Downturn V2.0?

Gartner recently released analysis advising CIO’s on how to manage and prepare for a second downturn in the economy.  It seems like there have been genuine concerns for a while, but now seeing Gartner’s analysis AND seeing firms already starting to advertise their value in the context of Gartner’s just released analysis indicates that there is a lot of genuine concern and we are heading down again for the second time.

It doesn’t matter if it is a formal recession (2 consecutive quarters of negative growth in the United States).  We  have to assume the worst and start planning for it.  Again, it comes down to the same issues as before – how are you (the channel) meeting the needs of your customer and what are you doing to deepen existing relationships?

As CTO, in addition to the Gartner analysis, we are seeing Intel and Cisco resetting Wall Street’s expectations – downward.  And we are seeing PC forecasts being brought down for the next few quarters.  Signs that tend to assume 1.5% GDP as opposed to 5.0% in the coming 6-9 months.  Companies such as Intel and VMWare making acquisitions to round out their solution sets, or to expand into new market adjacencies, could be rationalized as a slow-growth indicator since these firms might, in better times, look for organically developed solutions rather than taking on the additional risks associated with acquisitions.

As CIO, my sense of the situation is as follows – internally Westcon went through a serious set of cost reduction activities in the fall of 2008.  Those actions positioned us to sustain our business and be ready to move quickly once an upturn appeared.  During this down period, we were able to really dissect the skeletal structure of many of our planned projects, and really get underneath the potential ROI calculations to clear away any noise in the analysis.  When the upturn began to appear we moved quickly to execute on those projects that we had analyzed and kicked off a number of capital and expense initiatives that would drive down costs and/or improve relationships (and thus revenue and profitability) as the economy grew.  With the next downturn staring us in the face, and with everyone coming back from summer vacation, one can assume that CIO’s will start putting new projects on hold in September, with an eye towards revisiting them in January/February 2011.  Although this looks more like a US downturn than anything else, any US downturn has global implications.

So, in general, projects kicked off in late 2009/early 2010 probably have the budgets in place to continue through the remainder of the year, and although they will be the second place that the CIO goes for costs reductions, these projects have already been analyzed to death in the first downturn and probably are deemed most important to the long term success of the firm and will likely not be stopped.

If you agree with everything said so far, then there are considerable opportunities for the channel during this 2nd downturn.  The opportunities will most likely be with the customers you were working with most closely towards the end of the first downturn and the beginning of the uptick in the economy.  These customers would have engaged you in projects in the Fall of ‘09 and early 2010.  The message here is that your customers probably do not want to focus too much on new initiatives, but want to work with you on previously approved projects to make sure that those projects successfully hit or surpass any upcoming project milestones.  Again, having that deep understanding of your customer’s strategy and priorities will help you and your customer through this impending downturn.  Lastly, I doubt there will be any of those last minute “gotta spend it before the end of the year” opportunities at the end of 2010.

Certainly, I hope Gartner and the other indicators are wrong, and that the economy snaps back to 5.0% growth.  But, just in case they are right, you may want to consider revisiting your most valuable US customers after the US/Canada Labor-Day holidays, and ask them how you can start working most effectively with them to prepare for the next downturn.

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