In the consumer economy, the Main Street shopper leads the way. In the corporate economy, big technology buyers like Monte Ford will determine the arc of business spending in the coming months.
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American Airlines
Monte Ford, the chief information officer at American Airlines, plans a modest increase in technology spending this year.
The decisions of Mr. Ford,
the chief information officer of American Airlines, and his peers
across corporate America matter a lot, because information technology
looms so large in the modern economy. Today, purchases of computer
hardware and software account for half of all capital spending by
businesses.
Will falling corporate investment be the next shoe to
drop on the way to a recession, or will it hold up enough to help
steady the economy?
The outlook is encouraging, according to
corporate technology buyers and industry analysts. There will surely be
belt-tightening, and cuts may be sharp in some industries, especially
the financial sector. Overall growth in technology spending may fall
from 7 percent last year to 4 percent or less this year, according to
estimates by IDC, a research firm.
That would be in sharp
contrast to the experience of the 2001 recession, when technology
spending fell 11 percent over two years in the aftermath of the dot-com
collapse. During the boom years, the mentality was to spend on
technology and hope for a payoff. But in recent years, corporate
technology managers have been far more disciplined spenders, measuring
results to prove that investments in technology really can cut costs,
increase productivity and lift sales.
So the cutbacks in this
downturn, analysts say, should be modest — reassuring news for the
economy. “This is a reason for optimism that if there is a recession,
it will be a mild one,” said Mark Zandi, chief economist at Moody’s Economy.com.
At American Airlines, a unit of AMR,
Mr. Ford doubts that the current downturn could be worse for the
airlines than the falloff after the 9/11 terrorist attacks — “a
gigantic economic crack for our industry,” he said. The company decided
then that despite cutbacks elsewhere, it would not sharply pare its
technology budget. This year, he plans to spend modestly more — a few
percent — than last year.
To explain, Mr. Ford points to three
major costs for an airline: people, planes and fuel. “Technology
remains the best lever for getting more value from all those, making
your employees more productive, making better use of your fleet and
increasing your fuel efficiency,” he said.
That view, Mr. Ford
said, is supported by results. A fuel efficiency drive begun in 2005,
including software to tailor routes, flight paths, even baggage
loading, has reduced fuel consumption by an estimated 96 million
gallons a year.
At Pitney Bowes,
a maker of mail handling equipment and marketing services, Gregory E.
Buoncontri, the chief information officer, expects his budget this year
to be roughly $180 million, about the same as last year. Despite the
economic slowdown, Pitney Bowes will make some targeted new investments
that the senior management team has agreed are priorities to help the
company become more competitive. The priority projects, Mr. Buoncontri
said, include analytics programs that sort through customer data to
predict promising sales opportunities and to improve customer service.
“You only want to start projects you are dead-serious about,” he said. “A downturn really heightens that discipline.”
To
make room for spending on new things, managers must make cuts in the
spending for basic operations. The preferred way to do that is to trim
the budget for routine things like replacing personal computers,
issuing employees mobile devices like BlackBerrys and putting off
upgrades to new desktop software like Microsoft’s Windows Vista operating system or Office 2007 programs.
“You
adopt the mentality of a small-business owner for those kinds of things
— you just want to avoid writing a check,” said Jack Santos, an analyst
at the Burton Group, a technology research firm.
In
a survey of 300 chief information officers last month, IDC found that
personal computers and mobile devices were the hardware products that
would face spending cuts first, said Stephen Minton, an IDC analyst.
The software products at the top of the budget-cutting list were office
programs and desktop operating systems.
Microsoft this week
reported strong quarterly results, led by its big desktop software
businesses. But the C.I.O. survey suggests a slowdown in sales,
especially in the United States, if the economy falters.
Technology
spending, if managed prudently, can also deliver new abilities and
productivity without more dollars, executives say. With processing
speeds and storage capacity doubling every 18 months or so, each
generation of technology is faster, cheaper and smaller than its
predecessor.
So, according to Frank Modruson, chief information officer for Accenture,
a real danger during an economic downturn is adopting a rigid austerity
that saddles a company with technology that is behind the curve. Steady
investment, he said, can save money fairly quickly because of the rapid
pace of improvement in computing technology.
Accenture, a
technology services company, spends less on technology today than it
did in 2001, even though its payroll has more than doubled to 175,000
employees worldwide. “The reason we could do that is that we invested
during the last downturn,” Mr. Modruson said.
Companies are
likely to find that it is smart to make new investments as long as
their overall technology spending is under control. In a recent survey
of large companies, Gartner found that technology budgets have
increased an average of 2.8 percent annually in the last three years.
By contrast, spending at those companies in the three years leading up
to the 2001 recession had grown 12.9 percent a year.
“Information
technology spending,” said Mark McDonald, an analyst at Gartner, “is
not the rich target for cuts that it was in 2001.”
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