Looking for an answer has invariably led economists and tech industry analysts to an obvious source: chief information officers. Responsible for their companies’ technology spending, they know how it compares with last year’s -- whether it is on, above or below budget -- and what the plans are for next year.
Trouble is, CIOs have proven to be poor prognosticators. In survey after survey conducted by economic forecasters, Wall Street research departments and well-regarded high-tech consulting firms like Gartner, CIO spending projections have been off the mark.
“If you’re trying to understand the big picture, listening only to what CIOs have to say is the worst thing an analyst can do,” says Pip Coburn, global technology strategist at UBS in New York.
Coburn has learned the hard way. UBS, like most major securities firms, periodically polls CIOs in hopes of gaining insights to pass on to clients. But since the tech bubble burst, leading to declines in overall information technology spending the past two calendar years, researchers have found CIOs to have had overly optimistic expectations.
Take, for example, CIO magazine’s monthly surveys, supervised by Prudential Securities chief investment strategist Edward Yardeni. In July 2002 some 300 participating CIOs anticipated a 5.5 percent gain in technology spending over the coming 12 months, reflecting healthy optimism after the meager 0.5 percent rise the previous year.
The reality? The 12-month increase through July this year was only 1.3 percent. “The outlook remains subdued,” says Yardeni. “Weak profits are the underlying problem.”
CIO projections can be all over the place. In July, CIO magazine respondents said they would increase spending 4.5 percent during the coming 12 months. But in June a UBS panel of 85 CIOs predicted growth of just 0.7 percent for 2003. Smith Barney Citigroup’s quarterly poll of 150 CIOs, published in July, showed a 1 to 2 percent decline -- reversing an anticipated 1 to 2 percent increase early in the year.
Not surprisingly, researchers are looking for other sources of information.
On the assumption that chief financial officers, given their control of corporate purse strings in tough times, have gained the upper hand over CIOs, Sanford C. Bernstein & Co. analysts Toni Sacconaghi and Vadim Zlotnikov have begun surveying CFOs as well. In February they came up with a surprising result: The CFOs were even more optimistic. The 50 CFOs polled forecast a 7 percent gain in 2003 IT spending, versus the 3 percent estimate by 90 CIOs. By July the CFOs’ projections were down to 3 percent, though that’s robust compared with the CIOs’ 1 percent. “Optimism has waned, and price sensitivity remains high,” says Sacconaghi.
Other researchers have begun focusing on buyers’ psychology, or sentiment. ChangeWave Research, an independent firm based in Potomac, Maryland, eschews large-company CIO samples and has instead assembled a more grassroots panel of 4,000 people who work in the technology industry or who have IT purchasing authority in corporations. Research director Michael Shulman believes that their attitudes are a superior indicator of spending decisions.
“Purchasers are in a permanent ‘yellow light’ mode,” says Shulman. “This is a very fragile recovery.”
Polling an even larger population of corporate buyers -- 30,000 last quarter -- is Haverford, Pennsylvania, consulting firm Wendover Corp. Its Wendover Global Insight IT spending index, with a base of 100 in 1999, has declined for five of the past six quarters and stands at 37.6. “We see a cautious trickle, not the bold flood others have predicted,” says Wendover CEO Larry Dillon.
Stevens Institute of Technology in Hoboken, New Jersey, is developing a technology confidence index modeled after the consumer confidence indexes maintained by the Conference Board and the University of Michigan. But the surveying just started this spring, and it could take a year to gather enough data to make valid predictions, say Stevens officials.
Meanwhile, those CIO surveys go on. “There is still a lot of value in listening to CIOs,” says UBS’s Coburn. “There just happen to be huge differences between what they say and what they end up doing.”
