The credit crunch - is the economy becoming reset?

What is our outlook for 2009?

CEO Andrew Chalmers considers the effects of the economic downturn.

An incisive description of the current state of affairs came recently from Microsoft CEO Steve Balmer, who described the downturn in our technology vernacular as "the economy is being 'reset'".

The key question is of course is this a full power down and re-boot or simply a recovery from a system error?

I won't dwell on this as many have covered it at length and better than I possibly could, but I do believe there is simplicity here - economic growth became reliant on credit, credit repayment capacity is not limitless, the limit was reached, and so the merry-go-round stopped. Therefore surely the solution is not simply to kick-start the credit machinery and carry on as we were.

Hence the 'reset', is it inevitable that a major adjustment will be necessary before the game can start again at the same pace? Personally I tend to think so, but hope not. However, that is the bigger picture, what matters to the likes of us is of course that this is all relative. As a smaller enterprise our attitude is that even though the market we are in as a whole may be shrinking, our share of the total market is still so small that if we apply ourselves, work hard for our clients and deliver high-quality services, then we will continue to do well as a business. And indeed, as inferior competitors shrink or even fail then high-quality companies will succeed even further.

We are only now beginning to see the direct effects of the downturn on our sector; Gartner (10/08) state that there is a lag in the effect on IT, but they predict that the economic turmoil will eventually hit investment in technology:

• Although the sector will see less growth, damage won't be as bad as the dot com bust
• The worst case scenario would see IT investment increase by 2.3 per cent, compared to previous expectations of 5.8 per cent, according to Gartner's global head of research
• The effects of the banking crash will start to show proper in the fourth quarter of 2008, but most IT spending decreases follow those in the economy at large by two quarters
• Despite market turmoil, IT is stronger because of lessons learned following the 2001 recession. Companies see IT as an area to focus on rather than cut costs in tough times
• "We learned that in tumultuous times, CEOs want their executives and managers to be advisors and counsellors, not just great implementers of directions given to them," Gartner say. "What they want now most of all is agile leadership. Leadership that can guide us through simultaneous cost control and expansion at the same time."

If the worst-case is that spending in IT will 'only' increase by 2.3%, then we will be remarkably lucky. Certainly IT is a part of the solution in these times - providing systems and integrations that support customer retention, staff efficiency and increase sales; and in providing outsourcing services and system support services that can further reduce IT costs for companies. Additionally, IT consultancies such as ourselves can provide that expert advice that is needed now more than ever.

If you would like to know more about new Microsoft products or technologies, or how Ballard Chalmers can help you, please contact Andrew Chalmers on andrew.chalmers@ballardchalmers.com or call 01342 410223.

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