What will the financial crisis mean to your business' IT budget? Will there be pressure to make existing IT systems go farther? On the other hand, is this a good time to buy?
As North America heads into winter, the chill of the U.S. financial crisis is spreading as well, with global stock markets remaining jittery, the U.S. auto industry seeking its own bailout, and retail sales slow.
Meanwhile, it’s budget-planning time, and you’re probably wondering what to expect in the new year. Can you afford to budget for the same IT spending as last year? Do you need to call for a freeze? When can you expect the economy to defrost?
Well, it could be a while before the robins appear on the lawn.
Early studies and polls released predicted everything from flat IT spending growth to outright declines for the new year. An October survey of IT managers by New York City-based Bernstein Research forecasted IT spending growth of 0 percent to 3 percent. Meanwhile, an October 15 report by Cambridge, Mass-based Forrester Research suggested that, if the financial crisis continues to spread, “the U.S. and other major countries will experience a longer and deeper recession than we had expected,” lasting “several quarters.”
Experts expect negative IT spending growth
But as December approaches, experts are leaning more toward Forrester’s bleaker predictions.
“There’s no reliable information post-Lehman,” notes Ken McGee, vice president and research fellow with Stamford, Conn.-based Gartner, referring to the September collapse of Wall Street securities giants Lehman Brothers and Merrill Lynch that has since sent shockwaves through the U.S. economy. “Not enough CEOs and CIOs have recrunched their numbers post-Lehman….we’re really flying in the blind here.”
McGee himself expects flat-to-negative growth in IT spending in the year ahead. “I think it will be flat to negative 5 percent,” he says.
Ashvin Vellody, senior vice president for enabling technologies with Boston-based Yankee Group, expects IT spending to fall until late in the year. “I think we’ll see a recession through the third quarter of 2009,” he says.
There are some bargains out there
But if sales are slow, might this be a good time to make some IT purchases, perhaps renegotiate some service contracts to get better deals? Aren’t there some bargains out there?
For some, says Vellody, this is a very good time to buy. “Telecommunications, service providers, connectivity firms that have good cash flow are likely to keep spending, and perhaps reworking licensing agreements,” he says, “but they are likely to be asking an extra level of questions before they spend.”
But for software, financial services companies, says Vellody, they are more likely to be hurting financially and delay new purchases.
And for small businesses overall, credit is likely to remain hard to come by. “Small businesses are always very cautious when it comes to cash flow, and they are even more likely to hold back,” says Vellody.
To outsource or homesource
What about outsourcing? In a tough global economy, are companies likely to retool and bring any outsourced operations back home?
Vellody says companies trying to cut costs may actually look at additional outsourcing. “Outsourcing vendors are feeling the pressures, too, and may offer better deals,” he says.
But Gartner’s McGee thinks otherwise. “I think we’ll see a freezing of whatever companies are doing…. I don’t think we’re likely to see any massive shifts either way.” He noted that the incoming Obama administration’s threats to raise taxes on companies shipping jobs overseas may deter some firms from flirting with outsourcing right now.
To be sure, the dismal economic forecast will force companies of all sizes and sectors to think long and hard about their budgets this year. “For many, the only spending will be on “keep the lights on” activities,” predicts Vellody.
Meanwhile, all will hold out hope for a quick thaw.