Tuesday, July 08, 2014
Oops They Did it Again! Gartner Downgrades Overly Optimistic IT Spending Forecast
According to Gartner, worldwide IT spending was expected to reach $3.8 trillion in 2014, a 3.2% increase from 2013 spending levels.
Although the forecast at the beginning of the year predicted healthy growth for 2014, these same Gartner forecasts have been overly optimistic the past two years. And sure enough, Gartner had to once again lower their forecasts substantially.
According to their latest predictions, Gartner estimates that spending will rise only 2.1% for 2014, down over 34% from the 3.2% growth rate Gartner had predicted at the beginning of the year.
Examining their 2013 predictions, Gartner indicated IT spending would grow 4.2% for the year. When the dust settled on 2013, the IT spending growth was a mere 0.4%.
In 2012, initial rosy predictions of 3.7% growth were never realized, coming in around 1% by year-end; This despite the economy improving slowly over the same time frame.
Looking back at the reasons for the forecast shortfalls, Gartner indicated economic headwinds, a shift from land-lines to mobile, even blaming exchange rate fluctuations.
This time around managing vice president Richard Gordon, in an interview with ComputerWorld, indicates that: "In the context of an improving global economic situation, to have IT spending be anemic, in the low single digits, might be a surprise on the face of it, but customers aren't necessarily cutting back on spending, they're getting better deals for their money and spending their money carefully."
We believe that Gartner is getting closer to the real reasons for the shortfalls, but still feel that they have missed a major "sea change" in IT spending and decision-making in their continued overly optimistic forecasts.
For IT solution providers who may be using these forecasts and were expecting a turnaround in 2014 spending levels, another slower than expected year has significant implications for your organizations' sales and marketing strategy.
Frugalnomics in Effect
So what are the real reasons behind the continued slow growth? I believe it all revolves around Frugalnomics:
1) Although progressing, real economic growth remains slow. As a result, organizations have learned how to permanently “Do More with Less”.
2) Although new technologies like mobility, big data, social collaboration and the cloud are hot topics, and they promise to fuel the next big IT investment wave, they are taking a little longer to catch fire than pundits claim, are replacing spending on other projects and not adding to overall spending, and are not significant enough to affect the annual growth figures - yet.
3) Purchase decision-making has significantly changed, now driven by buyers who are:
a. Highly empowered – privately controlling the decision making process with ever more competition for each deal and more discounting,
b. Risk averse – afraid of making a wrong decision, and instead choosing to remain with business as usual / status quo,
c. Frugal – with over 95% of IT decisions now requiring a solid business case with significant ROI and fast payback according to IDC.
4) Most IT spending decisions are now driven and controlled by business groups vs. formal IT. At the same time, more and more spending is occurring in the shadows, by individual users and groups without the formal knowledge of IT. This “dark” spending is not showing up in the growth figures. When it comes to business and shadow purchase decisions, most IT solution providers are not adept at selling to the business groups and capturing dark spend.
All of these conditions still exist, indicating that Frugalnomics remains in full effect, and as a result we expect that Gartner’s even bumped up predictions for 2014 will prove overly optimistic.
Most importantly, you need to take Frugalnomics into account as you evolve your sales and marketing strategies and investments to meet the challenge.
Surviving Frugalnomics - 3 Things To Do Now
To help meet the challenge and Survive Frugalnomics, we recommend three “must do” programs for the near term:
#1 - Engage Frugal Prospects with Provocative Marketing
Todays’ buyers are more risk averse and frugal than ever, with 58% choosing to “Do Nothing” versus considering a change and your solution (SBI).
Prospects will choose to stick with the status quo unless you can proactively and provocatively quantify that they have a pain worth addressing.
And those opportunities you thought were progressing through the waterfall / sales process to “wins” will stall unless you can help successively convince the prospect that the issue you can help solve is real, that it is a high priority worth addressing over all other issues on their plate, and that your solution represents a real low risk / superior value solution with unique competitive advantage.
In order to connect and engage with “Do Nothing” buyers, helping them through the decision making journey, you need to help them realize:
• Why Consider a Change? - the Prospect has a pain worth addressing and a significant cost of “Do Nothing”,
• Why Change Now? – the Prospect should not wait to address the issue because every day is costing them, they are leaving good money on the table (significant bottom-line impact, ROI and fast payback), and they are falling behind competitively (illustrated through peer comparison benchmarks),
• Why Your Solution?– that your solutions can deliver unique and superior value at a lower total cost of ownership (TCO).
So how well does your current content marketing help answer these key value-focused decision maker questions in a compelling and quantified way?
#2 - Empower Sales with Value Storytelling and Quantification
According to SiriusDecisions, the #1 reason why sales reps fail to meet quota (for the 3rd year in a row) is their “inability to effectively communicate value”.
Sitting in on the majority of sales presentations and you can see that most are still delivering empty product pitches or pseudo-solution selling asking a few questions and then jumping into canned “death by PowerPoint” presentations. According to Forrester, prospects indicate that less than 10% of sales engagements are focused on customer value (down from a paltry 12%).
Despite significant changes in prospect expectations, sales leadership recognizing that value selling is needed in order to meet quota, and the millions spent on solution / value selling messaging and training, only about one in ten sales professionals engage with “value”.
So how well do your sales professionals and channel partners engage with value and what are you doing to address this "value gap" challenge?
#3 - Close the Deal with a CFO-ready Business Case
CFOs are large and in charge of many IT purchase approvals. According to a Gartner and Financial Executives Research Foundation research survey, the CFO is becoming the top IT decision maker in many organizations, with:
• Over 75% indicating significant decision making involvement from CFOs,
• 41% indicating that the CFO is one of the main decision makers for IT investments.
From the CFOs we talk to, they indicate that proposals:
• Won't be considered a priority without a business case, and the larger the proposal, the more detailed and formal the case has to be,
• Won’t be advanced unless they show that the proposed project is low risk and with low resource requirements, as “do more with less” applies regardless of the ROI,
• Won't be approved unless you show that the issue being addressed is a priority with a high cost of “doing nothing”, quantified savings / benefits from the proposed solution, and a significant ROI and fast payback,
• Won't be signed off unless you can prove your solution has a lower total cost of ownership (TCO) / better value than competitive offerings.
With Finance playing such a key role in IT decision approvals, it is imperative that proposals contain the business case content that CFOs need to provide approval, otherwise your deals will be stalled or delayed in the final stages, and you may be losing critical deals to competitors who make the better CFO case.
So how well do you deliver the financial justification / ROI business cases that CFOs demand?
Gartner has once again lowered the IT spending growth forecasts, proving again that they are being overly optimistic in the face of Frugalnomics.
With Frugalnomics in full effect, IT solution providers need to implement a more value-focused approach to their sales and marketing strategy, content and tools.
If value marketing and selling are not effectively implemented to account for Frugalnomics, the majority of your deals will continue to stall, sales cycles will get longer, and heavy discounting will prevail.
For the rest of 2014 and well into 2015, IT sales and marketing professionals should consider three initiatives as a top priority to help address the forecast adjustments and best Survive Frugalnomics:
1. Engage Frugal Prospects with Provocative Value-Focused Marketing
2. Empower Sales with Value Storytelling and Quantification
3. Close the Deal with CFO-Ready Financial Justification / ROI Business Cases
To learn more about suggested best practices to help you Survive Frugalnomics, click here.
Gartner cuts 2014 IT spending growth (ComputerWorld)
IDC 2014 Buyer Experience Study (Oct)
Forrester Sales Enablement Conference 2014
SiriusDecisions SiriusIndex, results from 2011 – 2014