While the chance for a short recession and quick recovery seemed possible at the start of the COVID-19 pandemic, a Forrester report warns that CIOs should prepare for a much longer U.S. downturn, along with more severe IT spending cuts in 2020 and into 2021.
"What's starting to happen now is shifting from a pandemic recession to a traditional recession. More sectors of the economy are now going to start to feel pain," said Andrew Bartels, Forrester VP, principal analyst and author of Forrester's "U.S. Tech Market Outlook for 2020 and 2021."
Forrester outlines three possible scenarios:
Scenario A (10% probability): After a short drop in spending, budgets would see a strong recovery in the fourth quarter and into 2021.
Scenario B (70% probability): A 6.3% decline in 2020 U.S. tech budgets from 2019 levels.
Scenario C (20% probability): 9% decline in 2020 U.S. tech budgets from 2019 levels and 5% drop in 2021
The uncertainty requires CIOs and IT leaders plan for multiple scenarios, and prepare to cut — and cut again.
Best case scenario, and something in between
While Scenario A seemed the most likely scenario early in the pandemic for the U.S. and is still a possibility in Europe and Asia, the lack of a national, cohesive COVID-19 plan has made that far less likely, according to the report.
However, Scenario A could still happen with a second round of economic stimulus, much like April's $2.3 trillion CARES Act, and/or a safe and widely-accepted vaccine.
Far more likely is the scenario B forecast, which Forrester believes has a 70% chance of happening. In this scenario, U.S. tech budgets drop 6.3% from 2019 levels.
This forecast sees the IT cuts move from already hard hit industries like travel, leisure and consumer-facing retail to sectors like financial services, insurance, professional services, education and healthcare.
"It's going to spread from those industries that don't spend a lot on technology to industries that do spend a lot on technology," Bartels said.
Financial services, which has so far held up relatively well, is especially at risk in this scenario.
"As the wave of bankruptcies and failures starting in small business ripples through, in the absence of support, they're going to start feeling the pain," Bartels said. Insurance companies will also suffer as closed businesses cancel policies.
CIOs should be looking at what cuts they may need to make in areas like hardware and new project spending, Bartels said. They should also prepare for what cuts they would make to software, outsourcing, telecommunications or even changes in staff.
That may not necessarily mean layoffs, but "re-insourcing," where staff that had been dedicated to new projects in the pipeline are shifted to doing tasks like help desk support and network management, according to Bartels.
Preparing for the worst case scenario
Scenario C, assumes a safe and effective COVID-19 vaccine is not widely accepted until the second half of 2021, and that Donald Trump is reelected president.
"A Trump administration would put us on a path 'to a do nothing/let the economy heal itself' pathway, which will make a longer and slower" recovery, Bartels said. A Biden administration would be more likely to be aggressive in pushing an economic recovery, according to Bartels.
In case of Scenario C, firms should be "looking at more sustained review of your projects that you had planned to do in 2020 and delay them until 2021 or maybe even cancel those you can't afford," Bartels said.
Even though Forrester only gives this scenario a 20% chance of happening, CIOs must build contingency plans now, and prepare for a longer and deeper recession. CIOs should also have flexible plans for expanding or reversing their tech budget cuts depending on how the economy performs, and where their respective firms perform in the overall recovery picture.
Min-Seok Pang, associate professor in the department of management at the Temple University's Fox School of Business, doesn't see such a bleak future picture, but instead predicts increases in tech budgets in work- and school-from home continuing to keep IT spending high, which includes spending associated with maintaining security around those activities.
Shifts in retail to e-commerce will also help. "The environment requires companies to move online in terms of interaction with customers and interaction with suppliers," Pang said.
Increased investment in automation will help too, he said, along with "possibly more in machine learning and analytics." Instead, the challenge will be "managing on-prem technology infrastructure because it needs more people to manage."
Pang agrees that CIOs should be flexible. "They need to be agile, they need to be flexible. It sounds obvious but it's even more so true in this uncertain environment."