IT sector will survive downturn: analyst

Despite the surprising plot twists and turns the economy and capital markets have been experiencing, IT’s next chapter will have a happy ending, according to RBC Capital Markets Inc. software research managing director David Beck.

During his plenary address Tuesday at the CIO Summit business and technology forum in Toronto, Beck told IT execs and media that successful companies will use the current economic downturn to solidify operations and prepare for a recovery. Beck disputes the argument that the value proposition of IT has diminished, claiming that its strategic importance will only increase due to “relentless” technology evolution.

“Consolidation is the course of the day,” Beck said of the capital markets, adding that federal interest rate cuts will serve to stimulate market performance. CIOs will need to maintain and strengthen the IT supply chain, Beck said, and will need to consider their various IT platforms as a portfolio and maintain some exposure in this portfolio to smaller, specialized IT providers that can help deliver differentiated product and service offerings.

Beck also said Sept. 11 has forced companies to make security and backup a top priority, which in effect has given IT execs more political clout and more resources within their company. Companies will need to focus on standardizing the application environment, integrating (customer relationship management) CRM and enterprise resource planning software (ERP) tools effectively, and leveraging enterprise data assets.

“Security was challenging enough when (companies) had to deal with secure PCs. But now you are going to have to worry about secure PCs, secure PDAs, secure cell phones – that’s a lot of complexity in terms of the security equation. A lot of companies right now are looking at their infrastructure and saying how can we get better leverage,” Beck said, adding that increased spending in software technologies will be fundamental to growth.

“Over the last couple of quarters, the investment in Internet services declined – Internet services are highly capital intensive. There’s been a big pullback in that kind of spending but software has continues to steadily pace ahead. I think that we are going to continue to see very healthy software alternatives come to market,” Beck said.

Looking forward, Beck noted the correlation between labour productivity and IT investment can be used to justify increased IT spending, particularly in these economic times.

“We were using this argument as a big supporting argument for investment in IT throughout the late 90s and it kind of hit a couple of bumps in the road lately. (But) I think that a lot of folks are going to go back to it,” Beck said. “I think that there’s been huge gains in the past couple of years both on the front of storage, processors, and Internet hosting and traffic – it’s pretty exciting stuff.”