Market woes spare IT execs, plans … so far

The sky may be falling on Wall Street, but corporate IT executives are not yet reporting doom-and-gloom scenarios for their budgets or staffing levels.

Even at companies that are announcing massive layoffs, IT departments appear to be safe for now. Indeed, many companies that are suffering from the general slowdown in the U.S. economy are continuing to make strategic IT investments, particularly in Internet-related projects with measurable cost savings.

Consider Lucent Technologies Inc. The troubled telecommunications equipment vendor plans to slash 10,000 jobs in light of a 75 per cent drop in its stock price during the past nine months. Yet company spokesman John Skalko says there will be “minimal, if any, effect on the IT department.”

“We will continue to work on streamlining our processes and increasing our Web-based transactions, which will be money well spent,” Skalko says. “This idea of increasing our Web-based transactions involves our customers, our suppliers and our employees. … We are working on overall supply-chain management.”

Lucent is not alone. Companies in fields such as technology, healthcare and transportation remain committed to putting their business processes online to improve efficiency. That means continuing to make investments to Web-enable legacy applications, migrate network infrastructures to ‘Net protocols, and roll out new mission-critical applications.

“We want to focus on two things: productivity [enhancements for] revenue-supporting activities and Internet-related activities,” says Mark Tonnesen, vice-president of information technology at Cisco Systems Inc. “We’ll be coming out of this [economic downturn] at some point, and we need to be better positioned in terms of how we leverage IT and how we utilize the Internet.”

Cisco is forging ahead with two multimillion-dollar Internet projects this spring. The new eSales application will provide an information and communications portal for sales staff. Cisco also will upgrade its Web-based order processing system for distributors and resellers in the fall.

However, Cisco is delaying a migration to a commercial expense reporting system, a PeopleSoft installation and a resume-tracking system.

“These projects are not strategic; they’re support-oriented,” Tonnesen says. “They can wait another six to nine months.”

Cisco hasn’t said how many of the 2,000 employees and 800 contractors in its IT shop will face layoffs. The network equipment manufacturer recently announced plans to cut as many as 5,000 employees and 3,000 contract workers.

The economic uncertainty exemplified by last week’s plummeting stock prices is causing hesitancy among corporate CIOs and CTOs. IT consultants, for example, are feeling the pinch as corporate clients delay hiring them for new projects. And executive recruiters report slower hiring decisions for key network posts.

“There may be some pullback on capital spending. There could be layoffs in certain areas and some changes in leadership,” says Diane Tunick-Morello, vice-president and research director at Gartner Group. “But I still think there’s very high demand out there for corporate IT services that doesn’t tend to get affected by a downturn.”

Tunick-Morello predicts that companies will continue to invest in customer-focused IT projects such as data mining and customer relationship management. But intranet and e-marketplace initiatives may not fare as well.

“The business requirements for new IT projects are being scrutinized,” she says. “They either need to cut costs or raise revenue.”

Maimonides Medical Center in Brooklyn, N.Y., is forging ahead with three major IT initiatives – all designed to improve the quality and efficiency of its record-keeping and medical care. Miamonides will launch software and servers for its emergency department, perinatal care records and ambulatory care records in July. Together these projects will cost several million dollars.

“We’re continuing with our IT investments as planned,” says Walter Fahey, CTO at Maimonides. “The hospital is actually making money, [unlike] many other hospitals. So we’ve been able to afford to allocate funds to IT projects and to look at how we can leapfrog over the current technology.”

In addition to using the three new software applications internally, Miamonides plans to spin off a for-profit company that will operate these applications as outsourced services for smaller hospitals. Fahey will serve as COO for the new company, dubbed Technology4Healthcare, when it launches this summer.

Technology4Healthcare will take over support for Miamonides’ 1,800 PCs as well as operate a fiber-optic backbone network that supports 22 hospital buildings in New York and New Jersey. Fahey says the hospital has spent US$4.5 million on its network infrastructure over the past three years and will continue to invest where needed.

“The only affect of the [economic] downturn is that it’s made more people available that I could afford,” says Fahey, who recently added nine people to his staff, which now consists of 65 people. “We’ve been able to hire folks from other industries … and people have been a little more [willing to negotiate].”

Another firm that will continue making hefty investments in its Internet-related activities is Sabre Inc., a leading provider of technology services for the airline industry. Sabre operates the popular Travelocity Web site for consumers and for business travelers.

Sabre plans to spend $100 million this year to develop Internet-enabled versions of the company’s suite of 17 software applications that handle crew scheduling, fare management, flight plans and other critical airline operations.

“Clearly, the Internet is influencing how travel is sold and marketed,” says Steve Clampett, senior vice-president of software solutions at Sabre. “As the model evolves, we need to be out there in front.”

Clampett says Sabre’s technology investments will not be affected by the slowdown in business travel. “We think the Internet is going to be the delivery mechanism for our services, and I don’t see us backing off on that,” he says.

Sabre is, however, planning to enjoy “significant savings” in its IT operations budget this year with its decision to outsource the operation and maintenance of its desktops, mainframes, networks and administrative applications.

Overall, industry observers are cautiously optimistic about the fate of network professionals during the first major economic slowdown in a decade.

“The market is going to get a little softer, but I’m not sure we’re going to see wholesale layoffs of IT people,” says Duncan Mathison, a consultant with outplacement services provider Drake Beam Morin. “Every department is going to look for what they can cut. Those pressures are going to be on IT departments as much as on anybody else.”

Mathison recommends network professionals get involved with strategic development efforts tied to the company’s core line of business.

Those who end up looking for new positions should brace for lengthy job hunts. Recruiting for IT executives “has definitely slowed across the board,” says Russ Gray, manager director for Christian & Timbers, the largest IT executive recruiter in the United States. Gray says he’s seen a 30 per cent drop in the number of network executive searches he saw last year. At the same time, he sees “more people with higher skill sets on the market.”