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Downside Up

Despite more gloomy economic news, some companies are positioning for future growth
It's a matter of not just surviving, but thriving. The company's IT budget rose 20% this year, thanks to steady revenue and a determination to develop leading-edge internal systems, including sales-force automation tools. The developer site, which Hocker says is encouraging adoption of BEA technologies, already has 500,000 registered members and is on track to meet a goal of 1 million in its first year.

Not everyone is on the offensive. Many IT executives remain cautious, unconvinced that an economic recovery is in the offing anytime soon. Steve Hannah, VP of IT at Knight Ridder Inc., says the publisher hasn't seen any easing of the advertising slump, and thus any action he might take in preparation for an upturn would be based "purely on conjecture." Knight Ridder is continuing to hold the line on expenses, including IT costs.

But companies need to prepare for an upturn, says Gartner analyst Al Case, who says one way to do that is by shifting IT spending from back-office technologies that reduce costs to those that generate revenue, such as CRM applications. The timing is good, Case says, because many IT vendors have lowered prices substantially.

Case in point: In June, Household International Inc., a Prospect Heights, Ill., provider of mortgages and consumer loans, completed installation of a converged voice-data network that cost 20% less than the original estimate of $10 million. The network is designed to boost revenue by delivering customer data directly to sales agents' PCs as soon as customers call, letting the agents better cross-sell services.

CIO and executive VP Ken Harvey says that while the initial goal was to maintain sales growth during the downturn, "I think the benefits will accelerate when the economy turns up."

In terms of buying power, now may be a great time to shop. The third quarter presents IT buyers with an excellent opportunity to make deals on favorable terms, says Michelle McGuinness, a contract negotiator at Reiner Associates, a San Francisco consulting firm that negotiates software contracts for businesses. The traditionally slow quarter for technology vendors is even more important this year. "Vendors looking to establish that they have survived the tech shakeout ... require the earnings to prove it," she says.

Companies are falling into three camps with regard to technology spending, says John Parkinson, chief technology officer and VP of consulting firm Cap Gemini Ernst & Young. About 60% are focused on integrating what they have or on projects such as outsourcing legacy-system management. Thirty percent are simplifying or consolidating systems. No more than 10% are investing heavily in what's next -- improving customer service by using wireless systems or testing flexible enterprise management that allows faster business-strategy changes, for example. "It's a mind-set. Some companies think a downturn is the time to invest," Parkinson says. "If you're smart and lucky, you get a big jump ... that's hard to catch up to."