Innovations Are Delayed By Tech-Spending Drought
Companies' Tighter Fists May Stall Progress and Gains in Productivity
By GARY MCWILLIAMS / WSJ May 29, 2003
In 1927, amid a stock-market boom, inventor Philo T. Farnsworth filed his first of 10 patents on television. But the nation plunged into the Great Depression, and Mr. Farnsworth was plagued by a lack of money and patent battles.
The first TV set based on his patents didn't make its public debut until the 1939 World's Fair. Soon thereafter, production fell victim to wartime constraints. It wasn't until 1946, nearly two decades after Mr. Farnsworth's first laboratory successes, that TV broadcasts and sets were widely available.
In the early 1970s, the first personal computers were cobbled together by amateurs. But "stagflation" crimped business spending, and many companies were skeptical about the need for the new devices. It wasn't until capital spending thawed in the 1980s and International Business Machines Corp. entered the market that the PC era began in earnest, ushering in unprecedented productivity gains.
Today, history seems to be repeating itself. The slow economy has again delayed the rollouts of new technology, risking future gains in output. Indeed, some promising developments may fall along the wayside.
Recent surveys of U.S. and European executives by Goldman Sachs Group and Gartner Inc. indicate that business spending on information technology will be flat to down slightly this year -- on top of back-to-back declines the past two years. And spending on newer technologies will likely lag behind the eventual economic pickup, because such technologies are perceived as riskier, says Ram Bhagavatula, chief economist at Royal Bank of Scotland Financial Markets.
Many corporations are holding back spending on new computer projects until the very end of a quarter to see what money is available. "Then, they're pushed off one more quarter," says Marge Breya, a vice president at Sun Microsystems Inc.
These trends have stalled promising technologies. Imagine, for instance, having your office e-mail read to you by a computer voice over your cellphone while commuting to work. Or consider how a wireless office network could change your workday, freeing you from your desk by allowing you to wander around with a laptop linked to your computer network and the Internet. Such technologies are ready to use but are largely confined to very ambitious companies and adventurous consumers. Wireless data networking for corporations "is at least three years out," says Barry Jaruzelski, managing partner of Booz Allen Hamilton's Global Technology Practice.
Of course, new technologies often take twists and turns before becoming mainstream. Yet unlike the typical growing pains of cutting-edge wonders, a prolonged investment freeze by corporations could delay innovations that promise a new lift to employee efficiency.
Anthony McDonald, a vice president at Aon Risk Services, a unit of insurer Aon Corp., experienced firsthand the productivity gains of a corporate wireless network in an earlier job with a technology company. "The stuff is great," says Mr. McDonald. He says he "picked up an hour of productivity a day" because he wasn't bound to his desk. "An hour a day. Who wouldn't like that? It's huge," he marvels.
But advocating a wireless network at Aon is out of the question because of the tough economy. Unlike in the past, the company is now spending only in areas that directly benefit its clients, Mr. McDonald says. "It's a tough environment and there's not a lot of new money being spent."
One company that supplied advanced Internet services to corporations, iBasis Inc., shuttered that unit due to lack of demand. Among the services it had offered: using a phone to have e-mail read by a computer and allowing people to forward voicemail messages via e-mail.
"We were talking to customers who wanted to roll it out in their world-wide organization for hundreds of thousands of people," says iBasis President Ofer Gneezy. But when the computer budget crunch hit, the companies "came back and said, 'We'll go back to regular voicemail.'"
Wireless networking and voice-enabled e-mail are just two of the emerging technologies getting sidelined at large corporations. One with perhaps even more potential is "Web services," a setup that promises big savings in managing everyday business transactions online without human intervention. For example, a computer at a company that sells products to Wal-Mart Stores Inc. could electronically tap into the retailer's network to check on store inventories, arrange reorders or even schedule payments.
Big computer-industry players, including IBM, Microsoft and Sun, say Web services are the foundation for next-generation computing. They would eliminate the need to re-enter or reformat information such as product orders as it passes from supplier to manufacturer to customer, or, as is often the case today, to use special data-exchange software to communicate with a client or supplier. Sun's Ms. Breya ranks Web services as important an advance as direct-dial telephones.
Yet Web services have been slow to come out of testing at many companies. "Spending on innovative architectures is not happening," says Michael N. Liebhold, a Woodside, Calif., consultant. He recently suggested doing a study of Web services for a financial-services company, but was rejected. "They can't even afford my proposal for consulting," he says.
The consequences of such inertia are difficult to gauge. Corporate spending on technology in the 1990s was credited in part for rising productivity, which has continued through the economic downturn. It isn't yet clear whether the current tech-spending slump will interrupt those gains, say economists.
For now, companies are insisting that computer chiefs carve out money for any new projects from existing budgets, says John E. Parady, chief information officer at Kelley Blue Book Inc. "Unless we can identify a really clear return on investment, we're not taking a lot of exploratory steps," he says.
Howard L. Niden, who was chief information officer at PricewaterhouseCoopers Consulting until its sale to IBM, says top executives seem to be avoiding technology while striving to manage their existing operations better. "I see companies doing the kind of things that GE did for the last 15 years under [former CEO John F.] Welch," such as better managing the basics of their businesses. "Quite frankly, there aren't large IT components to what they're doing on that." |
