Should IT spending decrease in tough economies?

Economics 101: When revenue decreases, to maintain profitability decrease expenditures.  We are seeing this basic tenant of business around the world today with companies in all industries reducing workforces and slashing operating budgets.  This leads to a chain reaction along the entire supply chain of reduced demand thus reducing those businesses further down in the chain and leading to more expenditure cuts industry wide.  Politicians and corporate leaders have said that this is the time for investment, yet they are asking businesses to ignore years of basic economic theory.  Yet it would appear based on history of previous depressions and several industry examples this is exactly what we need to do.

During the US depression starting in 1929, trying to jump start the economy was the goal of every political leader coming to head with Franklin D. Roosevelt.  One of his main tenants was while employing a workforce; simultaneously invest in the projects that would help our country in the next century.  Thus, the WPA (Works Progress Administration) of 1935 spent a total of $11.4 billion including over $4 billion on highway and road construction.  The Tennessee Valley Authority Act of 1933 created the means to build inexpensive power creation and distribution systems in what was one of the most economically crippled areas in the country.  While one could attribute this to an easy way to employ a variety of skilled and unskilled labor, building transportation and electricity systems make up critical components of a country’s infrastructure.  Having access to easily and readily available transportation and energy sources positioned the US to grow at tremendous rates in arguable one of the greatest industrial revolutions in our history that followed in the 40s and 50s. 

China as another example realized in the late 1970s that it was not positioned for growth having an incredibly underdeveloped infrastructure.  Thus starting in early 1980s instituted one of the largest expansions of public nationwide infrastructure in its history.  In 1984 China spent approximately 30% of its total government spending on capital construction.  The results are seen in today’s list of economic super powers.

How can these examples in history be applied to businesses? 

In a time where reducing costs is the mantra of every business, what time is being spent examining the infrastructure that makes up a corporation?  I am not speaking simply of networks (with full disclosure that I work for Cisco) but of all the underlying technology tools that a company relies on being defined as infrastructure.  This is everything from software that track supply chain or consumer preferences, to hand held devices that enable ready access to information at any location, or collaboration tools to take advantage of a global economy.  Garnering all the possible efficiencies of business today such as intelligent product recommendations, access to experts, improved employee productivity, is a way for a business to maintain its current place in the market and position itself for the next upturn.  Chris Potts talks about this in CIO magazine comparing how business efficiency not only can be drive but must be driven by IT, very much worth a read.

Without the proper investments today while business is slow, can a business truly be ready for the next age of prosperity?

Posted by Matthew Stein at 01:53PM PST