26 Jan Recession survival: Amid downturn, there is opportunity
Madison, Wis. – The talk among panelists at a recent Accelerate Madison luncheon was centered on recession survival, but it wasn’t long before some entrepreneurial thought leadership entered into the mix.
The Jan. 22 program, held at the Fluno Center, was centered on economic survival for IT enterprises and workers alike amid the backdrop of a challenging economy.
How challenging? Prior to the freezing of capital markets last fall, Wisconsin companies were budgeting pay increases in the range of 3.5 to 3.8 percent for 2009, but a sector-by-sector survey of human resource planning, conducted by Madison’s QTI Consulting, confirmed that economic anxiety has had a leveling effect on anticipated employment and pay ranges.
The survey, which was completed by 283 organizations in the Milwaukee, Madison, and Fox Valley markets, found that a majority of organizations (43 percent) anticipate no changes in their full-time employee staffing levels, while 39 percent might freeze or downsize. Thirty-seven percent adjusted their overall budgets downward, and the average base pay increase in salary budgets was lowered to 3.0 percent.
“A lot of respondents are looking at a zero percent [base pay] increase,” said QTI’s Marshall Heyworth. “There are still occasional employers are looking to hire, but others are going to temp-to-hire situations to hedge their bets.”
Don’t forget innovation
Rimas Buinevicius, CEO of the Madison-based Sonic Foundry, offered some historical perspective for IT professionals at Accelerate Madison. He said various phases of business have occurred since he became chief executive in 1994. While product innovation continues, the technology industry now tends to have longer product cycles, which partially explains the resistance of consumers to move to the Windows Vista operating system.
Ironically, Buinevicius made that point on the day that Microsoft announced that it would reduce its workforce by 5,000 employees over the next 18 months. In the mid 1970s, Microsoft started during the tail end of a severe recession, and Buinevicius noted that other prominent companies were launched when the chips were down.
“It’s interesting to be a small company that’s always on the edge of new technology, then to have the rug pulled out by a downturn,” he said. “We need to be on the cusp of innovation in order to provide value.”
In this environment, Gartner, Inc., the Stamford, Conn.-based IT research and advisory company, says reducing an organization’s cost structure is among the best ways of demonstrating CIO value. But Ron Kraemer, CIO and vice provost for IT at the University of Wisconsin-Madison, said innovation can get lost in the recession shuffle. While it’s important in the short-run to emphasize the provision of services for things that are part of an organization’s core mission, Kraemer warned not to neglect the long view. CIOs also need to ask, “How do we innovate to remain relevant in the long run?” he said.
Carl Helle, director of North American operations for Cisco WebEx, said even amid the news of cutbacks, layoffs, and sheer survival, there still are opportunities for bottom-line growth. He cited business process improvements as one way technology professionals can impact business quality in a recession.
Buinevicius provided a light moment when he pointed out that in some ways, it’s better to operate a business in a down cycle, given there is less business competition and, thanks to workforce reductions, better access to talent.
“With the caveat that you have enough cash,” he added, evoking laughter.
UW-Madison’s Kraemer said college students also are feeling economic “nervousness,” but he believes the university is producing a better crop of students that are more aware they need to compete in a global economy.
Kraemer also said UW-Madison no longer is seeing a down tick in enrollment for the “high science” fields, nor is it seeing as many pure computer scientists or engineers. “We’re seeing students educated in a cross-disciplinary way,” he said.
QTI’s Heyworth said the current job market presents a good opportunity to grab market share and recruit hard-to-find talent. “There are opportunities in an economy like this for organizations to position themselves for when growth returns,” he said.
Not as much ventured
The decline in venture capital did not go unnoticed by the Accelerate Madison panelists, including Alice.com president and co-founder Mark McGuire. Alice.com, an online market for housing products, is set to launch this spring, but it already has secured $4.3 million in venture funding from Kegonsa Parnters and DaneVest Tech Fund, an advantage that other start-ups might not have.
McGuire acknowledged that part of Alice.com’s coup relates to having returned money to investors twice already with Name Protect and Jellyfish.com, two previously successful exists. While it’s proof that investors are still writing checks, he said today’s new businesses might not be in a position to get to market as quickly as his former start-ups.
“We tried to get to market quickly to show a tangible value proposition,” McGuire said. However, because of an emerging war room mentality of venture funds, they are looking to protect existing investments more than commit funding to new ones.
“If you’re a start-up, you may have to go slower,” he said of today’s landscape. “The risk, in this economy, of someone beating you to the market isn’t as great.”
Heyworth believes the economic stimulus plan being crafted in Washington, D.C. could stabilize the employment outlook in construction, both concrete and digital. He said the jobs picture in areas like web applications and software development/engineering are still strong, while less so in PC hardware and network hardware.
At the moment, IT spend that enhances productivity and performance will be a much easier sell to upper management, Heyworth added.
“There are certainly worse ports in the storm than the IT sector,” he said.