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For IT, a ”Triple Witching Hour”

A weak economy and doubts about E-business were bad enough. Then came September 11.

In the wake of the terrorist attacks, the outlook for corporate IT departments has gone from bad to dismal. Already under the pall of economic uncertainty, firms must now reevaluate their contingency plans and computer security, and perhaps expand their use of a range of collaborative technologies, all at a time when IT budgets seem poised to shrink for the first time ever.

Figures compiled by Howard Rubin, executive vice president and research fellow at consulting firm Meta Group, in Stamford, Conn., suggest that 2002 will see the first outright decline in corporate dollars spent on IT since computers became a standard part of corporate infrastructure decades ago. Rubin points to his regular surveys of more than 200 companies, which found that the September attacks prompted a substantial reduction in planned IT spending. “Several days after the event,” he says, “only 13 percent of companies planned to cut IT spending, while 87 percent took a wait-and-see attitude.” But by September 26, more than half the 240 companies surveyed said they planned to cut spending; of those, 47 percent said they would pare spending by 5 to 10 percent, and 29 percent said they would make cuts in excess of 10 percent. Not a single respondent planned to increase spending in 2002 over 2001 levels.

In the past, weak economic conditions have occasionally slowed the growth rate of IT, but have never triggered an actual decline. “It’s a triple witching hour,” says Rubin. “We’ve got a weak economy worsened by the uncertainty that followed September 11, and doubts about the ultimate value of the E-business investments that have driven the sector for the past two years.”

Hunkering down won’t be easy, not only because it runs counter to the aggressive implementation of IT that has shaped Corporate America for years but also because many companies want to improve contingency planning and computer security in order to prevent, to whatever extent they can, future business disruptions. And while many analysts agree that there is dissatisfaction with E-business investments, most chalk it up to growing pains–the “trough of disillusionment” said to plague every technological innovation– and believe that companies still see enormous potential for E-business and will want to spend accordingly.

Striking a balance between short-term cost pressures and long-term strategy is never easy, and that challenge is exacerbated by profound uncertainty as to what exactly constitutes “short term.” Michael Fleischer, CEO of consulting group Gartner, says that “after September 11, the common assertion that relief is just one quarter away disappeared. Now no one even tries to predict when things will improve.” And despite the fact that Gartner and other firms were deluged with calls from companies worried about the state of their disaster preparedness, Fleischer says that “putting a contingency plan in place is a long process, and it won’t drive a boom in technology spending.” In all likelihood, he says, any money that companies spend on such efforts will simply be taken from some other part of the budget.

Paul Sagan, president of Akamai Technologies, in Cambridge, Mass., agrees. His company suffered what he aptly terms a “tragic irony” on September 11, losing its co-founder and CTO, Daniel Lewin, in the very tragedy that proved the value of its technology.

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