Is The Economy Leaving Your Tech Dept. Behind?

You may already be too late to capitalize on the surging economy. More-determined companies may have hired the talent and started the projects you should have. (Baseline)

For Paul Zazzera, chief information officer at Time Inc., 2004s technology budget is going to look a lot like 2003s: Flat.

Zazzeras budget, which serves the flagship magazine division at sprawling media giant Time Warner, will feature a few high-priority projects such as updating Times classified-advertising system. Whether he undertakes a lot of other projects depends on how the economy breaks.

"High-priority things will get funding no matter what, but things like updating our financial and human-resources systems, which will save money in the long run, are viewed as discretionary because they are an expense short-term," says Zazzera.

So Zazzera isnt counting his projects before the economy hatches. And he isnt alone.

Like other colleagues gathered at the Society of Information Managements SIMposium 2003 conference last month in New York, he expects business to pick up in 2004—but gradually. He is wary of data showing the U.S. economy recovering in any sort of speedy fashion.

After three years of budget cuts and adjusting to "business alignment" with their chief financial officers, technology executives arent about to become too optimistic.

According to a Merrill Lynch survey of 50 CIOs at Fortune 1000 companies and government agencies, technology budgets should end 2003 up 3% over 2002, with any material gains delayed until the second half of 2004, if not 2005. The survey, taken in late September, shows budgets barely outpacing inflation, which for the past year is a hair more than 2%.

Indeed, all 10 technology executives interviewed by Baseline for this story expect their technology budgets will grow less than 5% in 2004. Those compiling wish lists are buried under more-pressing needs such as cutting costs and integrating existing applications. Even so, it may pay to think ahead.

"Its tough to do, but some projects need to get done no matter what the sales are," says George Rimnac, vice president and chief technologist for Lake Forest, Ill.-based distributor W.W. Grainger, which is installing SAP customer-relationship software. "Theres an opportunity to make investments now so youll be ready to strike when the economy picks up."

Georgia State University information systems management professor Ephraim McLean says executives are traditionally slow to believe a recession is really over. That reluctance may be due in part to economists who proclaimed this downturn was history in 2002, when the Gross Domestic Product rose 2.2 percent and 3.3 percent in the second and third quarters, respectively. Now, technology executives are likely to wait until they see a string of good quarters before taking on new spending.

The trick will be not waiting too long.

The Gross Domestic Product surged 7.2 percent to $9.8 trillion on a seasonally adjusted annualized basis in the third quarter of 2003, according to Commerce Department statistics released Oct. 30. That sum is the fastest growth since the first quarter of 1984 when GDP was 9 percent. Meanwhile, weekly jobless claims trended down last month albeit slowly and the University of Michigans consumer-sentiment index inched up to 89.4 in mid-October from 87.7 in mid-September.

Next Page: Formulating plans for an economic recovery.