Recession Will Hit IT Hard
It's official: At least one economist has proclaimed that the United States is already in a recession.
While most economic analysts debate whether the massive subprime mortgage crisis, rising energy costs, the slumping dollar and increasing foreign competition has staunched gross domestic product for the first time since Sept. 11, 2001 and the burst of the first tech bubble, a full-fledged recession is damning in the eyes of IT professionals. A slowing of economic activity will mean lower revenue and profits for their businesses. In turn, businesses will cut what they perceive as "discretionary" spending. This makes IT professionals feel vulnerable, according to research conducted by Baseline.
"Working for a company heavily dependent upon the home building industry, I believe there is definitely impact to IT spending within that business sector," said Fran Caprai, manager of corporate applications and services at Building Materials Holding Corp. in San Francisco. "Since the source of the 'recession' in the home building sector appears to be the financial sectorpoor lending decisions and questionable practices while the housing market was on overdriveI would expect impact to IT in that sector as well."
In Baseline's Future of IT survey, conducted in the fourth quarter of 2007, 46 percent of respondents believed their companies would cut IT spending and staff if a recession hit. Another one-third believed their jobs would be in jeopardy if the annual GDP dropped to a growth rate of less than 2 percent.
"Companies will do what they have to do to maintain cash flow and profitability," says John von Stein, the chief information officer of The Options Clearing Corp. in Chicago. "IT typically is an area where a delay in projects and initiatives allows the company to spend money lateror not at allif the business value is no longer there to justify the project.
"This all translates to lower spending than planned, but it still may be a year-over-year up-tick in spending if the plan was substantially higher," von Stein continued. "Some companies may be half-pregnant with big initiatives and they will be completed regardless of the recession. Other companies will completely slash and burn budgets, including IT, in order to survive. It will be a very mixed bag depending on where each company is standing at the time the music stops."
Other economic indicators are making IT pros feel uneasy. One-quarter believe IT cuts would follow a 10-point drop in the consumer confidence index. And 30 percent thought their companies would make difficult choices about their IT expenditures if crude oil hit $100 a barrel (at the time of the survey, oil was $88 per barrel).
"If the recession is deep enough, there will be further scrutiny of the projects list and that may reduce my need for additional resources to meet those project and support needs," said Kevin Crawford, chief information officer at SoundTransit, the public transportation authority for Greater Seattle.
Where will IT jobs go? Nearly half of survey respondents foresee their companies outsourcing more IT functions to firms in Asia, Latin America and Europe. Nearly 70 percent believe the growth of offshore outsourcing will outstrip domestic IT capacity and tasking over the next five years.
Looking forward, IT pros believe their companies will seek more business opportunities in offshore and emerging markets. More than half (54 percent) see their companies moving operations to foreign markets if the dollar's value isn't stabilized. The dollar is currently trading below one-to-one exchange to the Canadian dollar for the first time since the 1970s and is at historic lows against the British pound, the European Union's Euro and the Japanese Yen.
IT professionals' economic perceptions aren't all bad. More than 70 percent believe that rising energy prices will shift more consumer activity to the Internet. Likewise, relatively few believe U.S. consumers will retreat from e-commerce out of security and privacy concerns. And more than half believe new government regulations and energy standards will compel enterprises to invest in IT improvements.
"Rising energy costs will have a major impact on IT and determining better and more fuel efficient ways to power data centers and corporate computer equipment will be a large initiative in the upcoming years," said Chris Rapp, assistant vice president and director of technology at Sovereign Bank in Dallas.