23 Feb IT spending hit hard, recovery likely in 2010
Editor’s Note— Tom Koulopoulos, President of the Delphi Group, will be a featured Keynote Speaker at the Fusion 2009 CE0 – CIO Symposium, March 4 – 5 at the Fluno Center in Madison. For more information and complete list of speakers see www.fusion2009.com. Registration is about to close and less than 10 seats remain.
IT spending hit hard, while economic recovery will likely come next year according to survey from Boston-based Delphi Group
Madison, WI – The U.S. economic recovery is at least a year out, slamming the brakes on IT and other business capital initiatives, according to a broad-based survey of 200 companies conducted in the fourth quarter of 2008 by the Boston-based Delphi Group.
While 29 percent of respondents felt the recovery was at least a year off – with another 14 percent speculating the turnaround would come in the last quarter of 2009 and 16 percent predicting it will come in the third quarter – a majority of respondents said the major problem is a fundamental lack of trust in the financial markets.
“The most important aspect is the issue of perception,” said Delphi Group principal Tom Koulopolus in releasing the study’s findings. “It is driven by an emotional perception. We have emotionally taken a tremendous hit on the trust factor – that we can trust the financial markets.
“What people are saying to us is, `It’s not that I don’t have the money.. I can’t spend it, because I am not sure what the future will hold,” Koulopolus said. “As Peter Drucker once said to me in the downturn of 2001, the best thing you can do at a time like this is maintain liquidity.”
The survey by Delphi and Transformation + Innovation polled companies across the business spectrum, with 60 percent of respondents representing businesses with 1,000 employees or less, 23 percent with 5,000 to 100,000 employees, and five percent with 100,000 to more than 300,000 employees. Approximately 75 percent of respondents came from the U.S., with the rest overseas.
The top issue for executives is growing the business, but doing so while they are financially strapped for new investment. According to the survey findings, two of the three leading main objectives in 2009 are to grow revenue (21 percent) and preserve capital (10 percent).
“They are very reluctant and concerned about spending it (capital),” Koulopolus said. “They don’t know what the future holds, so they are sitting tight.
“At the same time, we have seen companies like Intel invest enormous amounts of money in new R&D,” Koulopolus added. “What is says to me is that we had better innovate, and do so very rapidly. How do we build new business models that exploit existing resources?”
Faith in the economy remains
A total of 67 percent of survey respondents see their company’s leadership as very effective in dealing with the current downturn, which Koulopolus calls a good sign in that it signals an optimism in the fundamentals of the economy. Another 37 percent of respondents said they plan to stay the course and remain with their company.
“We have some more runway before the economy is going to take off, but, we believe that the economy is going to take off again,” Koulopolus said Friday during a live Webcast releasing the findings of the survey, while indicating that the basic underpinnings of the economy remain fairly sound.
“We also see a tremendous commitment to organizations, and shoring up the foundations of the economy. What we see is a period of adjustment and price correction in the real estate market.”
Spending on information technology initiatives has slowed dramatically under current market conditions, Koulopolus said.
“The brakes have been put on very hard,” he said. “What we saw is that there is a tremendous attitude of conservative and skepticism in terms of IT spending. There is a tremendous concern with offshoring and outsourcing.”
In the current environment, technology-based companies are cutting back on offshoring, outsourcing and enterprise resource planning (ERP), Koulopolus said.
“I think we are going to see a tremendous movement toward outsourcing reversed back to the U.S. The pendulum is swinging back onshore.”
Not surprising, many companies have started to re-evaluate the actual cost savings and benefits of offshoring, the survey said.
“In fact, it is probably overdue and simply another step in the journey toward globalization in a smarter sense and driven by more than just the promise of low cost, which has rarely materialized across the board,” Koulopolus said.
By and large, hiring plans have been frozen, with 32 percent saying that new hires have been put on hold, and another 18 percent saying they are reducing their workforce to some extent.
“What you see in the headlines are the large cuts in Fortune 500 companies,” Koulopolus said. “What you don’t see is the growth in the small to mid-size companies. There is more at play here than in what we see in the popular media.
One of the overriding themes emerging in the survey is an increased emphasis on business process management (BPM), with 16 percent saying it is a priority for dealing with the current downturn.
Large companies are “obsessing” over BPM, Koulopolus said, with 39 percent of respondents saying the turndown has forced them to go back and revisit business processes as a way to increase efficiencies and return on investment.
What is driving the conservatism within organizations is a general sense of uncertainty in the economy, but also in the heretofore relied upon business model. Much of that new business model thinking will prove to be the foundation of innovation, Koulopolus said.
“How do you build and rebuild that organization?” he said. “I think we are going to go through a serious re-analysis of business processes.”
When it comes to small to medium-sized businesses, companies heavily leveraged with debt are finding themselves in a very difficult situation, Koulopolus said, while companies that are not in that situation are faring better.
“I think we will see an increase in entrepreneurial ventures, people building their own enterprise,” he said. “They are out of work, so, they hang a shingle and do their own thing. I think entrepreneurial ventures are going to see a spark.”
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