly startling about the expected drivers of that activity: Tech vendors are looking to boost revenue and profit (37%), expand market share (26%), and acquire intellectual property and other tech assets (24%).

Granted, gobs of tech vendor merger activity and a modicum of financial optimism are no reason for IT organizations to get giddy about their own spending prospects--but don't put your head down, either. While every tech dollar will be scrutinized in 2008, it's IT management's job to clearly define the many investment opportunities.

For the fourth year in a row, the No. 1 business priority among CIOs surveyed by Gartner is to improve business processes, followed by attracting and retaining customers and creating new products. Business intelligence is the No. 1 technology priority for the third consecutive year. Areas such as Web 2.0, enterprise apps, servers and storage, and security also beckon for investment attention.

While Gartner is cautiously optimistic about business technology spending, estimating that IT budgets worldwide will rise by an average of 3.3% in 2008, up slightly from 2007, it advised CIOs in November to hedge their bets by preparing a second, backup budget in case of recession. It recommends that CIOs set this "recession budget" at least 10% below their companies' 2007 IT spending levels, "ready for immediate implementation, long before being asked to reduce costs." Such an approach, which Gartner says shows senior management "flexibility and agility," seems sensible enough, as long as this backup budget doesn't kick in at the first hint of business weakness.

Businesses, and especially the board directors and investors who gauge their success, don't always behave rationally in an environment of economic and political uncertainty, so 2008 represents something of a perfect storm in this regard. But technology paralysis isn't a viable option.

Rob Preston, VP and Editor in Chief
[email protected]

To find out more about Rob Preston, please visit his page.

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