What IT can do to help the economy….

Posted by: Jack Santos

Those of you that are regular readers of this blog can remember a few months ago the buzz about IT leading the way out of our current economic morass…well…fuggedaboudit.

Europe is now talking recession. Oil continues to stay high. Inflation? Up. Unemployment – the only bright spot is in a summer lull.  Watch the numbers skyrocket by fall. 

Yours truly posited in earlier posts about the time frame we had to pull out of a short and sweet downturn, else face a long and deep one… and the telling signs would be oil prices, inflation, and unemployment.

Hang on to your seats, folks, it’s looking long and deep, and there is little IT, on its own, can do about it.  At best, we’re looking at years of stagflation, at worst a significant economic downturn (including more financial failures; George Soros predicts it – again - so it must be true)…even the Fed and SEC are in a state of mayhem about their roles, portending a significant change in economic regulatory policy; and just when a new, unseasoned, uneconomic president  comes to power.  You can tell the financial powerhouses are running scared because suddenly the WSJ Op-ed pages have become a mouthpiece for the McCain campaign. Until the fairness doctrine returns.

So what’s a CIO to do?  Keep your eye on the bottom line.  No doubt, over the next 6 months and into 2009, requests for staff cutbacks will be coming.  If you followed Burton Group advice, you’d be well on your way to being able to chalk up real dollar savings with virtualization projects, or having the infrastructure in place for increased (read: work at home) mobility.  A Recent Goldman Sachs report sees growth in IT spending dropping from 7% last year to 5% this year...and near steady rock bottom levels at the end of the year.  That says declining budget GROWTH (vs. declining budgets). Major spending areas?  Cost cutting, virtualization, server consolidation, application integration, and data center consolidation….sounds like a theme going. Once these Y2K like efforts are done…watch out.

My guess is it won’t be enough.  We are already seeing significant staff cutbacks within the finance industry,  as well as all the usual suspects (like automakers),  and major multinationals. 

The Future?

Chances are that by 1Q09 (depending on industry and the state of your business) you’ll have to start thinking about project cuts (if not already), an evaluative process for personnel needs, and potential staff reorganizations.  The best CIOs work on morale, focus on small,  short projects that deliver real results, and start preparing staff for the “downsizing waves” that many think are inevitable, especially in larger organizations.  Not all business are the same, and some actually thrive in a downturn.

To paraphrase Star Trek's Dr McCoy: "I'm a CIO, not an economist!".  That said,  some US-centric metrics I think we should watch are unemployment and CPI.  If the former starts shooting towards 6.0% and beyond, and the latter continues at greater than 4.0% annually, taking an upward trend…get ready for a 1990’s Japan scenario.  This certainly looks like a situation where the U.S. is a leading indicator for the EU, but may be less relevant for India, China, and Brazil.

What can IT do to help the economy? Maybe it’s just as simple as preparing for a long pause. Are there ways to pick right, cut smart, and organize for the future?  Sure there are! And pays off to know how to do that, even in an up economy!

Who knows?  There may even be an upside to a declining budget...

…more to come.