How companies will buy during the recession

Svm_e_vent_at_doral005 In these economic times, it's best to stay close to the people in companies that buy things -- the sourcing and vendor management (SVM) professionals. At Forrester's sourcing Forum in Florida this week I hosted a dinner for ten vendor management executives and four vendor reps.

This group was fascinating. They are experts in purchasing, evaluating vendors, arranging sourcing agreements, pricing, and negotiation -- the front lines of their company's operational and capital expenditures. The role is still in its infancy -- some are still tough purchasing agents while others have graduated to a more complex model of "diplomacy" -- seeing all of the interests around the table and working to arrive at a solution that helps everyone succeed.

Over dinner the executives worked on a simple question: "What are sourcing and vendor management best practices in a recession?" So if you've ever wondered how the screws will be tightened, here's a peek under the tent:

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What does Intel's slip mean?

Intellogo In my last post, "Why this tech recession will be different,"  I observed that this slowdown will not be as severe for technology as was the 2001-2003 period.

But now comes Intel's announcement that it expects revenue for the fourth quarter to be down 10% from its original forecast. What does this mean? I have a few thoughts:

1) Intel is not the bellwether that it once was. Personal computers and servers, the primary destination for Intel's processors, are not nearly as large a percentage of tech spending as they were back in 2001.

2) Layoffs in the economy have already begun. Fewer employees, fewer PCs needed.

3) Large companies are accelerating virtualization projects. Virtualization is a fancy word for running more applications on fewer servers. It is greener (less power), simpler (fewer servers to break), and cheaper. Good for companies looking to lower capital expenditure and operating expenses in a recession, but bad for Intel.

Forrester has been predicting that the two tech segments that would be hit hardest in the recession are computing hardware (PCs and servers) and communications gear. But services and software (Intel plays in neither) would fare better. Exit polling would appear to indicate this result.

Why this tech recession will be different

Quickly: For tech, this recession will be different than 2001-2003

Content: I'm not an economist. But I've been present for a bunch of recessions and watched how technology markets survived. And I spend a lot of my time talking to management teams at large companies about economic conditions and their businesses. Here's my view of the effects of this recession on technology. If you want Forrester's formal view of the recession, check out Andy Bartels' report, What the Financial Crisis Means to the Tech Market.

Here's my take:

1) Tech will be down, but not out. 2001-2003 was a tech depression. Spending stopped, projects were canceled, excess inventory flooded the market destroying pricing. Cisco lost half a trillion dollars of market cap. Why? Tech had a long way to fall. Tech spending in 2000 in the U.S. was up 12% -- there was fluff and fat everywhere. When the bubble burst, the fall was precipitous. But tech spending was up only 6% from 2006 to 2007. Users of technology are far more disciplined and have cut out the nonsense. So yes, growth will slow, but it won't fall off a cliff.

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Hal destroys Wall Street

Hal Quickly: automation is outstripping human common sense.

Content: Two cases are relevant. 1) Google's dissemination of old United Airlines news resulting in a precipitous UAL stock slide, and 2) exotic, computer-generated financial instruments leading Wall Street into fatal waters.

What happened? In the first case, a system unchecked by human beings made a mistake resulting in massive damage to an already fragile public company. But that's nothing compared to the wreckage caused by the inscrutable mortgage securities.

My father was a part-time banker who loved to extol the virtues of what he called "small town banking." It was all pretty simple: his bank took deposits and loaned that money to people whom the bank officer had gone to high school with. This was important, because bankers are not the highest IQ animals on the savanna -- they needed good doses of trust and information to sleep at night.

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CIO best practices for thriving in a recession

Orlando_dinner_0908001 I hosted a dinner last night at Forrester's Business and Technology Leadership Forum here in Orlando. Great discussion with 12 CIOs, several CMOs, and a vendor CEO. When we weren't passionately debating politics, we spent time compiling recession strategies -- the best ways of riding out a potential economic slowdown.

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Forrester: mild tech slowdown ahead

Quickly: Forrester predicts a technology slowdown lasting three to four quarters, driven by an expected mild recession.

Forrester uses its extensive primary research with consumers, large companies, and vendors to continually forecast tech spending and the health of the overall economy. Here's what we're seeing.

The financial services sector (investment banks, regional banks, local banks, mutual fund companies, hedge funds, securities firms, credit card issuers, etc.) represents about 18% of the US IT market. The Wall Street portion (Citibank, JP Morgan Chase, Bank of America,Lehman Brothers, Goldman Sachs, et al.) is approximately a third of that, or about 6% of total U.S. IT spending. The troubled firms (Lehman, Merrill, Bear Stearns, AIG, Fannie, Freddie) represent only 2% of IT spending -- this is the portion most in danger of being cut.

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Why can't America build a great car?

Porsche_ford Since I was very young, I have loved cars. I drive a Porsche in the summer and a four wheel drive Audi in the slick New England winters. I love these two cars -- they make my commuting hours bearable and sometimes fun. I often ponder the question -- If you ripped the Porsche shield off my 911 or the four Audi rings off my A8 and replaced them with a Ford oval, would I still drive the cars? You bet I would. The quality, design, history, feel, and experience would keep me happily in those cars, even if you put a Nash Rambler logo on their front hoods. Which roughly proves a point -- it's not the branding that's the problem with American cars, its the cars. Consumer Reports' research verifies this -- in the organization's five categories of 2008 cars and SUVs, none of the top five vehicles come from a domestic producer.

Why can't American companies build a great car? They are designing and manufacturing day in and day out, so what is preventing them from making something great?

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Buying JupiterResearch

On Thursday, Forrester announced that it bought JupiterResearch for $23 million in cash. Bringing the two companies together has been a dream of mine since the 1990s -- Jupiter always had incisive analysts, influential clients, and always seemed to be ahead of the next trend -- and it always seemed like a cultural match for Forrester (OK, I'll admit it -- they were probably much cooler than us...)

It's pretty simple why we bought Jupiter. Marketing and strategy executives are probably the most challenged by technology changes. I was with the head of marketing for a major national newspaper recently who said to me: "...given Facebook, blogs, YouTube, Craig's List, we don't know what will be in the future -- we have no idea." Forrester serves these executives -- and adding JupiterResearch's analysts, salespeople, and service people to this effort will help us help our clients even more -- and it will mean that we can grow that business faster.

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TelePresence: video teleconferencing gets real

Cisco_day_2008008 Quickly: Cisco's high-definition video conferencing  TelePresence system will change how large companies communicate.

Last week I avoided a trip to California by having my one-day meeting with Cisco leadership via TelePresence. This is the company's next generation video conferencing. It features high-definition video, exceptional sound, and specialized rooms with the conferenced individuals "sitting" around a table with the live participants -- the pic shows my team in Boxborough MA conversing with John Chamber's team in San Jose CA. Everyone is life-sized, and the experience is a close emulation of an in-person meeting. Cisco has deployed 240 systems worldwide and has staged 120,000 meetings -- for a claimed cost savings and productivity gain of $150 million. The company calculates that it eliminated 24 million cubic feet of carbon emissions as a result.

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The Digital Vanishing Act

Blog_pics_0708012When a new technology was introduced in the 1980's, my then Yankee Group boss Dale Kutnick would cryptically remark, "It's happening." But most of the "happening" was incremental, without much impact on society or culture.

25 years after "The computer moved in" (fascinating retrospective reading) all of that incremental digital change has accumulated. And the many water drops of progress have created a tidal force that, in its essence, is making things go away...

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