Reassessing IT's role
- 29 July, 2001 22:00
You know the signs: the stretched limos that had doubled in length from one visit to the next; the shopping malls that spread further and further into the desert; the through-the-roof real estate prices.
The IT industry — and dot-com businesses that sprang from it — exemplified the rampant state of the US economy. Microsoft, for example, went from revenue of $US1.84 billion in 1991 to $US25.3 billion in 2001, a figure released last week. Countless companies went public on the strength of an excitable idea, their directors becoming overnight billionaires.
The buoyancy of the industry was such that there were forecasts of shortages of hundreds of thousands of skilled people to keep it marching ahead. Immigration rules were changed so employers could shop overseas for the skills needed. The industry, and new economy in which it played, portrayed itself as much more clever than the old-style manufacturing industries that had first made the US an economic powerhouse.
How things change in just a matter of months. The IT industry doesn’t look quite so flash now. In fact, to my eyes — and I’ll admit to not knowing anything of the complexity of running a big business — it looks downright dumb.
You see, for all the cynicism that comes of a dozen years of reporting on the latest breakthrough in information tools, I actually believed IT could help organisations run themselves more effectively. Yet the evidence of the past few months suggests otherwise.
Evidence? Well, how about the recruitment crisis the industry was in? From shortages of hundreds of thousands little more than a year ago, it seems suddenly there are more staff than jobs. Take a look at Compaq, the world’s second biggest PC maker: since March it has laid off thousands of employees (the exact number is hard to work out since there has been succession of layoff announcements). What does that say about the company’s ability to forecast demand? Hasn’t Michael Capellas heard of business intelligence tools? Apparently not.
Rival hardware makers Hewlett-Packard and Sun appear a little cleverer. But they, too, have been pulling back somewhat in the first half of the year, giving staff the option of using up leave or facing pay cuts. Somehow the holiday sounds more attractive. Cisco, the company that every other outfit wanted to emulate at the height of dot-com madness, has watched its business plunge as the bubble burst. It’s laid off thousands, as has networking competitor Nortel. Where were the fancy forecasting tools when they needed them?
Maybe it was only the software companies that believed in them. They’re weathering the downturn comparatively well, as financial results from Microsoft, Veritas and Citrix last week seem to show (the latter two had quarterly growth of 42% and 38%, respectively). But positive numbers are apparently not all that they seem. While Microsoft did business worth $US25 billion in 2001, that was just 10% more than last year, enough to alarm US investors. In New Zealand, the company’s sales were up 18% on the year before, but from what to what? The local company never says, but Companies Office records show revenue in 2000 was $29 million, a surprisingly modest amount.
What’s to be taken from this, then? A number of things.
Lesson 1: For as long as the computer industry lurches from boom to bust in the fashion of Compaq and cohorts, it’s hard to take seriously its claims of providing technology essential to the running of your business. There’s no disputing IT’s important role, but having the latest and greatest systems is clearly not the be-all and end-all of good business practice.
Lesson 2: The software business — and in particular the storage management segment — looks a good one to be in.
And lesson 3: For all the comparative sluggishness of the New Zealand economy, at least we seem to avoid the extremes that the US is prone to.