Stamford, Conn. — It’s no secret that the cycle of economic conditions have, in the past, forced insurers, banks and investment firms to embrace technology in order to defend their competitive position. But, whether it’s wise for insurers to cut IT spending at this point remains a question.

Results of a survey of more than 350 attendees of the Interop Las Vegas conference, held in late April, indicate that a 2008 recession will affect IT spending for 52% of participants. Conducted by Astaro Corp., a Burlington, Mass., and Karlsruhe, Germany, provider of security technology, the survey notes an increase of nearly 20 percentage points from Astaro’s last survey at the RSA conference in San Francisco just three weeks earlier, in which only 33% of respondents anticipated a recession impacting IT spending.
Astaro reports that the possible reasons for the discrepancy between survey results from each event range from the event focus, attendee demographics, and changes in IT spending concerns due to continued media coverage of an impending recession, notes the vendor.

Analysts at Gartner Inc., a Stamford, Conn., information technology and research firm, note that while across vertical markets they see no evidence of widespread IT budget cuts, negative economic news appears to be making enterprise buyers more cautious.

“It is still possible that a deepening economic slowdown could result in aggressive steps to reduce or even freeze IT budgets,” reports Gartner, which conducted extensive research of its own. Gartner’s newest report urges insurers, banks and investment services firms to conduct due diligence by assessing the medium-term costs associated with IT spending cuts, as opposed to the short-term savings.

Gartner’s analysts maintain that these companies must preserve IT investments that can drive the greatest business value, and those that help maintain competitiveness or leverage economic upturns.

“Uncertainty in Western economies related to credit fallout has placed IT budgets in a holding pattern until companies formulate and implement strategic responses at the executive, organizational and operational levels,” says Peter Redshaw, research VP for Gartner’s Financial Services research team. “In real terms, a static budget is a declining one when the volumes of electronic transactions (payments, trades, market data and so on) in this industry are all booming. Hence, CIOs and other IT budget holders will come under huge pressure to cut IT costs.”

Whether the pressure is the result of hype or reality remains to be seen. Regardless, says Gartner, CIOs will be under pressure to give greater support to business units that struggle to survive difficult conditions. And, while IT spending has to continue for run-the-operations situations and "must-have" projects, it also must continue for those discretionary projects that can differentiate a company in an increasingly commoditized industry with fickle customers.

Whatever routes CIOs take to reduce costs—outsourcing being perhaps the most obvious tactic, says Gartner—aspects such as governance and cultural fit will be more important in the long term than short-term savings on price.

Regardless of the pressure—and from where the pressure originates—resist calls to slash the IT budget, but do examine how IT can be run more efficiently, notes Gartner. Benchmark operations to assess how technology investments can support the business strategy. CIOs should focus on reducing the cost of running the overall business or increasing profits and revenue. Other tips from Gartner’s research include:

  • Fight to preserve the IT budget for new projects that will make the organization unique and able to stand out from the herd. A good example is investing in the IT necessary to achieve the appropriate degree of time or range agility for optimal profitability.
  • Make provisions for IT spending on customer onboarding systems. This can save money (through increased automation) and improve customer satisfaction.
  • Bargain aggressively with IT providers and seek out emerging vendors, but beware of damaging any transformational capability.

Sources: Gartner Inc., Astaro
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