E-Biz Investments: Forget the Slowdown

Walk into any conference or party and the hot topic of the hour is the
"US slowdown". Ranging from industry people to hopeful aspirants,
everyone is discussing the impact of the slowdown. Forget all the doomsdayers,
here’s some good news–e-business investments will continue their strong
performance, slowdown or no slowdown.

At least that’s what major IT research firms Gartner and AMR Research would
have us believe. And to go a step further, they are predicting that e-business
investments will actually pick up with focus on critical areas like SCM, CRM,
which have been showing definite tangible benefits.

According to the Gartner survey, almost two-thirds of respondents expect to
increase IT budgets by 13.3% in 2001. However, the slowdown catch–CIOs are
putting a fine point on the vendor selection process in order to drive maximum
competitive advantage in their technology procurements. Project teams have
intensified efforts to identify rigorous methodologies for selecting equipment,
software, and services to be purchased.

Jim Lebinski, vice-president and research director at Gartner Measurement’s
vendor selection service, says: "In addition to addressing the challenges
inherent in IT decisions, project teams must now counter the inevitable
lengthening of purchasing cycles because of talk of an economic slowdown."
He adds, "Now, more than ever, IT executives and the project teams they
sponsor must be absolutely sure that the technology selections they make meet
comprehensively defined requirements exactly."

Now for the bad news: the lengthening of sales cycles will affect the cash
flow of IT vendors and many IT majors, ranging from Dell to H-P, have already
announced profit and revenue warnings. Despite the resource constraints, it’s
clear that CIOs too agree that in the current competitive situation, the
advantage will continue to accrue to companies that can install and implement
optimal IT infrastructure for their businesses before their competitors. Again,
this is a clear trend that e-biz investments will continue to move ahead.

No bottomline, no investment

An AMR survey on the impact of a recession on e-business investments showed
that most firms were in the early stages of e-biz investments and cited
streamlining/reducing costs, improving customer relations, and increasing
company revenue as the primary drivers for their investments. If the slowdown
continues, it would only accelerate the need to show return on these
investments.

In terms of areas not contributing to the bottomline directly, like the
internal systems of HR, accounting and other administrative operations,
investments remain low on the priority list. About 29% of respondents said they
would decrease spending on technology for internal processes and infrastructure
like the above areas. AMR’s survey does show that investments that do not
directly link to either top-line growth or cost savings will be most negatively
affected by the downturn, with 29% of respondents cutting spending on technology
for processes that don’t touch customers or suppliers.

These findings are backed by recently reported slowdowns in spending for
personal computers and other associated sectors like system software and
semiconductors. The survey results make it clear that achieving sell-side and
buy-side transaction efficiencies continues to be important, and it may become
more vital because of economic pressures. Companies are expected to maintain or
even expedite this fast return on investment. Also, even during an economic
downturn only 14% of companies would decrease spending on e-business
initiatives. In contrast, 23% of companies would increase spending in selected
areas (sales and customer management in financial services and supplier
management in manufacturing) irrespective of the downturn.

Key areas of strategic investment

The surveys point to one key element, if the area can contribute directly to
the bottomline, companies are more than willing to invest in the same. So areas
like customer management, SCM and marketplaces are taking precedence over
investments.

• Customer Management: 87% of
  respondents surveyed will sustain or increase their budget initiatives on
  sales and customer management. In a recession, customer acquisition and
  retention will be an even greater challenge.

• Supplier
  Management: 84% of respondents will sustain or increase their supplier
  management initiatives. Streamlining the supply chain will offer the most
  opportunities to improve Return on Capital.

• Marketplaces: In
  all, 94% of respondents will sustain or increase their B2B marketplace
  initiatives. As a key element of both supplier and customer management
  strategies, further development of e-business marketplaces is essential.

Who benefits?

Obviously, it is companies with expertise in supply chain management and
procurement, trading exchange infrastructure, and sales and channel management
software sectors that will continue to gain. According to the survey
international software services companies like Ariba, Commerce One, i2
Technologies, Oracle, Peoplesoft, SAP, and Siebel, are well positioned to remain
successful in 2001.

While the Internet boom is well a thing of the past, e-business continues to
remains an important driver of new value creation for companies. Companies that
invest wisely to improve supply chain performance through customer and supply
chain management initiatives will benefit and gain competitive advantage. The
best companies know this, and they will continue to invest accordingly in
products and solutions that promise a fast ROI. The leading vendors in these
categories will thus continue to perform in spite of the larger downturn in
spending and the longer-term impact of Internet investments within traditional
industry and to the economy overall will be profound. This is not a time to play
wait and see.

Amit Sarkar New Delhi