Wednesday, July 15, 2015

Frugalnomics in Effect - Gartner predicts 5.5% decline in IT spending for 2015

Gartner recently published their latest worldwide IT spending forecasts with a sharp downward revision, now projecting 5.5% YoY decline from 2014 levels. 

If you’re marketing or selling technology, this decline could have a significant impact, stiffer competition, and even more headwinds to meeting your ambitious revenue growth goals.

This latest estimate from Gartner is a further downward revision of the overly optimistic forecast published to kickoff the New Year, where Gartner was anticipating a 2.4% increase for the year. Unfortunately this follows a pattern, where Gartner publishes overly optimistic growth forecasts to kickoff the New Year, and downward revisions from there on out. However, this year is the first time the growth has turned negative, and should warrant even more attention.

Although Gartner has pinned this latest decline on the strength of the US dollar, it was just a couple of years ago that Gartner blamed the downward revisions on just the opposite, a weak US currency, and we think there is more than just currency effects in the declines. 

We think the decline goes beyond just currency, pointing to a major "sea change" in technology purchase decision-making – one that could put a significant chill in your organizations‘ sales and marketing strategy if you don’t adjust to the changing landscape.

Frugalnomics in Effect

So what are the real reasons behind the continued slow growth? We believe it’s all about Frugalnomics, and several key aspects of it that are impacting IT spending:

1) Do More with Less - Although there has been an economic recovery, top-line revenue growth remains a challenge for most companies. With a focus on performance, companies learned how to cut expenses to improve the bottom-line, and have learned to permanently “Do More with Less”.

2) Central IT is now Irrelevant? - Most technology spending decisions are now driven and controlled by business groups vs. formal IT. In fact, According to IDC, 48% of IT spending is controlled or influenced by the business. At the same time, more and more spending is occurring in the shadows, by individual users and groups, especially Cloud / SaaS purchases, without the formal knowledge of IT. In fact, IDC indicates that Cloud spending climbed to nearly 30% of overall IT infrastructure spending in 1Q15.  With the businesses and individuals making more purchase recommendations, and more purchases moving to the Cloud and a service based model, the spending has changed, with smaller monthly spending versus larger investments.

3) Buyers are “Cold as ICE” - Purchase decision-making is now driven by a different kind of who is more:
  • In-Control - Highly empowered by access to incredible amounts of solution research and information via the Internet and social media, buyers have taken control of the decision making process with sales reps being invited later to the game, and ever more competition for each deal.
  • Cautious – buyers are Risk averse, afraid of making a wrong decision, not willing to spend as much per project, and more often than not, choosing to remain with business as usual / status quo rather than considering projects they view as too risky.
  • Economically Focused – today’s IT buyer is more frugal, with over 95% of technology purchase decisions now requiring a formal business case, with quantifiable ROI and fast payback (IDC). Financial justification is the new language of IT selling, where CFOs are more involved through all stages of the purchase decision, and procurement is there to demand a discount if you lead with product and price vs. value.
These are the trends of Frugalnomics, and as a result we expect that IT spending growth for 2015 and beyond will remain significantly challenged, with little reason for optimistic spending growth predictions from Gartner or anyone else.

Don’t get us wrong, there will be winners – those who create a different sales and marketing experience and who take more of their fare share of a more conservative pie.

So how do you end up in the winner’s circle? - You need to factor Frugalnomics prominently into your sales and marketing strategies and investments.

Surviving Frugalnomics - The 3 Things You Must Do Now to Win in 2015

To help meet the challenge and Survive Frugalnomics into 2015 and beyond, we recommend three “must do” programs for this year and beyond:

#1 – Break the ICE - Engaging Prospects with Provocative Content
Todays’ buyers are more risk averse and frugal than ever, with 58% choosing to “Do Nothing” versus considering 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”? They 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 / services 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 leverage content 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 Solutions?– that your solutions / services 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 3 key decision making questions, in a compelling and quantified way?

#2 – Empowering Sales with Value Messaging and Quantification
According to SiriusDecisions, the #1 reason why sales reps fail to meet quota (for the 4th year in a row) is their “inability to effectively articulate the value of proposed solutions”.

Sitting in on typical sales presentations and you can see that most are 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 12% of sales engagements are focused on outcomes and customer value.

Making the situation more complex, there are more stakeholders than ever – 43% more in each decision, and many of these decision makers are not who your sales reps are used to engaging. Each has a unique point of value, what matters most to them and what drives value.

So how well do your sales professionals and channel partners communicate and quantify your value to a diverse set of decision makers?

#3 - Seal the Deal – Delivering 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,
  • 41% indicating being the main decision maker 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 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 approved unless you can prove your solution has a lower total cost of ownership (TCO) / better value than competitive offerings.

Although IDC indicates that 95% of proposals require an ROI business case, the research indicates that 2/3rds of your prospects don’t have the metrics, research, knowledge, tools and time to prepare the business case themselves, leaving it up to you to stand up and deliver if you want their business (or have your proposal approval significantly stalled and delayed). The research shows that 81% expect your sales reps to deliver a credible business case in order to win the deal.

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 business cases / ROI that CFOs demand?

The Bottom-Line

Gartner has predicted low IT spending growth forecasts for the next several years, and lowered their forecasts even more from prior predictions. With Frugalnomics in full effect , technology solution / service 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. If you are able to implement a successful value marketing and selling program however, you will win create a significantly unique selling experience, and as a result, a competitive advantage to win more than your fair share of the market.

For 2015 and beyond, IT sales and marketing professionals should consider three initiatives as a top priority to help Survive Frugalnomics:
  • Break the ICE - Engage Frugal Prospects with Provocative Content
  • Empower Sales with Value Storytelling and Quantification
  • Close the Deal with CFO-Ready Business Cases
To learn more about our suggested best practices get the book: Frugalnomics Survival Guide – The definitive guide on using your unique value to market better, stand out and sell more (available now on Amazon).

Sources:
IDC 2014 Buyer Experience Study (Oct)
Forrester Sales Enablement Conference 2014

SiriusDecisions SiriusIndex, results from 2011 – 2015

2 comments:

Jonah Kowall said...

I just had to post this since this is completely false. The research within the post also has much more detailed analysis. I am a Gartner client so I read the research note. You can see some other public data here:

http://www.gartner.com/technology/research/it-spending-forecast/

It was declining at 1.5% and that was revised to declining by 5.5%

The reason for the revision " The rising U.S. dollar is chiefly responsible for the change. "

"The Gartner forecast for worldwide IT spending in U.S. dollar values for 2015 shrank by 4.2 percentage points, down from the negative 1.3% growth forecast in last quarter's update. This is not a crash, even if it looks like one; the recent rapid rise in the value of the U.S. dollar against most currencies has put a currency shock into the global IT market. Taking out the impact of exchange rate movements, the corresponding constant-currency growth figure is 2.5%, down from 3.1% in last quarter's update (see Note 1 for an explanation of current dollars versus constant dollars). Such are the illusions that large swings in the value of the dollar versus other currencies can create.
This illusion, however, only masks bigger issues that have real market implications. Compared with last quarter, all five segments (devices, data center systems, enterprise software, IT services and communications services) have revisions to 2015 underlying constant-currency growth due to U.S. dollar shifts."

Software is barely negative, services are in fact positive.

Tom Pisello said...

Jonah,

Not sure what you perceived as false in my post..... but always up for a good discussion.

I provided the link to the research, and indeed, Gartner is blaming the strong US dollar for the decline this time.

But you will notice I also posted links not just to this latest forecast, but to many earlier ones.

For the past 7 or so annual forecasts, Gartner publishes overly optimistic spending figures going into the new year, then adjusts mid year by about half the initial expectation. And why the declines in forecasts? Spin the wheel of prediction excuses.... including a weak dollar not too long ago (in direct contradiction to today's reasoning). Again, we see this trend. So how can Gartner be so consistently off in their estimates.

The issue? There has been a fundamental change in IT decision making, and Gartner is not baking this in. We used to have 5-10% annual increases back in the day(run up to the tech bubble) ..... now, 2% growth is the norm, and the fact that the economy is currently growing and we have had a decline in their index .... this is stunning regardless of dollar value.

There has been a Tectonic shift with as a service / IT as a utility, a trend to do more tech for less, and the rise of business unit / shadow spending