Computer Industry Faces Another Lost Year

High-tech CEOs who spoke at the Kickoff 2003 conference last weekend tried to exude a "business as usual" facade but whispering the hallways told the harsh truth - few new deals are being signed, budgets are being slashed, and even big projects run by the Finance Ministry have been cut down.

"The only thing information systems managers are doing these days is bothering technology companies," said a senior executive at one of the research companies that took part in Kickoff 2003, organized by People and Computers. "The managers sit with the companies for months over projects and in the end don't sign a check, because there is no money."

Other participants included senior managers of the big Israeli high-tech companies - HP Israel, Microsoft Israel, IBM Global Service (IGS) and Matrix - plus 350 information systems managers in big organizations in Israel, who wanted to hear how to cope with the continuing cutbacks in information technology (IT) budgets.

The presentations given by the CEOs of the big technology companies used short, concise sentences to illustrate the extent of the problem. "How do we do business during such a tough time?" asked HP Israel General Manager Ehud Graff. "How can we streamline when the pie is shrinking?" wondered IGS CEO Avi Kremer. "How can we find business opportunities during a slowdown?" asked Matrix CEO Moti Guttman. Despite the CEOs attempts to give upbeat answers to these questions, some participants at Kickoff 2003 defined it as "the saddest conference of the year."

Baruch Gindin, CEO of the Gartner Group Middle East research company, opened the conference with a report on a study, conducted by Gartner, which found that the IT issue that is most troubling for the CEOs of big companies in Israel is how to reduce their organization's expenses in this area. "This means only one thing," Gindin told information systems managers, "that you will have to work much harder to convince your CEOs to spend money on IT,"

Jimmy Schwarzkopf, research director of the Meta Group Israel, said that according to his research, organizations invested about 55 percent of their IT budgets in the maintenance and operation of their IT systems during 1997-2000, but in 2003-2005 they will increase their investment in maintaining and operating existing equipment to 75 percent of their IT budgets. "More and more organizations are not investing in the future but are rather focusing on current operations. They have no money," he concluded.

This gloomy forecast and the planned budget cuts are also affecting government ministries. Itzik Cohen, senior deputy to the accountant-general at the Finance Ministry, who is in charge of the government's big IT projects, including the Mercava comprehensive cross-government information system, the Nameir project for government hospitals and the Telem project for digitizing identity cards, spoke at the conference just two weeks after discovering that the government's new economic plan cut NIS 10 million from the Mercava project's budget.

Even though treasury sources claimed that they had objected strenuously to the budget cuts, Cohen voiced his full support for the decision. "There are a lot of government projects that have extra fat, even at the Finance Ministry" he told participants at that time he conference, noting that the budget cut meant trimming the salaries of external IT workers by 10 percent. Cohen also supported the out-sourcing of the maintenance of government IT systems such as Tehila, which stores government Web sites on secure server farms. "There is no point in the government investing in expensive software development if less expensive programs already exists," he said.

Cohen noted that the budget cuts demand that managers of government projects be more cost efficient. Managers funding the Lehava project, who are setting up computer centers in development towns, have begun to work in cooperation with the directors of non-profit organizations that are doing similar work, such as the "Computer for Every Child" association, the Rashi foundation and the Tapuach association. Sources at the treasury recently predicted that the decision to set up 10 more centers will be Lehava's swan song, following which Finance Minister Meir Sheetrit, who has taken charge of the Finance Ministry's computerization projects, will order the termination of the project.

Pitching in

Despite the broad cuts in the budgets of various government projects, Cohen said the accountant-general has no intention of slowing down the projects and feels that it is important to stick to the schedules set for the projects that have already been begun. "I told my people if we haven't finished the first stage of the Mercava project by July, we will have failed," said Cohen. July is the target date for the IT system at the Science Ministry to be up and running, to be followed by those of the Finance Ministry and the Justice Ministry, in August and December respectively.

Cohen said the ID card digitization project has been delayed by a lawsuit filed against the state by EDS, which claims that the awarding of the project to HP Israel should be canceled.

Another project Cohen mentioned is Kasefet, which will facilitate secure communication between some 50,000 Israeli businesses and government offices and the opening of "virtual safety deposit boxes" for tax coordination and the filing of other financial reports.

At the end of his speech Cohen hinted that the technology suppliers in the audience would have to be willing to "meet the government half way" if they wanted to continue working with it. "Everyone will have to pitch in and pull their weight in this effort," he said. "This is the real test of relationships during a crisis."

"This was a meeting between people who have lost some of their status," said one participant at the end of the conference. "Once upon a time information systems managers were the strongest people in an organization. They did whatever they wanted because there was enough money for their programs and the CEOs didn't understand anything about IT. Now the situation is completely different. Financial vice presidents have the power and the IT people have become beggars."