The Big Chill - InformationWeek

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3/20/2008
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The Big Chill

Whether budget cuts are in your future or not, technology managers should prepare for a cold economic climate.

To paraphrase an oft-used financial aphorism, when business sneezes, IT organizations catch a cold. Amid grave worries about the U.S. economy's health, tech leaders are preparing to cut projects and spending as needed, and in most cases already are, our survey of 374 business technology pros shows. Hiring's by far the first thing that will be put on hold, with infrastructure upgrades and new application projects next in line.

So far, less than half, 43%, of respondents to an InformationWeek survey, conducted the first week of March, haven't been asked to change their IT spending because of the worsening economy. Of the rest, 28% say they've been asked not to increase IT spending as much as they had planned; 23% have been asked to cut the budget by a specific percentage; and 20% have been asked to cut specific projects. Some companies are taking more than one of these cost-cutting steps.

Chart: When times get tough, how is IT spending viewed at your company against other business investments?
Joe Buser, VP of information services at Delta Faucet, isn't going to get the increase in IT spending he was looking forward to this year, as the slowdown in the housing market hits company profits. He's already cut a couple of nice-to-have projects, such as a network access control security application and an integration project that would have fed Dun & Bradstreet credit-worthiness data into Delta Faucet's ERP system. What isn't going to get cut: customer-facing projects. "We're doing the right things," Buser says.

Business leaders increasingly are asking how long and how bad a recession could be, not whether we'll face one. JPMorgan Chase's recent buyout offer for investment bank Bear Stearns--at the fire sale price of $2 a share, engineered with the help of Federal Reserve officials--only adds to the worries.

InformationWeek Reports

Even a week before the Bear Stearns meltdown, 58% of business technology pros were saying the economy is in a recession or headed for one. While they're split on how they're dealing with that economic uncertainty now, they're clearly prepared to put the brakes on IT spending quickly.

"Nothing's been taken off the calendar yet," says John Rough, CIO of DBL Distributing, an electronics wholesaler. However, Rough was asked to delay some IT spending from the first to the second quarter because the company's growth slowed in the first quarter. That makes him a little antsy about what's ahead. "Because we're in consumer electronics, we're a nonnecessity," he says, adding, "now that the Super Bowl is over."

Ever the optimists, CIOs also can paint a glass-half-full scenario for their business technology organizations, and it goes like this: Use this time of uncertainty to evaluate everything, including infrastructure, services, and personnel; negotiate hard with vendors--they're more worried than you are; seek alternatives like on-demand software services, which promise lower up-front costs and maintenance; look to squeeze productivity gains out of tools already in place, from virtualization to automation; and think like an investor--what IT spending can provide measurable returns that push the company forward in this challenging time?

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Despite the economic uncertainty, 53% of survey respondents say the mood in their business technology organizations is "cautiously optimistic." Almost one-quarter, though, describe the mood as "fear and loathing," and anecdotically it seems to vary based on people's location, industry, and whether they've weathered downturns before, including the recession of the early 2000s. Given the subprime mortgage meltdown, parts of the banking industry seem sure to take hits (see story, "Wall Street Firms Face Delicate Balance").

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