Posted by: Linda Tucci
Budgeting and cost-cutting, Recession
When I saw the pictures of Lehman Brothers employees leaving the New York headquarters with cardboard boxes of belongings and dressed down in weekend wear, I wondered if there were IT people among them. Was the guy in the Bermuda shorts a trader or a database administrator? Everybody looks the same carrying a cardboard box.
The layoffs in the wake of the Wall Street quake will top 100,000, according to news reports: Lehman, more than 20,000 people; Bear Stearns, 7,000; thousands at Merrill Lynch after its sale to Bank of America. At some point, the damage has to hit IT, no?
I called a couple of analysts to get a sense of what the big research houses think will be the fallout for IT, on the employment numbers, which have proved so resilient, and IT budgets.
Ken McGee, who does the big-picture IT spending stuff for Gartner Inc., sounded a bit exasperated when asked about the meltdown’s impact on tech spending. “You see not-cool heads prevailing, with people believing the doom and gloom,” McGee said. Yes, IT budgets will be lower next year than the growth rates of this year or the year before.
“But you should also know that we are going to advise clients to have a growth budget prepared and that they keep it in their hip pocket, because these periods tend not to last that long, and part of 2009 could be a return-to-growth period. So we want our clients to be prepared when that happens,” he said.
What about this crisis being categorically different from other downturns? A once-in-a-century event, as former Federal Reserve chairman Alan Greenspan said?
Hype, McGee said. Take a listen:
“I think there is great danger when you have the center of the financial world reside within the same center as the media world. If you go back and back and searched enough I think you’d find that similar notions were presented in 2000 and 2001. … The fact remains that we have a smaller contingent of people working in the former Bear, the former Merrill, the former Lehman, but they have not entirely gone away. They have not entirely evaporated. So, these statements of terrific downturns in IT do not seem to be supported by the facts. And the point should be made that as horrible as this year has been – business-wise and economic-wise, the fact remains that IT spending did grow this year,” McGee said. “A withdrawing tide does not lower all boats at the same rate.”
Gartner has the clientele to prove it.
“We haven’t found one client, not one, who has cancelled all their IT projects for this year,” he said. “So, clearly the spending is down, but the IT vendors continue to do well. And if anything they have a common mantra, ‘Thank God for the developing world.’”
Ellen Carney, who covers banking and insurance IT spending for Forrester Research Inc., also doesn’t see the latest events on Wall Street as having a big impact yet on tech spending numbers, pointing to –wow! – IT’s fiscal discipline. It seems that while the traders and lenders were playing fast and loose, CIOs were minding their stores.
“The interesting thing, especially with the investment banks, is that they have really strong vendor management organizations. Even in the good times, they aggressively manage their vendors, the rates, the concessions they extract from them,” Carney said.
She said CIOs at financial service companies have been aggressively cutting spending all year, reminding me of the Forrester research published earlier this month showing that 49% of IT shops in the financial services sector cut their budgets this year. That was the highest percentage of all the sectors responding to the poll. A lot of IT money has gone to improving productivity in banking, she said, and the employment rolls show that. “The banks have been shedding heads for a while now, quietly and now not-so quietly.”
And while overall IT budgets in financial services might be down next year, CIOs can expect plenty of money allocated to compliance as more regulations come barreling down the pike. The current compliance environment for financial services, pretty onerous compared with other industries, is going to look like a walk in the park compared with what’s coming, Carney warned.
As for IT people who have lost their jobs in the past few weeks, she doesn’t expect to see them waiting in long unemployment lines.
“All these really smart IT people gone from Lehman Brothers — it’s a great opportunity to pick up some talented people,” she said, but … “I don’t think we’ve seen the other shoe drop in the banking sector.”
Gartner’s McGee was unwilling to pronounce the layoffs a silver lining for other businesses, but he said he expects the current situation will be nothing like that in 2000 and 2001, “where IT workers were pretty much savaged.”
Let’s hope they’re right. Maybe the optimists have a point. This morning, Oracle reported profits up 28% in the first quarter, on an 18% jump in revenue. Somebody’s spending.
Give us the 411: We’d love to hear directly from IT people at Bear Stearns, Merrill, Lehman, AIG, Washington Mutual … about how they’re faring. Email me at email@example.com.