Banking

Put down that axe: Why CIOs are chopping good projects for bad reasons

If tech chiefs make knee-jerk reactions to the tough financial climate, it could hurt their organisations in the long run.

CIOs are hunkering down in the face of European recession, but could be cutting the very projects that will allow their businesses to bounce back again.

According to analyst Forrester, European spending on IT - measured in euros - will grow by a mere 1.2 per cent this year. When measured in US dollars, that's actually a six per cent decline, because of the weakness of the European currency.

The analyst said in Greece, Italy, Portugal, and Spain deep recessions will cause steep cuts in tech spending, while the milder recessions in France and the UK will result in CIOs holding spending flat. Only in Germany, the Nordics, Switzerland, Austria and central Europe will weak but positive economic growth allow room for cautious spending.

The economic outlook for Europe ranges from mild recession through to financial crisis if Greece and others are forced out the euro. "CIOs need to match IT spending plans with this bleak outlook for 2012 while preparing contingency plans for a euro collapse and hoping for somewhat better prospects in 2013," the analyst said.

Focus on IT costs not capital investment

But Forrester warned that when looking to save money CIOs who are tempted to simply cut out new projects should rethink: "European CIOs will do what all CIOs do in economic downturns: cut back on capital investment and reduce their new project portfolios. However, to be competitive in the future, European CIOs should push harder to cut other areas of cost and create as much room as possible to fund new technologies of mobility, smart computing, and cloud computing."

By focusing on reducing these existing infrastructure costs European CIOs can help their firms get through the recession, the report said. Because these standing costs represent 70 to 80 per cent of a company's IT budget, making changes here can have a significant impact, with savings reinvested in new projects. "By preserving and even expanding spending on new, advanced technologies, they can prepare their firms for the recovery," the report said.

IT outsourcing will be one of the few growth areas. "As has been the case before in recessions, IT outsourcing will be the top category for growth in both 2012 and 2013," the analyst said. As a result, outsourcing will make inroads in markets like France, Italy, and Spain that have generally shown only limited interest.

Looking at the UK specifically, spending will be essentially flat, declining by 0.3 per cent. In 2012, with a growth rate of -0.3 per cent, spending on outsourcing and hardware maintenance and software will offset the declines in other areas. But the report said that as a result of the recession UK firms' adoption of advanced technology lags behind their Germany counterparts, particularly in the cloud.

But if this picture seems grim, wait until you hear the alternative view that the analyst adds at the end of the report. If Europe fails to get to grips with its economic difficulties, there could be serious pain ahead for CIOs - and the rest of us.

If Greece and other countries including Italy, Portugal and Spain are forced out of the euro, Europe would plunge into a much deeper recession, with Forrester predicting that European tech purchases would fall by 10 per cent or more.

According to the report European information and communications technology market 2012 To 2013, Europe is the third largest regional market for IT products and services, worth €475bn ($593bn), compared with the Americas at €969bn ($1.209bn) - including €789bn ($985bn) for the US - and Asia Pacific at €537bn ($670bn). Germany with €87bn ($109bn) and the UK with €80bn ($100bn) are the fourth and fifth largest IT markets, after the US, China, and Japan.

About

Steve Ranger is the UK editor of TechRepublic, and has been writing about the impact of technology on people, business and culture for more than a decade. Before joining TechRepublic he was the editor of silicon.com.

5 comments
peteystock
peteystock

Great gods TR, why do you continue to give forums to these "people" who think outsourcing is one of the solutions to every budgetary problem? Honestly I think there is a potent argument to make that converting contractors to full-time employees will contribute far more to the bottom line than continue the "Chainsaw Al" mentality. Frankly, the CIO should be looking first at his currently outsourced operations for where to save. What projects are coming to completion? Is the maintenance phase easily handled in-house by current staff? What projects are already behind and over-budget, and what needs to be done to recoup those penalties from the contractor company? To me the second big place to look will be hardware, software, and licensing budgets. What software is out-of-date, unused, etc? Can you get a better deal on licensing fees on software? What hardware investments can we make that will not only eliminate redundant underused systems but also reduce warranty, utility, and other datacenter costs? Etc etc.

david.bougourd
david.bougourd

I am not convinced about this assertion. I am not sure that there is political support in european countries to create more unemployed. Outsourcing economics are based on reducing headcount and labour arbitrage - not a good combination in countries that are trying to get more people working.

mitali45
mitali45

I\Yes there's a resistance for outsourcing front in there from European markets

durocshark
durocshark

"...outsourcing will make inroads in markets like France, Italy, and Spain that have generally shown only limited interest." Outsourcing in those areas will likely grow due to the current economy. Those are regions that have traditionally resisted the outsourcing model.