Technology in Troubled Times

By Edward Cone  |  Posted 11-10-2008 Print Email
The ways corporations navigated the Great Depression hold important lessons for IT leaders in today's downturn.

Though the IT industry we know today did not exist during the Great Depression, certain elements were already in place--at least in the larval stage. As our economy heads south, I was interested in finding out how the proto-industry fared in those earlier days.

One of the most dramatic stories from that grim era concerns IBM. According to Kevin Maney's book, The Maverick and His Machine: Thomas Watson Sr. and the Making of IBM, the legendary CEO decided in the face of the crippling downturn to "keep the factories building machines and parts, stockpiling the products in warehouses. In fact, between 1929 and 1932, he increased IBM's production capacity by one-third." At the depth of the disaster, in 1932, Watson decided to invest an amount equal to almost 6 percent of the company's annual revenue in a corporate research lab.

All that nearly killed the company. A massive new government program--Social Security--signed into law by President Franklin D. Roosevelt in 1935 rescued IBM by creating a huge market for its accounting machines. So Big Blue went on to dominate the growing IT industry for another half-century.

Another early player, AT&T, maintained its stock dividend throughout the Depression, even as the share price got hammered and layoffs spread across the company. Telephone technology and infrastructure continued to advance through the lean years. FDR's rural electrification program, later expanded to include telephone service, was another government effort that helped lay the foundation for an information economy.

Obviously, that was a different era in many ways--though the massive government intervention part seems familiar. Even Nouriel Roubini, the New York University economist who has been distressingly accurate in his gloomy predictions, doesn't think an actual depression is likely in the months and years ahead. But tough times are upon us, and IT companies and departments will not be immune from the economic downturn. They may, however play a role in ameliorating its length and severity.

Unlike the technology bust of the early years of this decade, IT is now part of the solution, not part of the problem. Cost-reduction and efficiency, as well as new growth, will be the focus for both CIOs and IT vendors, even as they are held to the tougher standards of a recessionary environment. Integration will be a necessary skill as weaker companies are absorbed.

The economic situation looms behind every article in this issue. Some stories are keyed explicitly to the downturn. Our annual Vendor Value survey looks at the expectations IT buyers have of their vendors as businesses focus on surviving the recession. And the story about IT jobs that leads our Foreword section points out that bad times can bring opportunity as well as distress. Remember, William Hewlett and David Packard founded the company that still bears their names in 1938, while the Great Depression still ground on.

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