Chief information officers across the UK are bracing themselves
as the
credit crunch makes waves across the IT sector.
There are few who believe the industry will be left unscathed,
but many CIOs say the economic downturn will provide an opportunity
for IT to prove its worth to the business.
The downturn is feeding through into some areas surprisingly
quickly. IT budgets for the next year are expected to remain flat,
and companies will ask IT departments to produce more return on
investment.
"IT will be asked to do quite a lot more in reducing front line
costs," said Jos Creese, CIO at
Hampshire County Council. "This could actually be a positive
impact of the credit crunch."
But at this stage, most are confident that IT jobs will remain
secure. "IT staff have weathered lean times in the past and IT is
essential to the business," said Michael Tonkiss, IT director at
manufacturing company NeoPost.
The
nature of projects is likely to change, as companies look to IT
to cut unnecessary and obvious costs quickly. They are less likely
to embark on non-essential or major change programmes.
The reluctance of banks to lend is contributing to a drop in IT
investment for some companies, according to the Federation of Small
Businesses.
Some projects are getting deferred for three to six months while
businesses assess the economic situation, analyst group Forrester
said. Other companies are being hit by clients who go out of
business.
But there are other factors at play. The public sector is
expecting a frugal year next year following the government's £500bn
bank bailout. This will exacerbate the cash flow problems
experienced by local authorities who have lost money in collapsed
Icelandic banks.
Suppliers are expecting their clients to become more demanding,
as they look for innovative IT ideas to get them through the down
turn.
Retail
Retail bellweather
Marks & Spencer expects much of its 2009/10 investment to
be on IT. The high street giant reported an 8% drop in sales last
quarter, and CEO Stuart Rose said, "For 2009/10 we now expect to
spend around £400m with the focus of spend being on supply chain
and IT systems."
Chris Broe, head of information applications and architecture at
Unilever, said the credit crunch effects are likely to start
rippling out to the retail sector in the next three to six months,
with 2009 budgets likely to be tight.
"There are likely to be fewer bigger IT projects that will bring
transformational rather than incremental change, and these will
include projects aimed at cutting costs," he said.
IT could become increasingly important as the downturn starts to
hit, as retailers turn to online sales to boost revenue. Although
it is too late for many to change their priorities this year,
because the Christmas rush is already upon them, IMRG consultant
Andrew McClelland expects a big build-up of online outlets next
year.
"For many retailers, their biggest and most profitable outlet is
their online stores," he said.
He expected retailers to spend more on making their website
"sticky" with user-generated content and to integrate the website
into the firm's enterprise management system. Sainsbury's online
sales increased 25% last quarter, and CEO Justin King said the
company will launch online sales of non-food products in the summer
next year.
Property and construction
David Morris, head of IT at
property consultants King Sturge, predicts fewer IT projects.
Expenditure will be limited to essentials, and will be focussed on
cutting costs and increasing savings and competitive advantage.
"Everything but essential expenditure will need a strong
business case," he said.
Companies will expect IT projects to bring quick returns, with
payback periods being reduced to six months, instead of three or
more years, Morris predicted.
Job security in the property sector has taken a knock from
falling house prices and the lack of credit available. "IT
professionals working in the property sector feel their position is
uncertain, but that is true of the whole sector and not just of IT.
However, most are staying where they are because few can see more
job security anywhere else," said Morris.
Ray Turner, ICT strategy manager at Balfour Beatty, said, "We
will undoubtedly be driven by corporate to cut overheads so that
will constrain what we are allowed to do.
Public sector
The public sector is usually a safe haven in times of economic
gloom, but this time IT chiefs say they expect to be hit hard.
Steve Hopson, CIO at Cheshire County Council, said, "We will not
see immediate effects on the IT front, because budgets were agreed
at the beginning of the year. But I do not think the government can
spend £500bn without the public sector feeling the squeeze."
Councils expect tighter government grants next year, and this
will only exacerbate problems caused by the loss of millions of
pounds deposited in failed Icelandic banks.
Hopson added, "If government grants are not as good at they have
promised, and funding becomes tight, councils have not got very
many options for raising capital. There may well be increases in
council tax, and many councils will cut budgets across the
board."
Jos Creese, CIO at Hampshire County Council, said, "There will
have to be cuts and savings all over the place, and IT will not be
spared from that."
Denise Plumpton, director of information at the Highways Agency,
said the organisation expects the Treasury to require
belt-tightening next year.
Suppliers
Suppliers are likely to "find the going tough" next year,
industry observers predict.
Leading ERP supplier SAP has lowered its third quarter 2008
forecasts in response to the credit crunch. Co-chief executive
Henning Kagermann said concerns about the financial crisis had
"triggered a very sudden and unexpected drop in business
activity."
There is already a slowdown in the number of new IT projects,
said Chris Yapp, executive technical strategy consultant at
Capgemini, and many organisations are reviewing planned IT projects
to see what they can defer.
Companies in the insurance and financial services sectors are
postponing non-essential or new implementation projects, according
to Brian Stones, executive president at Indian outsourcing supplier
Patni.
"We are not yet seeing this trend so strongly in other sectors,
but we are anticipating a knock-on effect from the turmoil in the
banking sector," he said. The company's portfolio of services will
narrow in some sectors, he said, to focus mainly on the core
functions of clients' businesses.
"Our existing suppliers are even more keen than usual to retain
and develop business with us. Prospective suppliers are marketing
harder to us and offering longer term contracts," one IT director
told Computer Weekly.
Recruitment
In the third quarter of this year, IT recruitment in financial
services saw its biggest drop since the dot.com bubble burst in
2001. Vacancies for contractors have fallen 40.2% since the start
of 2008.
Overall, vacancies for both permanent and contractor jobs fell
by 14.9% compared to the previous quarter. The number of jobs in
software houses did nothing to inspire confidence either, dropping
9.4%.
George Molyneaux's quarterly analysis of the IT recruitment
market showed these problems are starting to affect the rest of the
recruitment market. Overall, the number of jobs advertised is down
8.6% in the past six months, jobs have declined by 14%.
Molyneaux, who is research director at Salary Services Limited,
said, "This is the largest sustained fall off in IT recruitment
since the collapse of IT jobs seen during the years 2000 to
2001."
Jon Butterfield, managing director at Rethink Recruitment, said
candidates are increasingly cautious about moving jobs.
"Recruitment has not died, but customers looking to recruit need
to really sell the security of their company - more so than they
have ever done before. This was not an issue six months ago."
John Whiting, managing director at Harvey Nash, said some IT
staff may have to start accepting lower salaries. But he added that
the shortage of skilled IT professionals might mean the looming
downturn helps to address the current imbalance between supply and
demand.
"There is a paradox, because IT skills have been in such high
demand over the last four years that they have demanded a premium.
But unless people are thinking about taking a drop in salaries,
they might now be pricing themselves out of the market."
Reporting team: Warwick Ashford, Ian Grant and Cliff
Saran