Despite the efficiency gains wrought by new technology, one in six Canadian CFOs said technology upgrades are the first expenses they would cut during uncertain economic times, according to results of a survey released Thursday by RHI Management Resources
RHI in the first weeks of 2002 surveyed 270 Canadian chief financial officers, asking which areas they would hold off investing in under questionable market conditions, such as those currently engulfing the Canadian and global economies. The third most popular answer, given by 16 per cent of respondents, was “”technology upgrades.””
David King, Toronto branch manager of RHI Management Resources, said companies could be under the impression that they already have enough technology to sustain them for the time being. He also noted that though substantial, the number of CFOs who would cut technology upgrades is less than half the number (36 per cent) who would first put merger and acquisition activity on hold in an uncertain economy.
Mergers and acquisitions (M&As), such as last year’s $670 million-purchase of IMRglobal Corp. by Montreal’s CGI Group Inc., have traditionally played a large role in the growth of technology companies. But despite the CGI purchase and Telus Corp.’s 2001 buying spree, M&As were actually declining in frequency before the RHI survey. According to the CATAAlliance, M&A activity in Canada’s high tech sector was down 55 per cent in the first half of 2001 compared to the year previous, the first such drop since 1992.
“”As much as that has been the strategy in the past, I think right now there’s a more cautionary mood,”” King said. “”I think, given the current economy, a lot of companies want to take care of their backyard first.””
Close behind M&As among expenses CFOs would put on hold are company expansions, with 32 per cent of respondents picking it at the primary savings area. King said reservations about technology upgrades have to be viewed in the context of expansions and M&As.
“”Mergers and acquisitions and company expansions are large undertakings that companies are not willing to undertake in an uncertain economy,”” he said. “”Technology kind of falls in the middle…to remain competitive you need to keep up with the Joneses on the tech front. Once upon a time, it was almost a luxury, technology expenditure.””
Only five per cent of respondents pegged as their prime expense-cutting area new products or service launch, an area King said CFOs want to preserve, because demand for new, more affordable products can eclipse top-end offerings in uncertain economic times.
Eight per cent of respondents, who King said represented companies from across Canada and across many verticals, said they wouldn’t hold off spending in any area, and just three per cent said they were unsure where they would try to find savings.
King said the small number of uncertain CFOs suggests the respondents do view current market conditions as uncertain in spite of conflicting media reports concerning the economy.
‘There’s a cautionary sense instead of an aggressive (sense),”” he said.