Tuesday, 23 September 2008

Green IT and the Credit Crunch

After a traumatic week which saw the money markets on the verge of meltdown, short-term economic fire fighting becomes a lot more important than long-term (end-of-the-world) environmental issues. The fate of the planet can wait, but only for so long

So how does Green IT come out of all this? Well, lets face it, the IT market as a whole is going to take a beating, particularly in more vulnerable sectors, and you can put financial services at the top of the list. You may have seen reports of the comment by Matt Bienfang, a senior research director of TowerGroup; “Between Bear, Lehman and Merrill you’re talking about 4-5% of the entire industry spend on technology”. Some of that will be recovered in the buy-outs, but you get the point. And of course there will be a knock-on impact in other sectors that can't raise money now.

In the UK it seems unlikely that there will be any real growth in the IT market in 2009 (after inflation). A lot will depend on the money markets this week - some stability is sorely needed. If there's worse news still to come then we're looking at a recession in the IT industry next year.

So what will the impact be on the Green IT sector? Well when times are bad in the IT industry several things tend to happen:

  • Hardware purchases are postponed as companies make existing investments last longer. Good for the maintenance service providers but not for the sales of the more environmentally-friendly PCs and servers that have come onto the market in the last year or two (Energy Star/EPEAT). It's unlikely that the reduced energy use of the latest machines will be a sufficient incentive on their own to stimulate much in the way of purchases.
  • There is a move to outsourcing/BPO. It's not just that it might be cheaper to let an outsourcer run all or part of your IT, it's the fact that the costs become fixed for a period of time and hence more easily managed. It's likely, though, that energy use/CO2 emissions will be an integral part of choosing the supplier. Clients have the ability to play suppliers off against each other and, for example, energy efficiency in data centres will be one increasingly important criterion for selection. (Even if the supplier takes the CO2 responsibility, the customer might still feel obliged to report the emissions under its own GHG Scope 3 declaration, particularly if it was part of a emissions reduction target). It's not just infrastructure outsourcing either, it goes all the way up to BPO contracts.
  • One-off projects get postponed. New application implementations, a wholesale switch to SOA, etc. will be put off until there is more investment available. The projects that do go ahead will be those that bring a quick return on investment. In that respect the current high cost of energy is very much helping the Green IT cause. Saved energy costs will be a significant factor in decision-making, so a Greener logistics solution may well get the go-ahead as part of a plan to reduce transport costs.
  • Finally, IT decisions are more closely controlled by the business when money is short. As we saw in the last industry slowdown, after the dot com bubble burst, the Finance Director had the last word in corporate IT spend. But the Finance Director also feels the pressure from customers, shareholders, investors, employees, etc. to become more environmentally friendly (and the impact it can have on corporate reputations and brand value) and may well put these less tangible benefits into the ROI mix when assessing a project.
So high energy costs will help keep the Green agenda alive over the next year or two. But in any case I believe the timing of this downturn (recession?) is not altogether bad for the Green IT market. Whilst the industry has a huge contribution to make in the long term to help prevent global warming, it was always going to take time for customers to accept the inevitable and invest real money in changing applications and processes to reflect future needs.

If energy prices stay high (and who's going to bet against it) then what we will see over the next year or two will be investment in methods to minimise energy costs. Outsourcing providers will be looking to drive down emissions to show a competitive advantage whilst there will be on-going investment in those Green IT projects that promise a quick ROI from energy reduction.

Meanwhile, climate change awareness will increase, stakeholder pressure will grow and legislation will start to kick in in Europe and the US, whilst Green IT investment will remain largely bottled up by the economic climate.

But when the economic outlook starts to improve there will be a rush to implement Green IT across the board. In fact, expect to see Green IT as a driving factor when we start coming out of this economic downturn. Those software and IT services companies that have been dragging their feet in developing their market offerings now have more time to get their act together before the flood gates open, because what has been a slowly growing trickle will be a flood in 18-24 months time.

But that's still some way off yet. For the moment it's a case of battening down the hatches.

© The Green IT Review

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