The slowdown in the economy can make businesses think twice about upgrading computers, phone systems and other office technology. But the inevitable belt tightening that comes during an economic downturn can also make businesses focus on becoming more efficient, which can lead to a decision to upgrade office technology.
“I think we need to continue to make the investments in those things that are necessary to spark the recovery,” said Al Lind, who is assistant commissioner for technology for the Institutions of Higher Learning (IHL). “I assume there has been a slowdown in technology in connection with the slowdown in the economy. But investing in technology is not unlike building maintenance. You can defer maintenance on a building, but you eventually have to do the maintenance. You are going to have to pay the cost of replacing computers eventually. You just have to make a business judgment about deferring it, realizing that you are making an investment in the future.”
Lind said one example of where investments in technology need to continue even during an economic slowdown is cell towers. Mississippi is a rural state, and cell tower coverage is sparse outside of well-populated areas. Better cell phone coverage throughout the state would benefit business.
Investing in technology can improve a company’s bottom line if it makes them more internally efficient, giving the business a competitive edge.
Investments in technology at the state’s Institutions of Higher Learning have slowed down because of state budget problems. Some campuses are deferring maintenance and replacement of computers. For example, computers that normally would have been replaced after three years might not be replaced for five years. The end result, though, is a whole pipeline of aged computers that will eventually have to be replaced.
To deal with the reduced budget for technology at the state’s colleges and universities, the IHL has instituted a technology efficiency task force.
“One of its jobs is to look at doing jobs better,” Lind said. “The economic downturn can be an opportunity to take a good hard look at administrative processes to do things smarter and cheaper. We are certainly doing that at the university level, and I assume other businesses are doing the same thing.”
Weeds out inefficiency
“During periods of economic downturn you are encouraged to look at ways of increasing production,” said Thomas Colbert, chairman of the board of Community Bank of Mississippi and chairman of the technology efficiency task force Colbert said. “The downturns weed out the inefficiency. Whether you are at the university level or the business level, the name of the game is production.”
Colbert said the universities are using the same principles as those used in the banking system.
“We are trying to consolidate as much of the back office work as we can,” Colbert said. “For example, in our banks we have six individual banks with their own boards and offices, and only one operations center. When consolidation is reasonable, then we do that. And that is the same principle looking at the university level.”
Currently there are eight operations centers for the eight universities. But five or six of the universities are planning to consolidate into one central operations center. The six universities have had 14 contracts covering computer software and hardware. That will be reduced to one, an effort that is expected to save IHL about $1 million over seven years. The IHL is also looking at consolidations of services such as cell phone providers, using one provider instead of different ones at each university.
Efficiency through automation
Technology presents the opportunity to increase efficiency through automation. Colbert said that 20 years ago banks averaged one employee per $1 million in assets. Today the average is one employee per $3.5 million in assets.
“You can see what that does,” Colbert said. “It is lowering our cost of doing business.”
Colbert said decisions about spending on technology during economic slowdowns depend on what it will cost to do business without upgrades compared to cost after upgrading. For example, check imaging technology was around for several years before it became cost effective.
“You have to analyze each thing you are trying to do to see how long it will take you to get your money back if you spend it on automation,” Colbert said.
Colbert said technology won’t necessarily eliminate jobs. For example, though automation has increased efficiency in the banking industry, jobs have actually increased because of growth in banking.
“We are so much more automated this year than 20 years ago, and yet we have more people employed,” Colbert said.
Office technology companies in the state report mixed results as far as spending on office technology. Some report declines while others are holding steady.
Small businesses more active
Robert Phillips, president Teleco Mississippi, Jackson, said small businesses seem to be more active than big businesses in purchasing new phone systems.
“We had a real slow January and February, but since then it has picked up real well,” Phillips said. “We have sold a lot of systems to small businesses in recent months. Bigger businesses seem to be slower, but they are picking up slowly. It is taking them longer to get back to where they want to be than the smaller companies.”
Phillips said leasing is becoming more popular. While customers end up paying a lot more for the system with leasing as opposed to purchasing, leasing preserves a company’s cash flow. “You get a better deal paying cash, but most people are bad on cash flow,” Phillips said. “Leasing allows them to do it a little at a time even if it does cost them more in the long run.”
However, Phillips said leasing companies have become more stringent on their requirements, and a lot of businesses have been turned down for leases.
David Palmer, CEO of Synergetics Diversified Computer Services, Starkville, said his business hasn’t seen any slowdown.
“We’re out getting new business,” Palmer said. “There is new construction, and new purchases and projects. But there is no way to measure what sales would have been without the slowdown. Maybe our company would have seen even faster growth if the economy hadn’t slowed down.”
Palmer, whose company’s work is 85% public, said that state budget cuts this year have made government officials nervous about the coming budget years. He predicts that if the economy doesn’t recover by the end of the year there could be a slowdown in state spending for technology in the first and second quarters of the next fiscal year.
“We’re very hopeful, and I think we have seen some signs, that the economy is going to turn around,” Phillips said. “The economy in the Golden Triangle area is still booming. We have construction, new highways coming in and new businesses. We don’t see any problems up here at this point. Just from the standpoint of people I deal with — architects, accountants and contractors — everybody has more to do than they can do. My business has more to do than it can do. It has been strange for me to see it —the economic slowdown — but not experience it. We’re actually adding staff.”
Phillips said his company is taking advantage of the slowdown by hiring good people who have been laid off by IBM and other companies.
“The on-going economic slowdown has most certainly had a negative impact on the technology sector as a whole, and a specifically on the computer industry,” said Laurel-based Howard Industries CEO Billy Howard. “This is evidenced by the layoffs and cutbacks that have come to predomin
the news in this sector. In fact, over the last year, PC sales have slowed to their worst in over a decade. However, things could be looking up. IDC just recently released a second modification t