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The Impact of the Economic Crisis on Software Buying Behavior

Written By: Rahim Kaba
Published On: February 9 2012

When the economic crisis hit, organizations scurried to find ways to cut back and keep their businesses afloat. Survival was key. Investments and projects of all kinds were put on hold, including upgrading and replacing enterprise software systems. A forecast alert by Gartner showed that enterprise software spending between 2008 and 2009 dropped by 2.6%. No doubt, enterprise software spending is one of the areas in which organizations consciously chose to cut back.

This blog post reviews the impact of the economic crisis on enterprise software buying behavior across a comprehensive list of industries and identifies those industries that suffered the most. An important precursor to the software purchasing process is the research and evaluation phase. Technology Evaluation Centers (TEC) is at the forefront of software evaluation and selection, and we were able to see firsthand the effect the crisis had on enterprise software spending intentions.

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TEC Data: Hardest Hit Industries (2008–2011)
To analyze the effect the economic crisis had on enterprise software buying behavior, I examined end user projects in TEC’s online software evaluation system, TEC Advisor, from 2008 to 2011. TEC Advisor contains detailed information about enterprise software solutions—collected directly from vendors and reviewed by TEC analysts—and is designed to help end users quickly and accurately compare solutions (try TEC Advisor, if you haven’t already).

The table below depicts the industries that were hit the hardest by the economic crisis. I analyzed software evaluation projects across all industries and sorted them according to the most significant decreases in the number of evaluations (as a percentage of all evaluations) over the given time periods. I make the assumption that industries that experience the largest percentage decreases in software evaluations are less likely to invest in enterprise software—whether that be upgrading or replacing their current system, or purchasing a new one.



Table 1
Industries with the most significant decreases in software evaluations (as a percentage of all evaluations) between 2008 and 2011.

Note the industries that appear in the table multiple times, indicating recurring drops in software evaluations between 2008 and 2011:


• Construction
• Manufacturing
• Engineering and Architecture
• Health Care
• Transportation


Few sectors were hit worse than construction. The collapse of the housing bubble and the foreclosure crisis in the U.S. caused a worldwide ripple effect that left the construction industry severely wounded. Construction projects stalled due to difficulties in obtaining short-term loans in order to finance mortgages for personal and business property. Similar challenges arose in the manufacturing industry, where jobs were endangered and significant cutbacks were made in the automobile, electronics, and food/beverage sectors.

Construction and manufacturing organizations alike responded to economic and market troubles by becoming leaner and more budget-conscious—which no doubt involved putting some of their IT-related projects on hold, such as purchasing an enterprise software system. The irony, of course, is that this very software may have been able to help them create leaner environments; however, without the investment in such software, organizations were forced to create efficiencies through alternative methods.

Software Evaluations Are on the Increase
Although there remains some skepticism that the economic crisis that began in 2007 is officially over, there is evidence that companies around the world are beginning to return to business as usual—they are hiring again, unfreezing marketing budgets, and investing in IT infrastructure projects, to name a few examples.

TEC data points to some promising news for the enterprise software landscape. In the period between 2010 and 2011, TEC witnessed an increase of 5.44% in the percentage of software evaluations—indicating that organizations are increasingly researching and evaluating enterprise solutions in the marketplace. As the fragile economy recovers from the crisis, companies are ramping up their IT spending and looking to software again to help improve business processes, manage risks, and increase operational efficiencies.
 
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