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Should You Cut Back or Freeze IT Spending in a Recession?

Written By: Larry Blitz
Published On: October 8 2008

With little doubt that the US economy is in or near recession, the big question now is whether we’re heading into a global credit freeze and financial meltdown. If the worst happens, all bets are off—we’ll be pretty much in uncharted territory. But if we do manage to escape with nothing more severe than a typical recession, what approach should you take towards IT spending?

The usual knee-jerk response in a recession is to cut back or freeze IT spending. But is that necessarily the best strategy?

I can’t give you a definitive answer, nor can anyone else. Much depends on the particular circumstances surrounding your organization, and there are many to consider: your business model, the industry you’re in, your competitive position, the financial health of your company, and the state of your IT infrastructure are some of the major ones.

But I can draw on a couple of analogies. One of them comes from the advertising industry, where I spent many years as an advertising sales representative. In difficult economic times, many advertisers tend to cut back on ad spending, some dramatically so. But there are other companies that don’t cut back. With their competitors lowering their advertising profiles and ducking for cover, these companies see it as an opportunity to grab market share and emerge ahead of the pack when the good economic times return. And more often than not, it’s a winning strategy.

This can also be likened to the professional investor who knows that the time to buy is when other people are selling, and that the time to sell is when other people are buying. This may seem like a counterintuitive approach, but it too is a winning strategy. (If you’re thinking, yes, but look at the mess professional investors have gotten themselves into recently, sit down and have a chat with Warren Buffet, America’s most successful investor, or others like him. These are people who have consistently employed this approach, and it’s helped make many of them very, very rich).

Now, I’m not saying that moving in the opposite direction of the crowd is something that makes sense for every organization, nor is it a guarantee of success.  But I am saying it’s something you ought to consider.

By investing in software solutions like business intelligence (BI), and business performance management (BPM), that allow you to make better, faster business decisions and squeeze more profit from your existing operations, you can get a leg up on your competitors at a time when they’re cutting back on their own IT development. By deploying collaboration and remote meeting solutions, you can reduce travel costs without having to sacrifice creativity and team synergy. By opting for hosted solutions and cloud computing with their vastly lower capital investment requirements, you can capitalize on cost-effective ways of helping your business become more efficient, while positioning it to emerge stronger and more profitable when the good economic times return.

There are other angles to work when the economy goes into recession. You can cut a better deal with software vendors in a recession, a time when they’re especially hungry for your business. With many companies—some undoubtedly your competitors—letting go of IT staff, there’s an opportunity to scoop up some excellent talent that simply wouldn’t be available if the economy was good. And probably at a discount, at that.

Just this past spring cio.com published their five reasons not to cut back on IT spending in a recession. The bottom line was pretty clear: under-investing in IT can lead to poor customer service, lost business, and a lack of productivity—all things you would never want to see happen to your business (but, I imagine, you wouldn’t mind seeing happen to your competitors, so who you would you rather see cut back on IT spending, you or them?).

Just because it’s so commonly done does not necessarily make cutting or freezing IT spending in a recession the right course of action for you. In bad times as in good, there are opportunities waiting to be found. Assuming that your organization’s circumstances don’t absolutely prevent it, you just have to be willing to buck the trends and find them.
 
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