Due to the rapidly changing economic situation, many businesses are looking towards areas where they can reduce or cut spending. One place that firms seem to be cutting costs is in IT expenditures. The market for technology is one that many have thought would remain relatively unharmed by the economic downturn. This is because advances and upgrades in IT typically mean more efficiency and profits. However, according to the article under Best of the Business Tech Blog, the technology industry is not immune to the downward spiraling markets.
The article highlights the German software company SAP as a warning sign to the tech industry. The company is expected to report lower earnings for the third quarter than previously estimated. This is because the technology industry is a services based industry, and while they may have been performing well, their clients in all industries are being adversely affected by current market crisis. It was also thought that the industry would not be largely affected by the economic crisis because of the nature of tech companies cash reserves, which tend to be rather large, I would assume for the facilitation of research and development, and because tech companies do not need to borrow much money since cash is readily available.
The article points out that the budgets that companies have allocated to technology are usually fairly limited to begin with, so it is not going to be the first place that they look to when trying to cut spending. However, in the changing market, previously held outlooks must also be adjusted and even overhauled. The article brings out that a staggering “61% of CIOs are re-evaluating their 2009 budgets”. According to a chief executive at SAP “customers decide to postpone their [IT] decisions”. A CEO at another technology company is sited in the article as saying “we sent the invoices, customers just didn’t send us the money.” This signifies that not only will new business for tech companies be slowed, but it will also be necessary for them to increase their bad debt expense estimates.
Senior director of the CIO Executive Board, Joel Whitaker, outlines numerous other areas where companies are cutting back. Some of these include renegotiating contracts with vendors, cutting spending on consultants, and reducing the amount of new hires. It is clear that not only are certain sectors and projects within companies being hit hard by the current economic situation, but also that no industry is immune from its affects.
Author: Ben Worthen
Section: Technology
Publication title: Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 7, 2008. pg. B.8
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4 comments:
Although Companies need to cut costs, I do not feel that the IT department is the most rational division to look at. First off, as the article indicates, IT has led to more efficiency in businesses and they are one of the major driving forces of profit. There may be redundancy as far people being employed in the IT department, but I believe the smart executive would invest even more on technological equipments, as investing in the right machinery will show more accurate results that will lead to executives and people in charge, making more ratioanl decisions.
I agree with rotimi about how cutting cost through the IT department would be a bad decision since it would cut efficiency. However, I can see how many companies would justify not building upon their IT. The time and the money it would take to implement new/better technology is not available to many companies at the moment. I feel like many companies may just be cutting back in advancing their technologies, not in the technologies that they have already implemented.
Long is the way and hard, that out of Hell leads up to light.
I think that currently reduce or cut spending on the IT expenditures is a correct way to went through the crisis. The only things losed for the American is the confident of the market. Given the market enough time, the confidence would be restored. And the things the companies should do now are just reduce the cost and saved themselves from bankruptcy.
I think there needs to be a distinction in how we classify tech companies when evaluating the effects of the financial crisis. For instance, many IT/Tech companies provide services/products for discretionary goods, or goods that people buy using discretionary funds. These would include things like apple products, certain types of software, and video games. I think these industries are likely to face a hit(and they have) if people do not have as much cash to purchase these items.
On the other hand I think poor economic conditions always make companies reevaluate themselves and look for new efficiencies. Therefore, things in IT like automation services, database services, and consulting services are likely to still receive business since creating efficiencies generally involve some sort of investment in consulting/it services.
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