So to see what's going on in the real world, Computerworld interviewed two enterprise IT buyers who gave very different expectations on how much they will be tightening their belts in 2009. One is a Louisiana company that runs hospital emergency rooms whose CIO must slash his IT budget. The other is a German engineering services firm for the auto industry whose managing director envisions no downturn-related cutbacks, despite the problems with his predominantly Detroit-based clientele.
Health care provider tries to make cutbacks less painful
When three years ago, he was given carte blanche to upgrade or replace every enterprise system used by the 14-year-old, 750-employee Lafayette, La. firm, which provides staffing and management services for hospital emergency rooms.
Times have changed. As reports of the U.S. economy spiraling downward increased, Menefee was told by corporate higher-ups several months ago that he would likely have to slash his 2009 IT budget in half.
After fierce negotiation, they reached a compromise.
"They said, 'OK, Doug, we'll settle on cutting the budget by 20%, but we expect you to still deliver the same amount of value,'" Menefee said.
To meet that goal, Menefee first evaluated all of Schumacher's ongoing projects. Smaller ones, especially those with an immediate ROI, were bumped ahead, while large projects were scaled back or delayed. For instance, Menefee is continuing to put off upgrading Schumacher's financials software.
Projects requiring a lot of expensive consulting and integration work are being especially targeted.
"We are absolutely cutting strings with consultants," he said. "Rather than sending them 100% of the work, we are sending them 50 to 75 percent and taking more ownership inside."
Having bought servers this year, Menefee plans to put off buying any data center hardware next year apart from replacing some "end of life" Cisco Systems Inc. networking gear. To increase efficiency on the 140 servers Schumacher runs, Menefee expects to use more virtualization next year.
As for storage, "I will do anything I can to avoid buying another SAN in 2009," he said.
Menefee said his suppliers claim business is still good. "Today, vendors are telling us that they are seeing the decision-making process extend another two to three months, but they are still seeing deals go through," he said. As a result, "they still have a target dollar amount they think they can get from you."
Fortunately for Schumacher, most of its IT contracts don't come up for renewal until next year when Menefee
Menefee also plans to take a close look at his enterprise agreements with and see if it makes more sense to move back to a "Select" license. Enterprise agreements are Microsoft's premium license that offers users the most features, but at the highest cost. Select licenses omit certain features but can be much cheaper for less-demanding users.
Microsoft runs on all of Schumacher's desktops, as well as many of its servers, such as its 7TB billing system, which uses a SQL Server data warehouse.
Schumacher upgraded to an enterprise agreement from a Select license three years ago. But Menefee says constant re-evaluation makes sense, due to Microsoft's constantly changing licensing and product release dates.
Schumacher's other main vendor is .
"We get a huge return on investment from Salesforce. It drives all of our systems," he said. "We don't have an on-premises ERP system, we just take Salesforce.com as far as it can go."
Indeed, half of the software Schumacher uses is delivered as a service. Because of that, Schumacher's vendor list includes many smaller startups. Menefee is taking a close look at the "depth and financial stability" of those vendors, especially "if there is a chance that their outside investment could be pulled," leaving Schumacher without vendor support.
Still, Menefee, who worked at a dot-com during that period's boom and bust, doesn't expect the same massacre. "I think the industry learned a lot of lessons during the dot-bomb era," he said.
Those measures should enable Schumacher to weather the storm while avoiding many steps, Menefee said. For instance, Menefee has no plans to stop paying maintenance on its on-premises software. He also plans to maintain his schedule of refreshing desktop hardware every three years.
Menefee also has no plans to increase his limited use of open-source software. "I never jumped on that bandwagon," he said. He plans to take a , though, as a way to easily connect Schumacher and the 2,400 doctors who work as its independent contractors.
Finally, Menefee plans no layoffs in his IT department, and expects it to grow by 20%, to 50 total from 41 today. Most of that growth will be in India, where Schumacher employs five IT staffers today.
Smooth sailing for auto engineering services firm
Juergen Veith is managing director of Tecosim GmbH, a based in Russelsheim, Germany.
Tecosim is a US$30-million-a-year, publicly traded company with 250 employees in four countries, including the U.S., and Veith continues to directly oversee all areas of Tecosim's business, including its IT spending.
Most of Tecosim's customers are Detroit auto makers, whose troubles are well-known. Surprisingly, that hasn't hurt Tecosim yet, nor does Veith expect it to.
"We work mostly for the R&D departments of auto makers, which haven't been affected yet," he said. "Auto makers have to invest in the future."
Another reason Veith doesn't expect Tecosim to cut back on IT spending is that he believes the company already gets as good a deal as it can expect.
Tecosim spends about $2 million a year on software, most of it on high-end CAD and engineering applications rented via and its partners.
Tecosim buys tokens, each of which grants a fixed amount of time of software usage. Veith said the system is "brilliant" because of its flexibility and its overall cost structure, which he likened to "shareware" on the desktop side. "I'd be pleased if Microsoft invented such a system," he said.
Other than Altair, Tecosim has the typical cross-section of vendors, including Microsoft. But business remains good enough for now that Veith doesn't plan to press his vendors when contracts come up again at the beginning of the year.
"I don't want to bother when things are stable," he said.