The oil price drop won’t impact these IT spend items: IDC

Information Technology decision makers need to prepare for substantial information and communication technology (ICT) budget cuts due to the falling oil prices, but some item will fare better than others, according to a recent report from the analyst firm International Data Corp (IDC) Canada.

Canadian energy firms are bearing the brunt of the continued decline of oil prices and this will have very serious effects on corporate expenditures on ICT figures from a new report from IDC Canada entitled: The Impact of Declining Oil Prices on the Canadian ICT Market. But this doesn’t mean that a speeding freeze will affect all areas of IT, said Nigel Wallis, research director for vertical markets and new initiatives at IDC Canada.

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“With the worldwide price of crude oil continuing to decline from over US$100 per barrel to below $50, the Canadian energy patch has already announced reductions in the planned 2015 capital expenditure that collectively amounts to over $9 billion,” he said in an interview. “We anticipate that as a first-order response, Canadian firms and government will cut over $415 million from their ICT spend in 2015, predominantly in Alberta.”

IDC arrived at its figures by developing market models based on reactions of the industry during similar energy price drops and by interviewing numerous business and IT decision makers. Much of the study was done last year, when indications of a slumping energy market appeared and the again early this year.

IDC Canada anticipates that:

  • The Canadian energy sector will spend over $240 million less in 2015 than previously expected
  • The public sector will look to shed over $155 million in 2015 from original expectations
  • Alberta will move from Canada’s fastest growing region for ICT spend to the slowest from 2015 to 2016
  • Businesses will turn to technologies such as collaboration, analytics, and outsourcing. Companies will also re-engineer processes to save money and run their business more efficiently.

Wallis said among the top IT losers will be:

  • IT consulting, systems integration and custom application development. These areas will see a 20 per cent reduction in overall spend
  • Support services
  • Software licences. About a 18 per cent reduction
  • Hardware (PCs and desktops). Estimated 18 per cent reduction
  • Server spend. About a 12 per cent reduction

Many businesses, especially in the energy patch area are beginning to hunker down and cutback on operations and new projects.

Many tech and labour industry analysts projected a ramp up in IT hiring for 2015, but recent developments will likely cause some serious adjustment in numbers.

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“As companies turn off the tap on new projects, they will start shedding labour and let go off or cutback on hiring consultants and app developers,” said Wallis. “This also means less need for support services and a lengthening of refresh cycles for software, hardware and services.”

But there are areas that will likely weather the downturn better.

For example, IDC believes the following will not be impacted by the oil price drop:

  • Outsourcing
  • Database and analytics
  • Telecom industry
  • Security

As the pressure to cut cost grows, savings obtained from leveraging cheaper overseas workers from countries such as India and the Philippines will become more attractive.

Companies will also increasingly push IT and businesses departments to rely on analytics to find ways to streamline operations, cut spending and pursue campaigns that provide the best return of investment.

Despite the current environment, the many businesses will still need mobile and broadband communications and service so the telecom industry is safe for now.

High profile hacks and the increasing threat from state-back attacks will ensure that organizations will remain focused on security.

What should CIOs and IT manages do?

They should prepare to work within smaller budgets and be quick in identifying ways to use technology to improve efficiency said Wallis.

“CIOs need to prepare for a 10 per cent to 25 per cent budget cut,” he said. “They’ll see greater standardization in equipment and operations.”

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IT departments should prepare for consolidation of data centres and database. Consolidation of systems such as a move to a single brand for enterprise infrastructure systems will become common.

Global sourcing, such as offloading business processing to overseas operation will grow as will the adoption of cloud technology and software-as-a-service and infrastructure-as-a-service.

Wallis foresees organizations investigating how technologies such as video collaboration can be used to cut down on travel and how machine-to-machine and Internet of things sensors can be deployed to monitor equipment to make sure they are working efficiently.

Big data technologies instead of the more expensive high performance computing will also be used to analyze data.

“It’s not all bad news,” said Wallis. “Ideally, the smart CIO will search for ways to use the IT budget to crease more business savings.”

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Nestor E. Arellano
Nestor E. Arellano
Toronto-based journalist specializing in technology and business news. Blogs and tweets on the latest tech trends and gadgets.

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