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Worried About a Recession? How to Hold the Line on Your IT Budget

The recession may not be official, but companies aren't waiting to rein in costs. Here's how to get smarter about what you spend on IT.

By Kim S. Nash

January 25, 2008 — CIO — More than 2 million families, unable to pay the escalating interest on subprime mortgage loans, may soon lose their homes, according to the Center for Responsible Lending.

At least 90 companies that loaned that money at subprime rates are already out of business.

CEOs at struggling firms from Bear Stearns, Citigroup and E-Trade to The Gap, Merrill Lynch and Motorola have left, or lost, their jobs.

At least 98 companies filed for bankruptcy protection in 2007.

Car and home sales are down.

Food and oil prices are up.

So is unemployment: 1.4 million people were laid off last year.

Morgan Stanley predicts recession will hit the U.S. early this year while Merrill Lynch says it's already here.

CEOs, meanwhile, aren't waiting for the statistics to match a dictionary definition of recession. Already their confidence in the economy has drifted to the lowest levels since 2000, according to The Conference Board.

Anticipating more ugliness, and trying to stimulate spending, the Federal Reserve Bank, which regulates the flow of money, has cut interest rates four months in a row.

How IT money will be allocated this year is TBD. If it hasn't happened already, you'll soon be deep in conversation with senior executives about your budget in particular and technology spending in general. Get ready for long meetings in which managers pass around charts of bad news. And after that?

Budget cuts and hiring freezes.

Across all industries, average IT budgets, measured as a percent of revenue, have shrunk compared to last year, dropping from 7.4 percent to 6.7 percent, according to our end-of-year "State of the CIO" poll of 558 corporate technology leaders.

One manufacturing CIO says things are so bad at his company that he doesn't even want to talk about IT budgeting. "I'm afraid I could not afford to be candid," he says.

"We're planning for a tough year across the company," says Kevin Bott, CIO of Ryder System, the $6.3 billion transportation company. "We're trying to be as fiscally responsible as we can for all budgets, not just IT. If the economy does better, that's an upside. But we don't want to be caught."

No one does.

The Way Things Were

Remember 2000? That's when those high-flying Internet startups, fueled by the notion that technology-based miracles would cure any and all business ills, burned out and came crashing back to earth, their business plans revealed as untenable. The 9/11 terrorist attacks followed in 2001 and so did recession. CFOs clamped down on budgets and CIOs were forced to justify every nickel they spent—not a bad idea, but unfortunate and unprofitable when born of distrust.

 

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