Wall St. and Elections Piling on the Uncertainty

By Pam Baker

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In these tumultous financial times (the Dow Jones Industrial Average fell over 770 points—or about seven percent on Monday) a few days can change a lot. On Friday, CIOUpate published an article stating that the Wall St. meltdown has yet to have a serious affect on CIOs and their budget plans. Today, based on CIO Executive Board numbers due out tomorrow, CIOs are now saying they are circling the wagons in an attempt to stave off dramatic cutbacks in 2009.


CIOs are now on the frontline helping battle the way through uncertain terrain, if not to get to the top of the mountain, then at least to secure a foothold for the climb later. More business-at-hand than business-as-usual these days, CIOs are calculating the potential impact of the economy and the U.S. presidential elections on their own enterprises.


“Often decisions are postponed before elections due to predictions about conditions that may follow,” said Phyllis Schneck VP of Research Integration at Secure Computing Corp. and founding chairman and chairman emeritus, Board of Directors of the InfraGard National Members Alliance, an FBI national security initiative. “However with regards to IT security and IT in general, IT is a critical infrastructure that cannot wait for a political schedule to ensure protection and resiliency.”


All CEOs, CTOs, and CIOs polled by CIO Update emphatically stated no IT projects are currently on hold pending the U.S. presidential election outcome, but that is not to say that they are not preparing for a national shift in IT priorities.


“A Republican administration will likely continue current IT initiatives and traditional spending priorities, i.e. Department of Defense spending to support the warfighter, intelligence community, security, federal government Lines of Business, etc.,” said Rick Marcotte, president and CEO of reseller DLT Solutions. DLT is currently working on NASA’s Ares I launch vehicle. “The Democratic administration will likely accelerate spending on cyber security and Web 2.0 initiatives, as well as healthcare automation.”


The McCain/Obama Factor


Beyond a shift in IT priorities, CIOs are predicting movement in how IT is done.


“If McCain is elected, we will continue to rely on foreign talents,” said Maricel Cabahug, CIO at Yaskawa Electric America, the world’s largest manufacturer of inverter and servo drives, servomotors and industrial robots. “In most IT shops, foreign talents outnumber local talents. An IT manager now has to add understanding of immigration laws to his or her arsenal of competencies. With Obama's plan to make technology more available to all areas of society, I can see a future when we can actually have a more diverse IT organization.”


That is not to say, however, that IT hiring will continue at current rates under the reign of either candidate. The CIO Executive Board, a division of the Corporate Executive Board, polled 50 participants in a CIO conference call last Thursday to discuss the impact of turmoil in the financial markets and economic uncertainty on Q4 spending and 2009 plans. Although the results will not be publicly shared until tomorrow, CIOUpdate has the exclusive scoop today.


According to the poll, 61% of CIOs are currently re-evaluating their 2009 budget plans and 59% are already re-negotiating IT vendor contracts. Almost half, 49%, are cutting spend on consultants and contractors and a majority, 59% are putting non-essential IT projects on hold. Twenty four percent (24%) are considering a hiring freeze.


“I think the hiring freeze stat is probably most surprising, even though it is near the bottom of the list,” said Joel Whitaker, senior director of the CIO Executive Board. “Twenty four percent (24%) is a lot of CIOs that are willing to accept a harder life in 2009 to keep spending down through the next couple of quarters.


“Hiring freezes create ripple effects that impede project delivery and service levels, so when CIOs are pressed to go that far they tell us that they’re running out of good options.”


Interpretation: CEOs and CIOs are placing their bets on the near-future based partly on broader party platforms and partly on specific campaign promises not on the candidate’s public statements, as these tend to muddy the issue.


“I would like to say Obama is better because he is better at everything, but there really isn't any indication either of them has said anything to differentiate themselves,” said Gordon Rapkin, president and CEO of Protegrity, a data security company. “Obama has certainly demonstrated a better command of the Internet and technology in general during his campaign."


Regardless of the election outcome, the consensus is that some things will likely remain the same. According to Marcotte, the federal government will spend in the neighborhood of $70 billion on IT in the coming fiscal year, regardless of the newly elected administration party affiliation. “Of course, how they spend that money and the priorities for spending will be impacted by the elected party,” he said.


The Line of Business initiative, which originated with the Bush administration, may be slowed down “ … due to the funding complexities and lack of measurable benefits to this point,” said Marcotte. He surmises that Department of Defense (DoD) funding will be scrutinized and will be aligned with the stated Democratic pre-election platform, i.e. additional support for IT and otherwise in the Afghan arena and phased reductions in Iraq, if the Democrats win.


Wall St.


There may be reductions in IT in other countries as well, but not necessarily for political reasons. Amsterdam-based Martijn van Halen, CTO at Payvision, a payment and security solutions company serving several major European, American and Asian banks, points out that “ … a falling dollar may make prices for U.S. hardware and software increase” possibly to the point it is prohibitive. In van Halen’s view the current economic crisis poses a far bigger problem for IT than impending changes from the U.S. presidential elections. He isn’t alone in this assessment.


Mark Eagle, CTO at VarVee LLC, a sports database company, said the current economy is affecting all their consumer and business transactions, which in turn affects corporate spending. “All IT expenditures are examined more cautiously.”


Across the pond, CIOs are seeing much of the same.


“Dealing with insurance companies who are really being affected by the present (economic) crisis means that contracts we had hoped to get are now on hold, which means no sales, which means no money, which means no new investment in IT spend and R&D,” laments Kevin Pallett, managing director at Iris Global, a “Pay As You Drive" car insurance, road toll and parking company based in the U.K.


IT business coming into the U.S. is equally stymied.


“The U.S. is one of our target market prospects. We are not affected by any U.S. presidential election outcomes but the economic crisis is the key factor that we are postponing the market promotion,” said Mamta Narang, founder and director at AAshmam, a multinational IT architecture consultancy based in India.


Following one of the biggest drop in Wall Street stocks in history, both in points and percentages, the U.S. is in unchartered territory and CIOs worldwide are gingerly plotting their course through it.