Waiting for the next wave

IT firms not seeing growth as dramatic as in the past, but they’re still growing
Like young lean surfers, today’s managers in the information technology industry paddle their sleek surfboards over the deep blue waters of commerce with their noses into the wind, eyes scanning the horizon for the next big wave of opportunity. They’re more accustomed to waves of business that increase their growth by 20% to 30% annually. So the past six months has a lot of IT folks asking, “What’s happening? Where’s the next wave?”
Typical of those rapid-growth companies, which specialize in consulting on systems integration, is Greenbrier & Russel in Brookfield, with headquarters in Schaumburg, Ill. Regional Vice President Marc Blazich points to the past 17 years with 20% to 25% annual growth rates. Even though its sales forecast for this year is on track, for the first time in the company’s history the firm sees projects being pushed back, put on hold.
Business was especially poor for those selling software. Larry Laux, president of Metrix, an application software provider in Waukesha, admits first quarter sales were terrible.
Marge Koslowski, Compuware’s regional sales director, conceded that sales were off, but not terrible. Her customers are just being cautious with the business slowdown.
“Software isn’t like bar stock or some raw material you’ve got to buy to fill an order,” Laux said. “You can put off the purchase, if necessary. I think that’s what happened in the first quarter. Over 90% of our customers already have systems in place.”
Metrix specializes in CRM, customer relationship management programs, a distinct class of software. His firm has about 60 employees, and covers the nation in sales. Asked if he was having trouble hiring qualified people for his advanced technology systems, Laux said, “No. We spend a lot of time training our own people, even those we hire with IT experience.”
What does Laux expect for the next half year? “Our second quarter sales returned to normal, but we’re not hiring in advance of expected growth. I remain guardedly optimistic.”
Gregg Tushaus, president of Tushaus Computer Services in Wauwatosa, provides full service, from equipment repairs to Web sites for the smaller businesses, those with sales of $2 to $5 million. Typically, his clients won’t have full-time IT employees on staff. In business eight years with 80 employees and $18 million sales, Tushaus forecasts a lot of running in place for the next six months.
More optimistic on the second half of 2001, John Gilbert at Digital Visions in Milwaukee has noticed an upward swing in the past two months. He can’t tell whether it’s a blip or a trend. Riding the crest of the industry’s growth on word-of-mouth referrals, Digital’s income has doubled every year for the past seven years. The average age of its employees is 28, many of whom are qualified with either their master’s or a doctorate degree in computer science. Gilbert admits his industry is spoiled, accustomed to 30% annual growth, which is the case for Strategem, a Menomonee Falls consulting firm that has witnessed growth of 30% a year for the past 15 years. It’s now one of the largest consulting firms in the area with 350 employees.
“People are just being frugal,” declared David Whitely, Strategem’s CEO. “We’ve seen a slowdown, but we expect to increase our business this year – maybe less than 30%.”
Pending legislation such as the Patient’s Bill of Rights Act may be a new wave on the horizon for companies doing IT consulting. If the bill passes into law, financial institutions, insurance companies, manufacturers and health-care providers are going to have to comply with another wave of voluminous regulations.
Pat Rosato, the managing director of Keane, Inc., in Wisconsin, works with large clients, those who represent a million or more to Keane’s income. With headquarters in Boston and a global network for systems integration and customized development of software applications, Keane boasts of $1 billion in annual income generated by 8,500 employees.
Citing a 60% growth over the past three years for Keane’s Wisconsin office, based in Milwaukee, Rosato explained, “Our customers expect quantified pay-backs, measured by either cost reductions or sales increases for dollars they spend with us.” Despite the tightening of client purse strings, Rosato predicts 13% growth this year.
Paul Kjer (pronounced chair), branch manager for Born in Brookfield, mentioned manufacturing intelligence as an area of the IT industry where his company has identified a new segment of growth. In its 11th year, Born has headquarters in Minnetonka with branches in Atlanta, Dallas, Denver, Seattle and Milwaukee. Born is working with a software partner to integrate systems in manufacturing that will reduce machine downtime, gather statistical data on manufacturing processes, and identify impending quality problems, among other things.
Jay Fisher, a partner at Millennium Partners, first used the analogy of sweeping waves to illustrate the growth in the IT industry, like the transition from main frames to PCs, the Y2K scare and the rush to e-commerce and the Internet. Every new wave has added costs. “Most companies underutilize the capabilities of the software programs they have in place,” Fisher said. “In the years ahead we’ve got to reduce our own costs, then help our customers reduce theirs.”
Ken Dexter, president of Ledger Bank in New Berlin, compared the IT industry with the first bloom of snowmobile manufacturers, when everyone who could build an engine plunged into the market. “The 1.8% growth in GSP is an indication of a slowdown,” Dexter said. “I expect there will be a shakeout in the IT industry just like there was in the snowmobile industry. We have loans with people in the IT business, but most of them are not heavily leveraged. They don’t have the collateral to justify large debt. The strong shall survive, and we remain positive.”
July 20, 2001 Small Business Times, Milwaukee