The Lippis Report

We continue to focus on the impact the macro economic scenario will have on the enterprise networks and communications industry. I was shown the most frightening graph while I was at Morgan Stanley. On one page it compared the economic declines of 1973 and 1929 versus today. It showed the S&P, industrial production, inflation and jobless rate at the precipice described by Treasury Secretary Henry Paulson, Warren Buffet, et al. Many business leaders believe the US government has done all it can and we are left to wait and see if the actions taken in October will help avoid a deep recession or worse. I am probably like you, numb to the talking heads espousing a “chicken little” doctrine; but you can’t ignore reality. The drop in S&P is steeper than in 1973 and 1929 over a 12 month time frame, which spans six months before the beginning of those declines and the first six months into them. This has created a cloud of caution among business leaders and prompted Reduction in Force (RIF) initiatives.

RIF causes many organizations to increase workload on existing employees. In short, as corporations reduce staff, remaining employees are required to increase their workload. For those business and IT leaders who view IT, networking and communications in particular as strategic, they will leverage IT to ensure that employees can increase productivity. Productivity improvement will come not only in the short term by reducing expenses but over the long term as well by re-thinking business processes that exploit IT to allow a smaller workforce to consume the workload of a larger employee pool. As occurred in the last recession business productivity increased and it will increase now again. Business leaders can choose to guide their firms into a period of huge productivity growth on the order of 5 to 10% during this downturn as RIF is complemented with business processes automated through IT.

There was good news in the 1973 and 1929 analog graph: industrial production, inflation and the jobless rate are in better shape now than during those two awful macroeconomic periods. With unemployment at 6.1%, and projected to grow to 6.3% when October numbers are released during the week of Nov 3rd, IT leaders should be focused on developing IT strategies that review business process and workflow that increase corporate productivity. There is no doubt that most executive management and corporate boards are focused on expense reduction initiatives, with RIF being one of their levers to pull. In addition to reviewing business process with an eye toward efficiency by reducing human and system delay in workflow between employees, suppliers, partners and customers, IT leaders need to enable corporate operational cost and expense reduction across the board.

A Flight to Safety Among IT leaders

An important point to remember and act upon is that IT suppliers went through a much worse economic period during the 2001 internet and telecom bust. This is important as these firms have been through a much more difficult downturn and survived. This means that IT suppliers are in a position to be a trusted advisor or business partner sharing best business practices with their customers as an important value add to the customer-buyer relationship. While 2009 IT budget projections are anywhere from -2% to as high as 5%, the industry will not know until January and February of 2009 when most IT budgets are approved. There is no doubt that there will be a consolidation in the general economy and in IT as there will be a flight to safety among IT leaders. This bodes well for companies such as Cisco, IBM, Microsoft, Oracle, HP, AT&T, Verizon and many other large and financially secure IT firms. Many IT firms have strong balance sheets as they avoided debt thanks to the post 2001-2003 dotcom bust where the winners were simply “The Last Man Standing”. Also, smaller firms with innovative products which can be inserted into larger IT projects will also fare very well. One company in particular is Arista Networks which is an emerging leader in cloud networking.

In the switching and routing space Cisco, HP’s ProCurve, Brocade/Foundry and potentially Juniper should either thrive or just survive this downturn. In the communications space Cisco, Microsoft, IBM, Citrix, Avaya, Alcatel-Lucent, Siemens, and Mitel should either thrive or just survive this downturn. Avaya, Siemens and Mitel have the benefit of being private firms that have greater latitude to transition products and change management without being under the eye of Wall Street quarterly calls. All of these firms survived the 2001-2003 IT depression and will have both economic and management strength to survive the crash of 2008.

Most of the above IT firms can be part of a business process review task force, which include business process consultants, IT and business leaders plus strategic IT firms. Most IT leaders will be selective on which business processes to review based upon their potential for operations and expense reduction. Structured business processes such as financial reporting, supply chain management, customer resource management and customer support via contact centers are low hanging fruit that will deliver expense reduction, increased productivity and better customer experience. Note that enterprise networks are the foundation of all IT projects and must not be ignored or have upgrades significantly delayed so as to reduce application performance.

IT Projects That Deliver Corporate Productivity Gains

We highlight a few horizontal IT projects that should be a part of any strategic IT initiatives for 2009. IT project horizons will need to be short as few businesses will have patience to gain results that take a year or longer to deploy during 2009. Short hits that reduce expense and increase productivity through business process efficiency will be the winners.

Unified Communications with Web 2.0 and Collaboration: Unstructured business process such as communications is also low hanging fruit which can add as much as 15% productivity to each and every employee through unified communications and collaboration tools, eliminating multiple voice mail boxes, IM accounts and making contacts, presence, call logs and email mobile. Many unified communication platforms from suppliers such as Cisco, Avaya, Siemens, Microsoft, IBM, Mitel, NEC, Nortel, et al., are increasingly adding Web 2.0 services such as wiki, mash-ups, social networking tie-ins, blogs, video on-demand clips and web conferencing to take advantage of productivity gains afforded by collaboration.

Visual Networking: Visual networking which is an umbrella term that captures video conferencing, Telepresence, click-to-conference and IP video services demand will skyrocket during this downturn. As travel and training expenses are cut, business and IT leaders will turn to the new generation of visual networking products not only as a means to reduce travel cost but also to hasten business process by allowing groups to communicate visually in an effort to move workflow quickly. GE just purchased a set of Telepresence systems and talking with some of their business leaders you come to the conclusion quickly that visual networking not only pays for itself with travel cost reduction but improves business productivity which is just what businesses need now.

Cloud Computing: While cloud computing and networking are in the early stage of market acceptance, it could not have come at a better time. According to a 2008 paper published by IEEE Internet Computing “Cloud Computing is a paradigm in which information is permanently stored in servers on the Internet and cached temporarily on clients that include desktops, entertainment centers, table computers, notebooks, wall computers, handhelds, sensors, monitors, etc.” In short, cloud computing is a model where corporate applications and communications are not resident on desktop, laptop or smart mobile end-points, but offered as a service in the “cloud” or in the internet. What is significant about cloud computing is that it offers a new IT delivery model and economics. Gone are the days of supporting applications for every end-point and managing its hot-fixes and upgrades plus funding its helpdesk. Companies such as Google, Amazon, Saleforce.com and other SaaS providers are offering cloud computing services and their numbers are growing. Cloud computing offers a new economic model for IT that requires very little capital investment to deploy and scalable cloud applications which do not beef up operational cost with depreciation. Again, this is an IT model for this economy.

Data Center Consolidation and Virtualization: Data centers are the largest IT budget item and are the focus of many IT leaders as they look to reduce their own expenses. Consolidating the number of data centers while increasing capacity within a smaller footprint via virtualization and reducing energy consumption via Green initiatives are all winning projects today. Outsourcing legacy computing is booming right now as IT leaders look to take depreciation expense off their books and exchange it for a manageable expense.

Branch networking and Teleworking: As data centers consolidate and become virtualized branch office and teleworking solutions represent the new sprawl of corporate employees. Teleworking reduces real estate requirements and allows employees to be more productive as well as reduce their own spending on energy traveling back and forth to an office. Branch offices allow corporations to be close to customers, a very good strategy for today’s economy. IT application delivery to branch offices can be centralized in data centers allowing complexity and cost to be contained and managed.

2009 will be a challenging time. If there was ever a moment when corporations needed IT leaders it’s now. Now is the time to be engaged with executive management to ensure that IT is not an expense but a strategic enabler of corporate initiatives. IT will be challenged by business line managers who will be short on patience for new services and executive management who need their initiatives implemented quickly. IT leaders will flock to the safety of the most secure IT suppliers and lean on them for rapid deployment of cost saving projects. While there will be RIF, don’t let employees burn out with workloads they cannot sustain; you have to delivery IT solutions to help them be more productive.