Michael Fleisher has a unique perch from which to judge the current technology slump. As chief executive of Gartner Inc. -- the gorilla of the tech-research industry -- he presides over a company with $860 million in last year's revenues, 1,400 analysts and consultants, and more than 10,000 clients.
In addition to listening to his analysts, Fleisher spends much of his time talking with the firm's biggest clients. He knows what they are -- or are not -- buying. He understands what they want -- and what they fear. And here's his take: Technology spending has hit bottom, but that doesn't mean it's coming back strong anytime soon. His clients, he says, remain incredibly cautious, not because they don't need new technology, but because they have no idea what to expect of the near future.
The bright note: Technology is so wedded to business strategy at most big companies that investment will have to return. And when investment does return, it will be smarter. (It should be noted that Gartner's viability depends on that return, smart or not.)
Fleisher spoke recently with Fast Company about the return to sanity in technology. Here are some of his observations.
"The Trough of Disillusionment"
I became CEO of Gartner 18 months ago, which was very interesting timing, because at that point, business was clearly on a different planet. Most people didn't want to believe anything but grow, grow, grow. But Gartner predicted a change. We published a report in November 1999, titled "The End of E-Business." It said that by mid-2001, business would enter a period called -- and I love this phrase -- "the trough of disillusionment." Business is firmly there now, no question about it. The only thing Gartner didn't predict was how steep the downside curve was going to be. No one foresaw how quickly technology spending would shut down.
This is a very different technology downturn than we've experienced before. In 1990 and '91, technology spending was almost 100% tactical and was geared toward cost reduction and productivity enhancement. Companies weren't thinking about technology strategically, about how technology was part of who they were as a company. So it was easy to whack technology spending, just like they would other discretionary expenses like advertising. Managers thought, We'll just stop spending on tech for a year or two, and everything will be all right.
Today, technology investment is far more strategic. Companies are spending big on the Web as a user interface where customers can come for all sorts of things; how a company appears to clients on the Web, its client-facing touch, has become a piece of technology. Second, companies have invested in what appear to be back-office systems -- customer-relationship-management systems, and others like that -- but are client-facing too. Those technology investments set companies apart, so companies can't stop spending on them. Rather, leading companies will take advantage of market downturns to prove to their clients that they're the place to do business long-term.
So we're seeing an interesting reaction. Many of the people making technology decisions at big companies also went through the downturn in 1990 and '91. They're afraid that their budgets may still be cut. So they're holding back on spending to a greater degree than their budgets actually require. Clients tell me that they're very worried about what might happen next. People are stopping, reassessing, and then making strategic decisions about where they're going to invest capital. Consequently, firms that are doing implementation work -- especially on the leading edge -- are getting hit very hard.
How to Dig Out
On the upside, 18 months ago, companies paid any price to have someone take them into the e-business realm. That has stopped. The mythical belief that I can spend a day in a room with a team of e-consultants who will turn my company into an e-business has gone away. What remains is the hard work, leveraging the billions of dollars that clients have spent on legacy systems, and making those things work in a more connected way. Clients have to assess what opportunity is before them, what technology they have in place, and what new technology is on the horizon -- and then figure out how can they take advantage of the circumstances.
One example: A client who writes auto insurance is looking at tying wireless and global-positioning technologies to its existing claims systems. Insurers have discovered that the faster they can connect with a person after an accident, the lower the claim will be. So that company is working with wireless and GPS to learn when car air bags deploy. It actually may be worth paying for customers' monthly GPS service -- if agents know about accidents within minutes, the company can reduce claims costs. That's what spending wisely on technology is all about. Companies have to ask themselves, "How do we take advantage of technology as a strategic weapon?"
The biggest thing companies do wrong today? They try to do too many things. We advise clients, "You can't do everything. You have limited resources, and a big part of your job is to figure out what's most strategic for your company and to do just those things." Second, companies have to be extraordinarily honest in their assessment of the projects they're halfway through. They must look at unfinished tech projects from this day forward and ask the tough question: Is it still worth the investment?
The Good News: It Won't Get Any Worse
Right now, we've hit the bottom of the market. But that doesn't mean spending is going to come roaring back. I hear a lot of tech executives say that we're going to see an upturn soon. I don't believe it. The solution is going to be tougher and take longer than that. And when business comes back, it will come back in much more thoughtful way.
For the past five years, we've been operating in an environment where if you had a great tech idea and took it to your managers, they usually found the money to do it. Sure, the economy was great and money was plentiful, but companies were also panicked about losing their edge. Now people are going to be rigorous about whether they're making the right strategic bets and whether those bets will result in a good financial return.
Those companies' technology businesses haven't gone away. It's not like there's no purchasing going on. Business is being done. Soon you'll hear people like Jack Welch saying that they're still spending money on technology and that such spending will help bring back confidence. Spending is never going to return to where it was 18 months ago. That was a false peak. But the thing is, it's not going to get any worse.
Keith H. Hammonds is a Fast Company senior editor. Contact Fleisher by email (firstname.lastname@example.org).