Analysts split on impact of credit crunch
The impact of the credit
crunch is affecting business
and budgets across the
board. While opinion varies
about the extent that it will affect
information communications
technology (ICT) budgets, most
industry experts believe that
the cuts will not be as dramatic
as experienced in the wake of
the dot-com debacle less than a
decade ago.
As pointed out by analyst Gartner,
budgets at that time were slashed
from annual double-digit growth
rates down to low single-digit
rates, and while some reduction
is inevitable, it believes that these
will be less radical. “In a worstcase
scenario, our research
indicates an IT spending increase
of 2.3% in 2009, down from
our earlier projection of 5.8%,”
said Peter Sondergaard, senior vice
president at Gartner. And it comes
as no surprise that Gartner expects
the US and Western Europe to
experience the deepest cuts.
However, companies need to be very
careful when cutting IT budgets,
because technology is much more
deeply embedded in business
processes than it was earlier in the
decade, warns consultant McKinsey.
Simplistic cuts across the board
could result in damage to critical
business processes from sales to
customer service.
Many commentators believe that
CIOs’ recent experience of dealing
with swingeing cuts leaves them
in a good position to deal with
this latest downturn in IT budgets. “We learned that in tumultuous
times, CEOs want their executives
and managers to be advisors
and counsellors, not just great
implementers of directions given
to them,” says Gartner’s Sondergaard said. “What they want
now most of all is agile leadership.
Leadership that can guide us
through simultaneous cost control
and expansion at the same time.”
Telecoms investment will also be
hit by the credit crunch, particularly
among European telcos that used
cheap loans over the last five years
to update their networks. Market watcher Current Analysis says that
the telecoms equipment segment
saw a “steep decline in 2007 with
a growth rate of just 2% compared
to a growth rate of 7% in 2005 and
almost 6% in 2006.”
Current Analysis’ Sandra
O’Boyle argues that the internal
reorganisation that carriers have
undertaken over the last four years – moving from technology-focused
divisions into customer-focused ones – will stand them in good stead in the
downturn. On the positive side there
is a significant demand in enterprises
for advanced collaboration services
that can help them cut travel
costs. She suggests services such
as Telepresence and machineto-
machine are particularly
promising.
Ultimately, the most successful IT
and telecoms projects are those
that generate the most business
benefit. Of course, with IT aligned
properly to the business, this is what
should happen in any case. “Projects
must deliver the promised business
performance improvements. IT
shares the responsibility to make
that happen,” says Richard Hunter,
vice president and Gartner Fellow. “Everyone in the business
must understand why change
is required and what their role
is. From now on, businesses
can only afford IT that delivers
value in terms of business
performance.”