Impact of Economic Downturn Weighs on Technology Markets
I've always been intrigued by tornadoes and their ferocious power. Part of living in tornado alley, I've read, is to have a storm cellar constructed on your property.
With all of the recent economic turmoil over the past few weeks, is it okay to come out of storm shelter yet? I've spent the last few weeks buried inside the storm shelter hoping the economy would sputter back to life. On all accounts it's sputtering, but not necessarily back to life.
And if the news isn't depressing enough, two recent surveys show that overall IT spending is down, while on a positive note, information security spending is rising and projected to continue to rise next year.
Forrester Research, in its Business Data Services report, found that 40 percent of 950 senior IT executives surveyed had cut their organization's IT budgets due to the economic slowdown.
- Forty-three percent of the organizations have already cut their overall IT budgets as a reaction to the economic slowdown, while 24 percent have put discretionary spending on hold.
- Seventy percent of respondents said they will likely negotiate lower rates with suppliers and vendors, and 16 percent said they have already cut their IT service spending.
- IT departments in North America have been affected more by the economy than their European counterparts: 49 percent of North American firms have cut their IT budgets' compared with 31 percent of respondents in Europe.
At health care organizations, CIOs said they have not seen an impact on the downward economy. Most said the rate of spending for technology at their organizations will stay pretty much at the same level as in years past. "We continue to attempt to get the best possible pricing we can," said Chuck Christian, director of IS/CIO at Good Samaritan Hospital in Vincennes, Ind. Christian said that his organization is also looking at other cost-saving opportunities for technology purchases the hospital is financing/funding. "If the Forrester study were segregated by industry, let's say to split out health care, I'm not certain that you would see the same level of downturn as was identified," he said. The health care industry is automating more of the difficult parts of care delivery, such as clinical integration, physician-focused technologies, regional integration, etc., he said. "These are proving to be more expensive than the applications we've implemented already. They also appear to have a longer implementation timeline, making the return on investment somewhat longer to realize, as well."
George Hickman, senior vice president and CIO at Albany Medical Center in Albany, N.Y., said he believes the global numbers quoted by Forrester tend to be more sensitive to economic indicators. "[We're] eyeing the Medicare/Medicaid policy setting behaviors in order to predict our overall IT spending in health care. Also, the upcoming election and the immediate health care policy events that follow will show us our direction. Annual rate negotiation activities with commercial payers are also an indicator of how the operating budgets will build up for the next year," he said. "We are on watch, but the plan is for continued and increased IT spending here at Albany Medical Center."
In Massachusetts, for example, technology start-up companies and their venture capital financers are bracing for further slowdowns in IT spending and further holding back in initial public offerings.
With ongoing concerns about the economy, companies that buy computer software and networking technologies -- all players in the Massachusetts technology sector -- are expected to reduce their overall spending, The Boston Globe reported recently.
Leading the charge to hold back will be the investment companies, who project to cut technology purchases by 7 to 10 percent next year, according to TowerGroup, a Needham, Mass., research company, the newspaper reported. "The softness of the economy is going to hurt IT spending," Charles Lax, a partner at Grand Banks Capital in Newton Center, Mass., told the newspaper. "Information technology spending is done as a percentage of a company's revenue. So as revenues decline, spending will decline."
However, on the brighter side, information security spending is projected to grow next year, according to Forrester's Business Data Services survey. Out of the more than 1,200 security decision-makers from North America who were surveyed, 21 percent expect to increase their IT security budgets next year, while nearly three-quarters of those surveyed expect no cutbacks in their security spending. Only 6 percent of respondents anticipate having to cut their security budget this year and next despite the current economic uncertainty.
Forrester Principal Analyst Khalid Kark said that information security professionals are in a renaissance as the profession's influence is growing within organizations. Kark noted the following trends:
- Information security makes up 10 percent of overall IT operating budgets in 2008, up from 8 percent last year.
- Nearly 50 percent of respondents report to a board/CEO or an executive committee. Information security is no longer embedded within IT.
- Data protection is critical. More than half of respondents said that protecting corporate IP and customer data was their top priority for the next 12 months.
- Companies are realizing the significance of having business continuity and disaster recovery plans in place. Forty-two percent of respondents said it was very important, up from 33 percent from last year.
"This is an exciting time to be in information security," Kark said. "We are in a period of immense change in which we have the opportunity to define the future of our profession. Security and risk professionals are faced with a rapidly changing technology landscape and business environment. To achieve success in the role today, they need to be open to new ideas and embrace change."
Christian noted that security issues came long before the HIPAA legislation. "However, that doesn't mean we can relax. The tools and techniques will continue to change as will the challenges. I'm amazed at the level of spam that we block every day and the volume continues to grow. If the criminals can catch payment transactions ‘in flight,' it just means that they're getting smarter and improving their tools, as well," he said. As an industry, there hasn't been a huge issue with medical identity theft, he noted, "but as the cost of health care climbs, this, too, may become the topic on the evening news."
Greg Walton, CIO at El Camino Hospital in Mountain View, Calif., said that this increased concern in the provider space seems like it started with HIPAA. "Before HIPAA, seeing an IT security officer in health care was like seeing a white whale. And, the nature of crimes and offensives has changed also. While hacking has been around in some form -- just ask information security officers that have worked in banking -- identity theft is a relatively new crime. Before that, hospitals truly didn't have much worth stealing and people's attitudes about sharing health information was to tell everyone in church pretty much what ailed them. I've been in small towns where discussions of someone's health was on the radio, and considered an indication of well-wishing and fellowship," Walton said.
Times have definitely changed and providers are spending more on security. "The main reason may well be identity theft because the largest legal financial settlements are on that topic. And, providers are spending money on encryption and other techniques, which, five years ago, we wouldn't have done or couldn't afford," Walton said. "El Camino is in this camp and will remain so until we get a great deal more locked down. Our board of directors accepts this increased security spending more than other topics. Spending to keep patient data secure is not a terribly hard sell as no one wants to be embarrassed."
Scott Joslyn, CIO at Memorial Care in Long Beach, Calif., noted that information security spending is increasing. "What is driving the increase? News stories regarding inappropriate access to patient records, the loss of patient records on various forms or storage and pending legislation," he said. "In addition to increased focus on patient privacy, we continue to invest in greater secured access to patient demographic and clinical information in order to meet the information needs of our physicians pertaining to treatment."
What's driving information security spending within your health care organization? What are you seeing? Are you spending more on information security? Let me know by e-mailing me at rmitchell@advanceweb.com.