Oct 4, 2008

WHAT IS “IT” HAPPENNING AFTER THE MELTDOWN

With IT budgets remaining essentially flat (up to a decrease of 5%) for 2009 and uncertain economic times ahead, it’s more important than ever to make sure you understand all your new purchases, analyze your staffing productivity, find more efficient and effective ways of accomplishing necessary tasks. You do this , in your budget, by finding a balance between what technologies would be most desirable for the business and what the company can actually afford.
The situation is so uncertain that we (STKI) recommend preparing two IT budgets for 2009. While the first would assume modest budget decrease (up to 5%), the second would assume a business downturn, and should be about 10% to 15% percent less than the first budget.
Economic uncertainty changes the way people think. During economic upturns, the business driver tends to focus on growth and strategic investments. But given the pending downturn and increasing regulatory pressure, companies should expect to focus on operational efficiency and compliance.

Our recommendations:
1) Use the recession to build internal skills:
a. insourcing: use your budget to keep good people and bring good ones that have been laid off somewhere else
b. cut low-performing employees
c. Do not cut training and development of skills.
2) Accelerate virtualization and other IT/BT efficiency measures.
3) Look for vendor discounts and re-negotiate contracts when possible and get rid of redundant and non-performing vendors

THE RULES OF MARKET DYNAMICS ARE NOT WORKING:

The rules of market dynamics say prices should come down and competitors should pop up all over the place to meet customer demand. So how come SAP announced that it will begin socking its own ERP customers with higher support/maintenance fees beginning in 2009? The price rise is sold as an elimination of lower-priced support programs; users will be forced to upgrade. The new program will be phased in through 2012; we do not know when it will start in Israel; but it looks as if it will depend on the user’s individual contract with SAP. Shares of German software maker SAP AG (SAPG.DE), fell 2.0 percent and were among the heaviest fallers in Germany's DAX index (.GDAXI).

Last week, Steve Ballmer, CEO of Microsoft spoke in Santa Clara. He was asked about the effect of the economy on the IT industry. He didn't seem too worried by the crisis. But now, Mr Ballmer changed his views.
Speaking at a news conference in Norway, Reuters reported:
Ballmer told reporters:
1. Financial issues are going to affect both business spending and consumer spending, and particularly ... spending by the financial services industry
2 When businesses have less money -- they can borrow less money, they can spend less money -- that can't be good. When consumers feel the economic pinch, house prices come down. That can't be good.

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