I believe that there are several factors that have caused or are contributing to the spending downturn. One of them is Y2K. The build-out of IT systems leading up to Y2K was very significant. Many companies invested in entirely new systems, most notably ERP systems, to circumvent the calendar problem. In effect, many of these projects mortgaged the intermediate future of enterprise systems installations. Similarly, other companies that instead invested in updating their existing systems did so with the intention of keeping them for a while.
Another factor is the overbuilding of e-infrastructures. A significant portion of the "bubble" was created by large IT investments from both industry service providers as well as traditional organizations. On the services provider side, it seemed that every organization projected that it would be capturing a 20% market share, but nobody stopped to think that there were 1,000 companies with the same plan! The hardware vendors knew, but they were also drinking the same Kool-Aid.
In many other businesses, the fear of being "Amazoned" was a factor, and they just threw money and technology at what appeared to be significant competitive threats. This resulted in excess IT capacity when the bubble did burst. That excess capacity also lacked killer apps -- another factor in the downturn. Do you believe that the spending declines are temporary
I believe that the spending decline is both permanent and temporary. We will never see the extraordinary high growth rates of three years ago, but growth will return in moderation. History has shown that economic bubbles do not repeat themselves in the same industries. There is no reason to expect that the IT bubble will be any different from what happened with the railroads or gold. Once the euphoria and speculators passed, a stable business eventually emerged. But investors and business people were forever much smarter about those industries, and I think the same will happen with IT investments in the future. What challenges do your members ask about most often these days?
There seems to be much less concern about the challenges of new or emerging technologies than there is about managing the stuff already on peoples' plates. Our programs have been very well attended, so I interpret this as confirmation that we are addressing the issues that are most concerning to sponsors. There is no doubt that there are more employment longevity concerns on the minds of many IT professionals and managers than we have seen in a long time, perhaps ever.
How to do more with less is a dominant theme in most organizations today, and the IT organizations are certainly being asked to do their share of belt tightening. They are also being asked to focus on projects that help others in their businesses accomplish more with less. It does not seem that many are faced with the challenges of staff and skills shortfalls like we saw only two or three years ago. In many cases the challenge of implementing downsizing programs has replaced the more enjoyable challenges associated with growth. What are IT executives doing to accommodate this new corporate scrutiny of technology spending?
From my observations and discussions, I believe that IT executives are doing a better job now than they ever have in past economic declines. In many cases they are leading or at least willingly participating in the scrutiny of IT expenditures. The scrutiny is not being done to them, but more typically with them. In general, I see IT executives becoming better business people, working with line executives to make sure investments are rational, being more mindful of how well the technology works to improve the efficiency and productivity of their business partners, and adding or reintroducing more governance. In your view, how have CIO priorities changed as the economy has softened?
There is no question that priorities for many CIOs have moved in the direction of shorter term planning horizons, lower risks, and IT cost containment. Projects with short-term benefits and with certain paybacks are the ones being funded and staffed. Even larger projects are being planned in stages for shorter payback and lower risk. There is substantial focus on technology infrastructure rationalization and streamlining to reduce cost and to improve efficiency. The dramatic increase in interest and adoption of open-source software is a good example of this.
IT/business alignment, while never low on the priority scale, is very much on executives' minds. This is a perennial issue that seems to take on various forms of renewed status in times of changing business priorities. Most importantly, it seems that there has been a fairly dramatic shift back towards IT organization centralization over the past two years. That is integrally related to IT alignment (or realignment) activities in today's economy.
Also, it's not a good time to be a vendor. Anyone who is not beating up on their IT vendors and suppliers for better pricing or sweeter deals is subject to being held in disgrace by their peers.
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Click here for part two of Moody's musings.