If We're Entering a Recession, Preparedness is Key

If We're Entering a Recession, Preparedness is Key

Preparing for a fight

Soon after the declaration of war in September 1939, London Zoo put down all of its poisonous snakes in case they escaped during an air raid. Some 400 million sandbags were deployed in front of shops and public buildings and 827,000 children were evacuated from town to country. Apart from that, nothing much happened during what the British came to know as the Phoney War. By the time Hitler invaded Scandinavia on 9 April, 1940, people had stopped carrying their gas masks around with them.

Since last year, when Northern Rock became Northern Wreck, we've been living a latter-day version of the Phoney War. The signs of impending trouble are clear enough. The world's banks have lost several trillion dollars on credit-based derivatives. But there are more losses to come. As a result, they're not lending to each other, us, or the companies that employ us.

The Bank of England is reducing interest rates but the real cost of most mortgages is rising. The housing market is falling like a stone. Credit companies are turning away customers. Meanwhile, the wholesale price of gas has risen by 45 per cent since last year. The price of a white sliced loaf has risen by 60 per cent since 2005. In old money, a gallon of petrol will soon cost £5.

Lately, farmers in the American Midwest have taken to feeding their pigs banana chips and yogurt-covered raisins. Apparently, it's cheaper than feeding them corn, the price of which has gone through the roof thanks to George Bush's plan to make the US self-sufficient in energy by subsidising the production of biofuels.

Welcome to the mother of all concatenations: simultaneously, we're dealing with the end of the credit bubble, the first shocks from climate change interventionism and an array of delayed side-effects generated by China's economic expansion. It may all work out fine but the odds feel uncomfortably poor.

Nevertheless, on both sides of the Atlantic, there are voices saying that big IT departments are in decent shape for a fight.

The theme is rehearsed by David Roberts, chief executive of the Corporate IT Forum, who describes IT as a "lifeboat" rather than an "aggressive weapon". The analogy is meant to be flattering. "I can't think of a FTSE company that hasn't shrunk its IT and enhanced its ability to do strategic IT at a high level during the past five years," says Roberts. "IT's capacity to deliver is probably better than the level at which it currently operates. So IT is in a very good position. You can load more and more on to it, and IT will eat it up," he adds.

Perhaps, as Roberts says, such self-confidence is the natural result of five years of "cost-cutting and depleting". In the wake of the dot-com bust, he suggests, IT departments have sorted out their relationships with vendors and manoeuvred themselves into alignment with the business.

But as Roberts acknowledges, there's a dark corollary to all of this. In sectors like transport and financial services, mergers and acquisitions have "left the total amount of IT within enlarged organisations declining to an alarming extent."

He adds, "In some cases, it's minimalist. There's just enough. It's agile, but there isn't really a lot that one can take out."

The same theme is echoed in San Francisco by Barbara Gomolski, research vice president at analyst firm Gartner. "There's a different feel to it this time," says Gomolski. "Many more companies out there have been underinvesting in IT than have been overinvesting."

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