Irrationality or Living in Denial?

Last Friday I wrote a long piece entitled GDP, inflation, IT services growth and all that. I ended the piece as follows:

If I can offer just one lesson learnt from previous downturns, it is that our industry always seems to ‘Live in Denial’ when faced with a slowdown. “It will not affect IT”, “It will be short-lived”, “Let’s wait until the end of the month, quarter, year before we take any cost-cutting action”.

UK SITS is facing a downturn. I think you should prepare for no growth in 2009.

Last Friday, the FT also published a long piece entitled Back to Bust – High technology heads for harder times. I do commend you to read it. It gives the starkest warning yet that 2009 is going to be really tough in the enterprise space and any thought that consumers would bail us out (as they have done in recent years) is rather optimistic. It makes the point that many (most?) Web 2.0 companies depend on advertising and that is set to be a difficult area with even Google heading for difficult times. Most Web 2.0 companies have yet to make profits and are burning cash (just as the dot.coms did last time). New fund raisings are likely to be difficult. Many will go to the wall (just as the dot.coms did last time) Their demise will affect larger companies all the way up the value chain (just like it did last time).

Last Friday, the media gave their verdict on Andy Green’s first results announcement as CEO of Logica. They were kind to Andy’s personal performance but most observers remain unconvinced about Logica’s longer term prospects. Philip Staffird in the FT – Signs of green shoots at Logica - seemed to borrow some of my points (eg ‘Some analysts have been concerned about its position as a mid-sized general IT services group in a market dominated by smaller specialists and large US and Indian groups’). The Times piece – Bold stand by Logica’s Green – was pretty typical. It ended with the comment “While Mr Green did a great job building up BT's global reach, he has less experience of retrenchment. He would not be the first chief executive to convince himself that his customers would be irrational to cut back on his services in a downturn - only to find that his customers were indeed irrational.”

Whether Logica’s (or indeed any IT services company’s) customers would indeed be considered ‘irrational’ to cut expenditure in a downturn is debatable. I would suggest that many customers will have no choice. I sincerely hope that Green, and the other CEOs of the leading IT services compnies, are not ‘Living in Denial’ either

I repeat - UK SITS is facing a downturn. I think you should prepare for no growth in 2009.