It’s becoming obvious that the global economy isn’t in quite as hopeful a place as it seemed just a couple months ago. The inflation problem isn’t going away as quickly as most thought it would, and interest rates are therefore not likely to fall as fast or as far. But that’s not the biggest problem at this point. That honor goes to the overall business reaction to the other problems.
“The only thing we have to fear,” said US President Roosevelt during the Great Depression, “is fear itself.” That’s not true today, of course, but it is true that fear of a bad outcome is often a big factor in creating one. And it’s not just that companies and individuals are fearing, with justification, the inflation and rising interest rates, or even that they fear the impacts of both. It’s that they came off a major pandemic, felt relief, thought things would go well, and then found out that the trend wasn’t up but down. Disappointment, in short.
That’s particularly true in the technology space. Tech did better than expected during COVID, and we had a very positive view of tech’s future. That positive view encouraged businesses to invest because, hey, tech was king. Then we had tech layoffs, the Valley seemed to go into a slump, the most recent tech boom of AI seemed to be very narrow, and the most popular vision of grand transformation, the cloud, suddenly lost a lot of luster. I hear a lot of CxOs say “We were too aggressive” in approving tech projects, not only in the enterprise space but particularly with operators. 5G failed them, plain and simple, and now they don’t think any grand change like 6G will do any better.
If we want to look at the current tech situation in a less emotional way, we’d have to say that a general view that tech would go up as it always has, both in terms of advances and in terms of consumption, has taken a hit. Growth by increases in demand, inside tech and beyond it, has taken a hit too. CFOs want real business cases for new projects, and reductions in costs to offset the concerns about revenues. Juniper’s announced (and modest) layoffs have been attributed to weakness in the service and cloud provider spaces, both spaces that have been impacted by the shift in tech views.
Tech, as an industry, really can’t return to confident growth by focusing on cutting costs, since they’re a cost to the tech market. In order to return to growth, we have to find new tech revenue, new tech spending, which means we have to find ways for tech to make an incremental business case for itself. That really means aligning tech to productivity growth.
It’s possible to graph IT spending growth relative to GDP growth on the same scale as you graph overall worker productivity, and I’ve provided that above. If you do, you can see that IT spending tends to lead GDP growth when productivity is on the rise, and I’d argue that the relationship shows that in these situations, IT growth is being driven by its ability to improve productivity. If we accept that, then the goal of improving the tech markets means driving another productivity boom, one associated with new tech applications. But what?
If you address that question from the top down, what you find is that the past positive tech cycles in the chart are associated with improvements in the way that technology is delivered to workers. The earliest peak corresponded to the shift from batch computing to real-time computing, the smaller middle peak to the distributed computing and minicomputer boom, and the last one to the personal computer. It’s that progression that’s encouraged me to see the next logical step to be real-time process integration through digital twinning, but it’s clear that potential productivity gains don’t move markets, only realized ones can do that, and of course the real opportunity may not even lie with digital twin technology at all.
Where it doesn’t lie is in simple evolutionary steps. Whatever the chart shows about the future, it shows that past evolutionary periods actually saw a reduction in tech spending growth relative to GDP growth. The typical cycle goes up for three or four years and then down for about the same amount of time. While the dips in the cycle are smaller than the peaks, they still represent a pretty clear signal that spending peaks when new business cases first develop, which is when new technologies open new productivity opportunities.
The problem with finding these new opportunities is pretty simple, even if the chart can’t show it directly. Enterprises are universal in telling me that they don’t try to invent technologies, they try to apply them. Invention is up to vendors, and vendors have a failing almost as universal as that apply-not-invent bias among buyers. It’s that they tend to present simple solutions to immediate problems (which is evolutionary), or present a form of their own value proposition. In my time doing sales training, I’ve always used a slide that said “You don’t sell your value proposition, you sell your buyers’ value proposition.” It’s what justifies a buy that matters, and when that justification is found it boosts IT spending growth rates by 40% or more.
If you think about the drivers of those past cycles, the true multitasking mainframe, the minicomputer, and the personal computer, you see that all of them were a pretty significant leap, and exposed the vendors who promoted them to significant risk. When IBM came out with the System/360 it broke new ground in multiple areas, launched the software-centric future of computing, the third-party software industry, and online transaction processing. Digital Equipment took the computer out of the computer room and put it everywhere, including on the moon. IBM made personal computing into a business tool with a risky late entry into the space and an open architecture. I wonder how many vendors would take these kinds of risks today.
Would buyers reward them? If they succeeded, the answer is “Yes!”. Of the enterprises I talked with, 98% were “eager” to try new revolutionary technology that promised “significant” improvements in productivity. The thing they stressed was that they had to be able to dip their toes into the technology, to avoid having to make massive investments that couldn’t be immediately proven out. In short, they wanted to see the path ahead because their vendors had taken the risks to grease the skids.
What may have killed our best chances for this happy vendor adventurism was the Dot-Com bubble and Sarbanes-Oxley. To prevent another hype wave bloating equity valuations, Congress took steps to hold analysts and companies accountable for over-hyping. The problem was that this took vendors’ eyes off the horizon and focused them on their own feet. One step a time is safe and SOX-proof, but it’s not going to build a vibrant future for tech.
