Outside The Box
Get ready for another tough year. That seems to be the message when you ask people to make predictions about the next 12 months.
This thought was re-affirmed recently when I read a News.com story about a survey by Wall Street investment house Morgan Stanley, which asked 225 executives about their technology spending plans for 2003. These executives bullishly predicted, on average, five per cent growth in their spending throughout this year.
But that doesn’t tally with the overall sentiment of the survey, one in which only 19 per cent were willing to characterize their plans for 2003 as “a year of new project investment” – with the rest either trying to stabilize, contain or reduce IT costs. This reflects the mood of technology industry executives I have talked to in recent months.
When I spoke to Pat Martin, CEO of Storage Technology Corp. (commonly known as StorageTek), in October, he had just finished a tour of major customers in North America, Europe and the Far East. And during that entire tour, only one customer – an insurance company in Scotland – was planning to increase its IT spending in 2003.
I have been hearing that the only way vendors are able to make significant sales in the current environment is to almost guarantee that you, the customer, will be able to quickly pay for your technology investment through your resulting savings. In some cases, vendors are actually sharing the risk in their contracts – saying that they will accept a scenario wherein they will charge only their “hard costs” upfront, and pay for the rest of their work by skimming from the savings.
So if I install a system for you that will save you $100,000 per year – and I would ordinarily want to charge you $50,000 for that system – I will instead charge you $25,000 up front and then will take the remaining $25,000 out of the $100,000 in savings.
This approach marks a departure from the “just trust me” approach of the past, and suggests that IT companies are clearly aware of the tough environment in which their customers are operating.
It also suggests that, at least for now, no one is willing to believe sales approaches that try to scare customers by declaring that “you can’t afford to be without it, because all your competitors are making this investment.” In fact, the shoe is really on the other foot now. The game seems to be all about maintaining competitive advantage by delaying further technology investment rather than making it.
Even if my competitors fall for the “you can’t afford to be without it” approach – and I don’t – and they have a three year time horizon before they realize benefits from their investment, a couple of things happen. I will have three years in which I will not only be in a better cash position to make it through tough times, but I will also be able to maintain my focus on the business issues at hand, rather than being distracted by new technology implementations.
There are a lot of holes that could be poked in such an argument, but it’s attractive to anyone who wants to delay technology spending.
The smart approach at this point would be to recognize the short-term risks in making investments now, but to acknowledge the longer-term risks if you wait. It can be argued that this is the best time to make technology investments in your company’s operations. It will leave your company well-positioned to take advantage of the global economic recovery as it gets underway over the next few years.
To customers with a strong balance sheet and an ability to think long-term, this could provide a real tactical advantage. To those who have a question mark against their own survival, it would represent a real roll of the dice. They may have to focus entirely on getting their core business issues addressed before they can look at new technology investment in any kind of a lucid fashion.
Even in that situation, however, capital investment in technology should not necessarily be taboo. If technology accelerate the changes that can put an ailing business on a sound footing for the future, it may even be a rallying cry for raising investment in the company. Imagine the ailing buggy-whip manufacturing company of the 1920s that saw an opportunity to retool his company to become a supplier to the emerging automotive industry – but failed to do so because he didn’t want to make a “risky” investment. Sometimes the greatest risk lies in clinging to ideas and ways of doing business that don’t work.
The key is for all parties being willing to share risk, because there are no guarantees in any business – or the implementation of any technological solution. And to share risk, you have to have trust.
Perhaps that should be the goal to which we all aspire – making 2003 the year that trust returned to the technology sector.
Wheelwright is a freelance journalist, author and broadcaster. He most recently served as editorial director of StockHouse Media Corp.