Companies Slip Into Slowdown Mode

Spending on services, projects will be hit first; staff spending to follow at large companies. Economic worries, big budgets and suspicion about excessive IT spending will compel CIOs at many large companies to tighten their belts. Smaller companies are less concerned about IT costs and more optimistic about the economy and their own prospects. But if, as reported, banks have begun to hold back on extending credit to businesses, weaker companies will be forced to reduce costs too.

What will cash-strapped CIOs do? They will pressure IT vendors to drop costs by renegotiating contracts while threatening to reduce the number of approved suppliers. They will cut back on IT services—which means insourcing will rise—and projects unlikely to provide ROI. Many will review how costs and projects are managed inside their companies and IT organizations. Investments in technologies that help reduce costs, such as virtualization and business intelligence, will continue. Small and midsize companies will attempt to hold on to their IT staffs, despite their concerns about potential cutbacks. Only about a third of small and midsize companies contract with offshore IT outsourcers; two-thirds outsource domestically but say they save less money than hoped. Job losses are much more likely at larger companies. Larger firms are saving money by offshoring and using high salaries and bonuses to attract top IT talent, though not necessarily for the long term. Such companies will be quicker to cut payrolls and perks. Managing layoff fears is a task CIOs must focus on in 2008.

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