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The Uncertain Effect of the Financial Crisis

As I write this, the $700 billion Wall Street bailout bill has gone down, and financial institutions around the world appear to be contracting the U.S.'s disease. Everyone expects dislocations ahead, and Bloomberg is out with an article that predicts damage to the tech sector, estimating that Microsoft and Cisco could lose $4.3 billion in orders from the financial sector next year, and featuring this quote from a Gartner analyst:"This is game-changing," said Joanne Correia, an analyst at Stamford, Connecticut-based Gartner. "People are going to stop new software deployments. They'll cut in the applications space. In PCs and servers, everyone will stop putting in new hardware."

Note that we're talking here about IT as a whole, and we're talking about just the financial services sector; as Tom Nolle wrote last week, history tells us that IT spending overall won't necessarily decline along with the economy. And yet, when such a large IT-using sector as financial services experiences the dislocations we're seeing, it's hard to imagine the overall effect won't be considerable.

Indeed, the firms we've seen go down or get acquired over the last few weeks are companies that have been headliners at VoiceCon because of their tendency to be early adopters and creative users of communications technology. Merrill Lynch, for example, was one of the highest-profile early adopters of IP-telephony--they were so cutting-edge that they wound up having to replace early-generation Cisco gear with Avaya's.

And in any event the unprecedented scale of mergers and acquisitions in the financial sector is bound to create lots of work for IT managers forced to integrate systems--but may also slow investment if those mergers come with cost-cutting, job-eliminating moves. Furthermore, companies will also be on the lookout for technology duplication; the Bloomberg article quotes one financial services CIO as saying, "The more consolidation that you have, the more I would see potentially a reduction in the overall budget that you would need to do the same things."

There's another level of uncertainty when we look at how the situation plays out for IT/communications at financial services firms. No one has really pushed for comprehensive regulatory reform as part of the emergency response to the financial crisis, but there will certainly be pressure next year in the new Congress and on the new President to overhaul regulation of financial services. I've seen no indications at this point of what that might entail, but considering how much the financial industry relies on technology and advanced communications, it's hard to imagine there won't be an impact on IT/communications when new demands for transparency and accountability get written into law.

The optimist will say that financial services firms' need to cut costs will turn them toward the quick wins you can derive from IP telephony, be it in maintenance, home-based contact center agents, bringing conference calls in-house, etc. And yet, as the folks at Nemertes Research have pointed out, opex typically goes up in the first two years of an IP telephony deployment, and only falls as the enterprise becomes more familiar with the technology and how to support it. Of course, that's a general statement, and there is lots of anecdotal evidence of quick payback, especially on things like international calling and conferencing. But the overall budget situation makes execution critical on even "simple" deployments--if you hit a snag that delays you or costs more money, you can wipe out the expected savings for some time to come.

That issue of execution is really about the only aspect of this situation that's within IT's control--but it could make a real difference for the enterprise.