The Economies Of Success

At a time when escalating gas prices make daily headlines, grocery prices have soared and home foreclosures are at an all-time high, solution providers can actually continue to expand their business and profitability by focusing on certain vertical or geographic markets and technologies that deliver proven cost savings to customers.

Many channel companies have already survived harsh market downturns, whether after the Sept. 11, 2001, terrorist attacks or the burst of the dot-com bubble in the 1990s. While a good many businesses--channel, vendor and non-IT--burned up or faded away after those two events, many made it through. Some actually thrived. In some cases, integrators can fill needs that crop up as companies lay off employees and need to fulfill some of these ex-hires' job functions.

"We definitely have seen an impact in parts of our customer base and none on the rest of our customer base," said Ken Yanneck, president of IPLogic Inc. (VARBusiness 500 No. 432), an Albany, N.Y.-based communications technology solution provider. "The upside in being in upstate New York is we don't get too impacted by an economic downturn. [But,] we don't get the benefit of an economic upturn, either."

The Upside
There is a silver lining for solution providers and vendors that are able to save companies their hard-earned money. Many VARBusiness 500 companies saw double-digit growth in 2007, and public companies' stocks continue to see up days.

"We have seen our business growing recently," said Lenley Hensarling, group vice president and general manager of JD Edwards at Oracle Corp., Redwood Shores, Calif. "We haven't seen a drop-off yet. We can't see into the future or where the economy's going, but a lot of companies are dealing with the need to be more efficient. The bar to being more efficient and efficient enough to survive has gone up, not down. To date, we're still seeing a good deal of flow, both midstream and up."

Where The Dough Goes
IT spending is definitely under a microscope. However, analysts predict organizations will continue to invest in certain technologies.

"Outside-in pressures on the business, such as customer demand and increased competition combined with internal pressures to increase efficiencies and decrease costs, are prompting U.S. small and midsize businesses to increase their IT budgets in 2008," said Simon Jacobson, senior research analyst at AMR Research Inc., Boston.

No matter how harsh the economy becomes, organizations must achieve regulatory compliance, which often requires an investment in security, storage, risk management, asset management and other related technologies. In fact, companies are expected to spend more than $32 billion on governance, risk management and compliance this year, up 7.4 percent compared with 2007, according to AMR. Executives are more aware of how IT and business risks can and do affect their bottom lines and are prepared to spend on strategically planned technologies to mitigate and prevent this risk, AMR found.

Businesses also are looking to temper the costs of creating and delivering their goods. Spending on supply-management solutions that fill gaps in visibility into supplies, contract management and connectivity with suppliers is expected to increase 14.5 percent in 2008, another AMR report found.

"Even in a time of economic uncertainty, companies understand that supply-management applications can bring more to the bottom line," said Mickey North Rizza, research director at AMR. In the United States, 24 percent of this money will go toward hardware and application infrastructure, 22 percent to software licenses and 22 percent toward maintenance, he said.

There is even more good news for solution providers adept at customizing applications, because organizations are expected to move away from enterprise resource planning (ERP) applications in favor of best-of-breed, custom applications, AMR's report predicted.

"Companies can't have any waste. More and more customers understand what they want to do with business processes," said Oracle's Hensarling. "The companies who get it and understand how software delivers specific values are the winners. The box movers don't do so well."

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