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Recession revisited: Will this time be different for IT?

Recession revisited: Will this time be different for IT?

As the US economy turns downward, CIOs are preparing in dramatically different ways than the last time

Planning

A tendency to plan for the long term is playing out even in hard-hit industries.

For instance, although Lowe's 2008 IT budget will take a hit compared with last year, the home improvement chain is continuing to expand its PeopleSoft ERP platform and customer-facing systems, says CIO Steve Stone. Lowe's has added human resources and finance modules to its PeopleSoft suite since 1999 and is adding at least four spend management software units as well, says Stone.

The retailer is also continuing a five-year effort to implement systems to help customers order specialty items that are out of stock at a particular store. Even in a down market, "you don't take those types of things off the table," says Stone.

It's not just the economy, stupid

Although research firms such as Forrester and Gartner have toned down their US IT spending estimates for this year, not all of the pullback is the result of a faltering economy.

For instance, IT spending in the North American retail industry is expected to rise just 4.3 per cent this year, compared with 6 per cent in 2007, but the reduction is more directly connected to the normal replacement cycle of in-store systems than with the current economic climate, says Greg Buzek, president of IHL Group, a retail and technology research firm. His findings are drawn from a recently published retail and technology spending study involving 124 merchants that IHL Group conducted with RIS News , an industry trade publication.

If anything, "retailers are more likely to cut back on peripheral projects" in the face of lower consumer spending while retaining the types of ERP and customer-facing initiatives that are core to their business strategies, according to Cathy Hotka & Associates, a retail IT marketing firm.

That's true at Lowe's, where the company is retaining its "big ROI projects" and is instead postponing "deferrable" efforts, such as refreshing some of the desktop Linux devices at stores where their life cycles can be extended, says Stone.

There are parallels in the investment banking community, which has gotten whiplashed from its mortgage-related investments.

For example, financial pressures in the sector have led Tabb Group to lower its estimates of IT spending increases for brokerages into "the low single digits," says Robert Iati, an analyst at the financial markets research advisory firm.

But the economic impact among financial services players will depend on their level of exposure to shaky mortgage investments, Iati says. And even affected financial services companies are not cutting IT spending across the board as they might have in the previous downturn.

In fact, the multibillion-dollar mortgage-related losses that big investment banks have racked up have spurred a 10 per cent to 15 per cent increase in risk-management-related IT spending, compared with the same period last year, says Iati. That's not surprising, as these companies attempt to better manage their investments and expenses.

Iati doesn't see much of a parallel between IT strategies among Wall Street firms during the post-dot-com recession and now.

"Back then, a lot of the focus was around initiatives such as straight-through processing and sending application maintenance work to India," says Iati. Nowadays, trading has become so globalized that many big banks will continue to invest heavily in new systems to gain competitive advantage, including building out new IT infrastructures in emerging markets such as China, he says.

"It's a time like I've never seen before," says Chris Barber, senior vice president and CIO at federal credit union WesCorp who served as CIO at GlobeNet Stock Exchange from 1999 to 2003.

Despite economic pressures, financial companies are reluctant to postpone investments for new trading systems, for fear of being left in the dust by their competitors, he says. "The trading industry is moving so fast that if a competitor gets even one leg up, they're going to surpass you," Barber explains.

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