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.

2) Transformation and innovation will lead recovery. CIOs and CEOs are telling me that they plan to change their way out of this mess. Goldman Sachs is scoping best practices in commercial banking (its new world). JP Morgan has to integrate Bear Stearns. Bank of America will be converting and integrating its systems to fit with Merrill Lynch. Wal-Mart is going to use social computing to increase customer responsiveness. FedEx is replacing its data centers with high-efficiency, green designs. When we come out the other side of this crisis, companies will look quite different -- and technology will have been a catalyst in those changes.

3) Tech is everywhere. It's seven years since the last recession. Technology has become markedly more pervasive in that time -- it's the air we breathe and the water we swim in. Cell phone penetration in the U.S. has tripled in that time; eCommerce has increased by 85%. While it may have been "nice to have" (and therefore eminently cut-able) back in 2002, tech now sits at the center of companies' operations. IT has become Business Technology. If you don't believe me, start unplugging wires at your company and see how long you can develop, manufacture, deliver, sell, and service your products.

4) Customers live on tech. The consumer landscape is very different than it was in 2001. Forrester's consumer surveys show that each succeeding generation takes more tech into their day-to-day life. The delta between the Y generation (18-27) and the X generation (28-41) is extraordinary -- Y spends twice the amount of time on cell phones and half the amount of time reading newspapers. For more on this, check out our report, The Gen Y Design Guide. In a recession, the use of Facebook, Linked In, eCommerce, blogs will increase, not decrease, as people look for jobs, companies stay closer to their customers, and easier-to-ROI Internet advertising accelerates. Companies will have to stay focused on their web sites, social strategies, and eCommerce this time around -- or risk losing their next generation of customers.

5) Tech issues are burning. There were no big tech changes afoot back in 2001-2002. Not true now. Virtualization, social computing, mobile computing, Green IT, SOA, extended Internet (connecting the physical world to the digital world) are front and center on the agendas of large companies. Will many of these projects get cut back? Yes. But many are part of long-term company plans -- they will persist despite economic slowdowns.

Tech suffers when GDP growth stalls -- that is always the case. But the tech environment has transitioned since the 2001-2002 hurricane -- meaning that this time around will not be as severe.

Got another view? Let me know.

Hal destroys Wall Street

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.

Step forward forty years to sub-prime mortgages. Using complex algorithms, Goldman, Lehman and others created securities that blended mortgages of divergent risk. These securities were supposedly safe, backed by another exotic instrument -- credit default swaps. The trust and information of the old days was replaced by computer models and arcane mathematics. The evil great-great computer grandchildren of Hal were in charge.

An east coast, mid-sized commercial bank has avoided this mess. How? In 2006, when the computer-concocted financial instruments were raging, his VPs said, "We have to get into this market." He said that he would consider, but first he demanded a two hour presentation on how the securities worked. He listened for two hours, then sat up in his chair and said, "We're not going to do this -- because I can't understand it."  That wasn't the case with Wachovia, Washington Mutual, Lehman and others -- they had their oxygen supplies cut by Hal (rent 2001: A Space Odyssey if you're under 40).

Automation and computers do much good in the world. But we have stepped over the line into a world where, without the check of human common sense and understanding, they can do great harm.

What it means one: Apply a simple rule: "If it doesn't make sense, it doesn't make sense." Don't believe that computer-driven models can reside beyond the realm of human understanding. Either grasp their import, or pull their plug.

What it means two: Risk assessment and management programs (perhaps within Sarbanes) should be placed on alert to identify the Hals in your company. Pinpoint the danger.

What it means three: If you are the leader, never be afraid to say Andy Grove's favorite business word: "No."

Let me know if you have any other examples of computing out of control...I'd love to get your thoughts.