Oil and the IT recovery

The rising price of oil may impact IT budgets, says Barbara Gomolski

Next year has the potential to be one of the most positive years in IT spending since the burst of the dot-com bubble. Whether we actually see an IT spending recovery in 2006, however, depends largely on the price of oil.

Surveys of IT managers on spending intentions conducted by Gartner and others are predicting increases in IT budgets of 5–7% next year, compared with 2005. That would be the healthiest increase since 2001, when a series of economic events and the September 11 attacks required most companies to cut IT spending. For the most part, the IT industry has been treading water ever since.

Today, the US economy has substantially improved, by many estimates. Corporate earnings are looking more positive and job reports are decent. Even in the wake of Hurricane Katrina the US economy seems to be faring pretty well.

But then comes this nasty bit about oil. Allow me to share a few recent anecdotes:

  • A CIO at a toy manufacturer remarks that the company is now concerned about its financial results for the fourth quarter. It seems that resins, made from oil, are the main component of the company’s dolls, so its costs are up significantly.

  • An IT manager in a tyre manufacturing firm laments that oil prices are the main threat to his IT budget next year. Of course, tyres are made with petroleum.

  • A CIO at a branch of the US Department of Defence reports that IT initiatives will be an even lower priority in 2006 than they were in 2005. The agency spends most of its budget on weapons and fuel. When fuel costs soar, operating costs soar.

I haven’t even mentioned the most direct effects of high fuel costs, such as the damper they put on consumer spending and the squeeze they put on the already cash-strapped airline industry.

As individuals we are all shelling out more for petrol. As businesses we are seeing a direct impact on profitability because of oil prices. Could this be enough to derail the impending IT recovery of 2006? You betcha.

When I was contemplating this column, I seriously questioned whether this was an appropriate topic. My column is meant to offer guidance to IT managers and help them excel in their jobs. What could I possibly say that would help in this situation over which IT managers have no direct control over?

All I can say is that we are all consumers and we make choices with our wallets every day. We can’t stop buying petrol or home heating oil but we can conserve and we can put pressure on legislatures to develop alternative fuel sources.

You may think I’m waxing environmental here; I’m not. In fact, I’m a pretty fervent capitalist and Adam Smith economist, believing that a free market economy is inherently self-correcting, and that minimal government intervention in business matters is best. I don’t drive a hybrid car and one of my vehicles gets downright atrocious mileage.

Still, this oil issue is turning me into an environmental pragmatist. Simply put, the imbalance in oil prices disturbs my economic sensibilities. I’d rather see the discretionary dollars of individuals and companies going into new IT initiatives (or even capital equipment) than into the pockets of the oil companies. I’d rather see IT organisations take on more staffers than watch the pay of oil industry executives climb.

So, in my own little way, I’m trying to make things better. I don’t commute to work, but when I do drive I try to maximise my mileage. I’ve also decided to bite the bullet and put in a solar electric system, since I live in an area where the sun shines most days.

Will my efforts, and the efforts of many others like me, make a difference? Will all this have any impact on the IT industry? I don’t know for sure. However, if you had told me ten years ago that oil was siphoning off the IT industry’s growth, I probably wouldn’t have believed you.

Today, I’m a believer.

Gomolski is a vice president at Gartner, where she focuses on IT financial management. She can be contacted at barbgomolski@yahoo.com

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