posted by: Jack
" It is always easier to believe than to deny. Our minds are naturally affirmative". John Burroughs (1837 - 1921)
Towards last quarter we went through a rash of stories about the economy – and how it would impact IT. The economic news has only gotten worse, and the stories have become repetitive pabulum for the first potential casualties of the downturn: industry periodicals. Hmmm… Steve Lohr at the New York Times wrote late last year on IT and the economy, and how managers were preparing for it. His take was that IT was the "canary in the coal mine" and should see an impact first.
I don’t think so.
Think about it. The last economic downturn was 2001-2. The brunt of it was taken by tech firms when the bubble burst. Most F500 IT shops watched and counted their blessings, didn’t cut back, and held off on hiring. One recruiter put it this way: "you could be standing naked on a street corner, with a sign for a programming job, and everyone would ignore you".
The downturn of 1991 – real estate. Moderate impact on IT, mostly financial firms that needed to cut staff. Remember- this was pre-Internet, pre-ecommerce, pre "IT-Business alignment". My thesis is that 1991 and before, IT was treated like any other back office environment; a necessary evil, overhead, an expense to be cut. Not a "seat at the table" but a "seat at the hatchet block" – and shared equally (sometimes more so) in staff cuts. In fact, most CxOs saw it as an opportunity to eliminate "dead-wood"; weak performing (or at least perceived that way) employees without really addressing the performance issue. They almost welcomed the opportunity.
So now IT is generally regarded as integral (for most firms) to revenue generation. In some cases (look at the recent Netfliks outage) it has direct financial impact. IT is integrated with the business, and most C-level execs now feel they may have been too quick, cut too soon, and were left at a disadvantage when the economy pulled out from the last downturn. Valuable time was lost.
If those observations are right, the canary in a coal mine thesis is dead…and every indication during the first 4 months of this year confirms that.
So the question really is: short and sweet, or long and deep? IT is a lagging indicator now, so the longer we are in this, the more impact you’ll see. If there isn’t some consensus by September that it is short and sweet, significant cost cutting for the 2009 calendar year will begin --- and then IT will take it hard.
If there is even the slightest whiff of recovery…well, it’s an election year, and there is historical precedent. By the time November rolled around in 1991 the economy was on the mend, but not without a loss for George H.W.; our economic policy makers and politicians won’t forget that this time around. We’ll all be hyper-sensitized to it.
So – short and sweet or long and deep? We’ll see flattening budgets this year. Slowing hiring (minimal cutbacks), and real efforts with low hanging fruit (revenue generating systems, or no-brainer savings engines like virtualization, renegotiating contracts, outsourcing/offshoring realignment). Realignment of where spending is done in the systems portfolio, slowing down of major initiatives, but not outright shutdowns. The short and sweet scenario sees that type of thinking, at worst, extending into the first half of 2009.
Now, the long and deep scenario—more failures, more stimulus packages, increasing unemployment, possibly beyond 7-8%. Pain will be heavier, earlier in key sectors (financial for one), and will start 4Q, and with a vengeance in 2H 2009 – which would be where IT really starts to feel the pain.
Media coverage – and self fulfilling prophesy point to long and deep. Strength in exports, anemic growth (but still growth), real estate numbers for resales, flat (but gyrating) market, are all pointing to short and sweet for me. Economists are split down the middle. Time will tell. But then again, I could be just "naturally affirmative".