Slowdown! Or Not?

by Eva Marer

As the United States adjusts to a new administration in the wake of an economic downturn, an intense debate is raging about the future of productivity. Economists generally agree that technology has been responsible for the tremendous growth in productivity, or worker output per hour, over the past five years. The question now is whether those gains will endure amid signs of a rapid economic slowdown.

According to a recent ABC News poll, 55% of Americans now believe that a recession is imminent. Consumer confidence, an important indicator in predicting recession, is at it lowest ebb since 1991. Yet the Clinton White House, in its last formal economic report, says that there have been substantial productivity spillovers outside the technology sector, and that these will likely continue, even in the face of Nasdaq’s 39.3% plunge last year.

A majority of CIN members interviewed for this report say that capital spending on technology has increased, or at least remained the same, especially in productivity-enhancing areas such as customer relationship management (CRM) and supply chain management. Even as they gird for a possible recession, CIN members are optimistic about the future; they believe that the investments they’re making now will significantly lower costs and enhance productivity in the years to come.

Beyond Infrastructure
One reason that CIN members are optimistic about the future is that many have already shored up back-end processes and infrastructure in previous years and are now looking to reap the benefits.

“We’re not trying to tackle the same infrastructure issues we faced in 2000,” says Christopher Cunningham, CIO of RedEnvelope, a multichannel upscale gift retailer based in San Francisco. “In 2000, we made significant investments that contributed to scalability for our online channel. In 2001, our investments will be targeted towards incremental improvement of the customer-facing feature set for the online store and deeper integration between our online business and our catalog business.” Cunningham says that his budget has remained the same and that his company is in a strong financial position and does not require additional capital to reach profitability.

“We’ve seen IT expenditures increase in the areas of access and wireless delivery,” says Tony Praza, CIO and vice president of technology at AVT Corp., in Kirkland, Wa. His company provides information exchange solutions to help companies manage their communications. He mentioned a Frost & Sullivan report on unified messaging (UM). “U.S. UM enterprise software market projection is from $219 million in 2000 to $534.6 million in 2004,” which is just one indication that companies are continuing to invest in IT where there is a good ROI.

In 1999 and 2000, Praza says, corporations spent a lot of money on Y2K and corporate infrastructure, and although it may be true that spending for those one-time improvements has fallen off, the slack has been more than picked up by investments in long-term deployments such as B2B integration, Internet, wireless integration, and CRM applications.

Indeed, in a paper presented at the annual meeting of the American Economic Association, Robert Litan of the Brookings Institution and Alice Rivlin, a former Federal Reserve vice chairman, concludes that Internet-related savings could bring companies in various industries savings ranging from $100 billion to $230 billion during the next five years.

Managing Value
Not all CIOs are equally optimistic, of course. “Our budget has decreased significantly,” says Tom Halwachs, a retired naval officer who is now CIO of the Naval Postgraduate School in Monterey, Calif. Even more than most government entities, the Department of Defense has seen its bu