Facing the bumpy road ahead

The information technology sector may be in for a bumpy ride this year, according to research by Inteledigm Market Sciences.

Examinations of the last six months and forecasts for the third and fourth quarter of 1999 predict that a certain amount of volatility is expected. In fact, numerous companies have already felt the negative impact of the market, said Kal Juman, president and CEO at Toronto-based Inteledigm.

“What we’re noticing is firms are now saying, ‘Well, we may have wanted to replace some applications, but we’re not confident that we can implement them in time, especially these massive enterprise applications that on average will take a year to two years to really implement, and really get them going well. So those firms have started to see the impact right away.”

One of the major forces contributing to this reported volatility is Y2K spending, Juman said. According to industry research, because many firms are behind schedule, they are redirecting a significant portion of their IT budget to year 2000 projects.

“One of the things we are picking up from large enterprise customers is that their year 2000 projects are costing them more than they had planned. As a result, (for) many of these firms, although they are large, there’s still an issue of limited bandwidth and limited people resources to manage these initiatives,” Juman explained.

In fact, Inteledigm’s research indicates that many corporations are considering a freeze, starting in July, on any projects not regarded as mission critical, such as knowledge management or document management.

According to Anthony Cina, manager of statistical analysis at IDC (Canada) Ltd. in Toronto, “We’ve done work looking into the Y2K spending and found that there is a certain percentage of companies, between 10 and 20 per cent, that are probably going to freeze spending on new applications this year. You don’t want to introduce new applications until you’re sure that you’re 100 per cent Y2K compliant.”

However, Cina added that although “Y2K is a big thing, we’re still not sure how that is going to affect spending overall. There’s still a lot of spending going on.”

By looking at demand assessment, Juman said, it appears buying behaviour is not likely to return to normal until 2001, after companies have dealt with Y2K compliance and any failures that may have occurred in 2000.

“We’re not saying that the markets for those segments will go away, we’re saying that the markets will effectively shrink. There are going to be firms buying, but there may not be as many firms buying in your segment,” he said.

Cina agreed, adding that “beyond 2000, the IT industry is going to see a spending boom,” thanks in part to a renewed focus on e-commerce applications.

Another contributing factor to an uncertain market is the volatile international economy, Juman said. Although Canada, the U.S. and selected European countries have the most potential, unstable international economies have produced an unpredictable global marketplace.

Based on these facts, Juman said, there are a number of approaches companies can take to help balance the uncertainty.

Among these recommendations is the initiative to create a year 2000 demand assessment project to forecast the 12 month demand for their product, services and solutions.

This involves a customized framework that will identify the decrease or increase in demand for an organization and adjusting product development, marketing and sales strategies accordingly.

Another strategy, Juman said, is to focus on earning a significant portion of 1999’s targeted revenue in the first three quarters of the year to reduce pressure in the fourth. This approach sounds good, but what does it mean?

“It means that companies have got to become a lot more agile in what they do…take the marketing money that you would have spent in the third or fourth quarter and spend it in the first and second,” Juman recommended. “Spend your money building your sales pipeline and converting as many orders as you can.”