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2002: when headless chooks ruled the roost

David Braue, Information Age

10/12/2002 17:13:58

2002: when headless chooks ruled the roost. The selection of Adelaide to host 2002's World Congress on Information Technology, which ran over three days in late February, was a major coup for the small city of churches. But nearly a year after the conference, the one speaker whose comments are remembered most vividly is David Murray, head of the Commonwealth Bank of Australia (CBA).

When someone of Murray's stature stands up to speak, people listen. And that's why his comments on IT turned so many heads. "The IT industry in the US has single-handedly destroyed the world economy, leaving governments to clean up the mess," he said. "Technology never gets deployed according to promise… and it is difficult to trial the costs and get a sense of the productivity gains."

Not exactly the most positive words from the head of Australia's second largest bank and a major consumer of IT in all its forms. Since his speech, Murray has shaken up the CBA's IT strategy, trimming middle-tier management and realigning the company's internal business division so that IT comes under his direct report.

That's not to say he's completely down on IT: this year, the company aligned itself with database vendor Teradata on a radical customer relationship management project that will dramatically restructure the bank's dealings with customers. That project will be the largest single effort in the bank's history, and it will - thanks to Murray's radical IT manifesto - be directly guided by him, the head of the entire business.

The changes afoot at the CBA highlight the major philosophical shift that turned 2002's IT industry into a much different beast than it has been in the past. This was the year that the financial world lost confidence in the business world, sending share markets plummeting and seeing jobs slashed by the thousands. IT budgets have been savaged, long-term projects shelved, and the strategic horizon has been pulled much closer as managers focus more on cost-cutting than long-term planning.

Even within companies that have ample cash, CIOs have found it excruciatingly difficult to get approval for anything more than the smallest projects. And with boards keenly aware of constant shareholder scrutiny, fast ROI is the name of the game: allocated IT funds are almost universally dispatched with a hidden implication that somebody's job is on the line if results aren't delivered within a certain time.

That time is generally held to be no longer than 12 to 18 months; that means the major business re-engineering projects running two or more years - so common just a few years ago - are all but out of the question. Accountability, not creativity, is the watchword of the day.

Optimism 0, reality 1

Recognising that economic uncertainty in 2001 made it a dud year for most sectors of the IT industry, observers rang in the new year with unbounded - and, often, seemingly undeserving -- optimism. Clutching at any sign that the IT recession was easing, research firms such as IDC began countering previously morose sales figures with enthusiastic claims that PC sales would increase slightly during 2002, in line with an anticipated upswing in corporate IT spending over the course of the year.

That upswing, everyone convinced themselves, was going to be huge. IDC's first-quarter Market Sentiment Monitor, a survey of 250 medium and large Australian organisations, found that 74% of respondents were at least "somewhat positive" about Australia's economic climate during the first half of the year.

Yet despite their cautious optimism, the market's overall growth has been hovering far closer to zero than anybody would like. Although many companies continued already-planned point upgrades and short projects, many others decided to put off non-essential spending. That change had the effect of a wet rag on sales of PCs, PDAs, enterprise software, services and other IT mainstays; everything has slowed down as businesses of all sizes take stock of their current situation and lay down more modest frameworks for the future.

Needless to say, all this made for a very difficult year in the IT market. Nowhere was this felt more acutely than within the telecommunications market, where the Nortel Networks and Cisco Systems of the world were fighting to keep their businesses moving in the right direction as once spendthrift carriers realised all those cheques they'd written a few years ago actually had to be backed with real money. Thousands of layoffs, mostly in the US, mirrored shrinking worldwide demand for new network infrastructure as companies decided they could do just fine pushing what they already have just a little longer.

For those companies that did push ahead with major telecommunications upgrades, it was a good time to negotiate the terms they wanted. Australian National University, for one, made headlines in November after it announced a 15,000-seat Voice over IP network upgrade that will follow in the steps of trailblazers like Swinburne University by extending an IP data network across the university. Just the ANU sale, said to be worth $5 million in the next few months alone, will have soothed many headaches at Avaya, the spinoff of all-but-dead telecommunications vendor, Lucent Technologies.

Even storage, usage of which continues to grow at a rapid pace, was disappointing in real terms as plummeting cost per megabyte meant that significant increases in the volume of disk shipped were barely enough to keep the sector in positive growth. No matter where the industry turned this year, there was no safe haven from the pressures of corporate cost-cutting.

A year of innovation

Necessity, as they say, is the mother of invention. Facing the need to get corporations to buy something - anything - to keep themselves viable, vendors in every level of IT spent much of the year trying to push new and innovative products into the market.

For once, their hype wasn't unfounded: the industry produced some pretty good new products technologies during 2002. This was the year in which wireless LANs became more than just a fad, with Australia's first wireless ISPs - Xone and Azure - tentatively launching wireless networks in several capital-city CBDs. GPRS services, now smoothly running over GSM mobile networks, actually began to be used for something helpful.

The price of wireless cards, digital cameras, DVD writers and other gadgets plummeted as vendors pushed ever-better generations of product into an increasingly technophilic market. Yet PDAs, long the darlings of the cutting-edge, were a big disappointment: sales that appeared robust at the beginning of the year had dropped off considerably by year's end.

Handheld mobility, it appears, is far less important to companies than vendors would like to think. Or, more likely, the technology may have this year slid down the hype curve into the proverbial trough of discontentment, where businesses shake off the excitement of new technology and figure out what the stuff is actually good for.

It's ironic that sales should slow down just as the devices finally got enough grunt - with Intel's new XScale processor running Microsoft's Pocket PC 2002 operating system - to pull their own weight in corporate applications. But whether the result of market saturation or customer resistance to chronically high prices, the slowdown in PDA sales has been a major bugbear for an industry that's been pushing the benefits of mobility for years. Spending may well pick up next year, as Dell's entry into the PDA market pulls prices down across the board.

Handheld PCs weren't the only innovative PC replacements that failed to live up to their promise, however. November saw the launch of Microsoft's long-awaited Tablet PC, the first new PC form factor in years. Although they're long on innovation, the Tablet PCs have received a tepid reception from a market that has little tolerance for gadgets, no matter how cool.

Driven by the need for change, server makers also took their chance to explore other form factors. Blade servers, which aggregate multiple interface cards in a single chassis like Lego blocks in a kindergarten classroom, were hyped throughout the year and actually started appearing by year's end. They represent a major change in server architectures and will no doubt gain traction as companies look into consolidation for their next server upgrades.

Also interesting is the fact that many of the blades are being marketed as Linux solutions. Indeed, Linux gained significant momentum in 2002 - helped by corporate penny-pinching and frustration with growing IT costs. Caldera, SuSE, TurboLinux and Conectiva took a big step in the right direction by joining forces to produce the single code base of UnitedLinux, while market leader Red Hat tightened its allegiance with IBM, which has emerged as Linux's most ardent advocate.

As IBM's endless promotion of the operating system gave it legitimacy in the eyes of high-profile customers, other major vendors followed suit. Anti-Microsoft sentiment - whipped into a frenzy that mercifully concluded this year with a settlement in the company's four-year-old US antitrust case - reached an all-time high as Microsoft's revamped corporate licensing program alienated customers and drove many of them to consider alternatives like Linux, Corel's WordPerfect and Sun's StarOffice.

Also gaining traction during 2002 were Web services, which have earned so much hype from major vendors that customers are already experimenting with the technology before its enabling standards are set in concrete. In one survey of the Australian IT market, analyst firm META Group found that 55% of respondents were pilot testing or evaluating Web services, and 18% already had Web services in production. In federal government departments, 30% of respondents are already using the technologies.

All indications are that it will be some time, if ever, before we return to the buying heydays of the previous few years. For IT professionals, a glance at the year's hottest areas - Web services, wireless and mobile development, and storage consolidation - gives an excellent idea of where it's best to concentrate future education and skills development efforts.

Vendors, whose shareholders and desire to maintain momentum won't let them wait, have this year proven willing to try anything to breathe some life back into the sector. Next year, we'll be able to see if it worked.

Expanding the skills gap

A focus on core strategic technologies may have had its impact on IT spending, but equipment and service are only one part of the IT equation. While vendors fought desperately to reignite corporate interest in their products, businesses had other things on their minds - like survival. Predictably, that meant staff cuts, something that Australian companies had not experienced to the same extreme as their overseas companies.

By the middle of the year, our IT industry was feeling the pinch - and rueing its exposure to the whim of IT multinationals -- as company after company began taking the knife to their Australian operations. Corning, for one, slashed 130 jobs with the closure of its Melbourne fibre-optic plant; WorldCom cut 200 local staff; the ANZ Bank booted 150 contractors; and AMP cut 220 IT staff. Hewlett-Packard closed its Gold Coast development site to move 30 programming jobs to India, an increasingly common trend that's likely to suck more talent from Australia in the short term.

Then there was the crown jewel of retrenchments: in August, Ericsson stunned the business and IT communities by shutting down its AsiaPacificLab R&D centre, which for nearly a quarter century had been producing world-class telecommunications exchange equipment. Some 450 jobs went in the closure of Australia's largest commercial R&D facility, increasing the ranks of the estimated 8000 unemployed IT workers by a further 5%.

Despite thousands of jobs still on the offer across the country, those people have found it extremely difficult to find long-term work. The reason? Buyers, which are aiming for shorter IT projects and better ROI models, are demanding complex skill sets and years of experience in combinations possessed by very few candidates. They're sifting through piles of CVs with fine-toothed combs, expecting more of the people they hire, and offering salaries that would have seemed embarrassingly low just a few years ago.

This year's 2002 ACS annual salary survey, released in July, showed that average salaries paid to ICT professionals rose by just 4% in the twelve months to May 2002. That's 20% less of an increase than that enjoyed by our US counterparts, whose salaries rose by 5.1% despite the impact of terrorism and economic slowdown.

For the majority of IT workers, the demand for very specific skills and experience has locked them out of a jobs market that was supposed to have welcomed them with open arms. The problem is particularly poignant for university leavers, who entered their courses when the jobs market was considerably more positive. Now that they're on the market, things are looking much bleaker than they ever expected.

Working for change

Recognising the difficult employment circumstances that have pervaded Australia's IT industry throughout 2002, the ACS has focused considerable time and effort on tackling the dual problems of slowing industry growth and increasing IT unemployment.

In March, the ACS held an industry forum to promote discussion about industry strategies, and by mid-year the ACS was sponsoring debate over government policies after releasing the research report ICT Development in Australia - A Strategic Policy Review.

One of the key points it pushed was the need for greater accountability and standardisation in the skill sets of Australian IT workers. In September, ACS chief executive Dennis Furini presented in front of the Senate Finance and Public Administration Reference Committee to push government bodies to standardise recruitment guidelines with consideration of the ACS Core Body of Knowledge, Code of Ethics, and Code of Professional Conduct and Professional Practice.

Not only would this raise the bar in terms of the professionalism of IT contractors, but it would also provide job candidates with concrete targets to aim for when building out their skills. It would also provide an edge to locally trained ICT specialists compared with those of migrants brought into the country under the government's Skilled Migrant program.

That migration program also underwent some changes in 2002, as the turnaround in Australian ICT workers' situations led the government to first reduce ICT's position on the list of priority occupations, then remove it altogether. The change undid the concessions for which the ICT industry had been fighting for years, when there were too few skilled candidates and far too many positions going unfilled.

While the ACS remained actively involved in issues such as job and career development, it put its money where its mouth was by awarding $2 million worth of ICT scholarships to 54 recipients around the country through the ACS Foundation. And in August, the ACS sponsored the inaugural $10,000 Eureka Prize for ICT Innovation, which was awarded to ACT company Seeing Machines. Seeing Machines has designed faceLAB, a system for tracking car drivers' behaviour by monitoring facial and body movements, and is currently working with Volvo to test the system in car dashboards.

Encouraging innovation and helping government promote local industry remain cornerstones of the ACS' efforts. There are encouraging signs that, despite the difficult year, government policy is headed in the right direction: 2002 notably saw the National ICT Australia consortium awarded the rights to develop the government-backed ICT Centre of Excellence, which will provide critical mass in the push to promote and commercialise Australia's ICT expertise. The International Computer Driving Licence, an ACS initiative to encourage better use of IT in both business and the community, continues to receive recognition, especially from the educational sector.

If there was one common theme to the IT industry in 2002, it was the goal of doing more with less. These days, everything - from capital expenditure to human resources strategies, project timeframes and strategic initiatives - is under the microscope. And as 2002 rolls to a close, it stands as a year in which the industry not so much made big steps forward, but realised that no quick fix was going to get it out of the hole in which it had found itself.

Analysts are now dusting off their latest round of optimistic forecasts, forecasting that 2003 will be the year of recovery as once-hesitant businesses finally regain their confidence and start spending again. But simply talking up the industry's potential wasn't enough to ease the industry's pain in 2002, and it's clear that things will have to get better, quickly, for 2003 to be much different.

Whatever the analysts are saying, after all, it is the players in Australia's IT industry itself - both customers and suppliers of all sizes - that will make 2003 either the answer to their prayers, or another twelve months of pain.