IT 'goodies' get closer scrutiny

In the heady days of the Internet boom, corporations were in a giving mood. Mobile phones, pagers and PDAs were handed out as part of new-hire packages. Companies instituted PC and Internet access giveaway programs to nurture more computer-literate workers.

Times have changed. A tougher economy and the events of Sept. 11 are forcing businesses to reevaluate how they spend their IT dollars. Discretionary perks such as PCs, home Internet access and wireless devices, not surprisingly, are getting renewed scrutiny.

"As is the case with most things today, the question is, 'Is this critical for you?'" says Zeus Kerravala, an analyst with The Yankee Group. "We're even seeing that with employees themselves: Is the employee critical - if not, the employee goes. So, obviously, some of the toys will go as well."

Shortly after reporting its first back-to-back quarterly loss in nearly a decade earlier this month, Ford Motor Co., decided that home PCs for employees were not critical. Ford announced that it was officially scrapping the ambitious program it launched in February 2000 to give its roughly 300,000 employees a PC, printer and home Internet access at the cut-rate price of $5 per month (See story). When the program, dubbed Model E, was announced, it was hailed as a breakthrough in the way companies would do business in the new Internet economy.

Today, the program's demise is an illustration of how the uncertain economy is causing a shift in IT priorities.

"Companies are pushing resources they have to systems that are essential for their organizations to keep growing and for them to remain competitive," says Brooks Gray, an analyst with Technology Business Research.

"When you're unsure whether your corporate headcount is going to be cut 5% or 10% over a two- to three-month time frame, you're not focused on providing all these extra incentives to your employees," he says. "You're working on streamlining the operations, achieving a more efficient business model and cutting your expenses."

While Ford is the first company to announce an end to a major PC giveaway program, analysts expect others to follow suit. They note many corporations offered PCs, cell phones, pagers and other devices as lures to get and keep good, quality staff. The competitive need for those perks has eroded as the number of layoffs has increased.

"Companies are definitely scrutinizing costs," says Randy Giusto, vice president at market researcher IDC. "If you take a look at some of these [PC giveaway] programs . . . I would think that's one of the things that would probably be the first to go, or at least would be scrutinized quite heavily."

However, at the same time the San Francisco firm that coordinated the Ford program (and received $6.6 million from the automaker for the broken contract) claims that it is conducting business as usual. PeoplePC continues to support the 166,000 Ford employees who have already received PCs, and has announced new deals recently, including a program with Ingersoll-Rand to provide PCs and Internet connectivity to 50,000 current and retired employees. There are programs in progress with companies such as Delta Airlines and Vivendi Universal that continue on track, a PeoplePC spokeswoman says.

Other computer vendors say their employee-purchase programs are going smoothly. For example, Dell says it's getting increased interest from businesses looking for new ways to provide benefits to employees. An employee-purchase program it's running for American Airlines is continuing uninterrupted with 75,000 computers already ordered.

One thing that's not clear, though, is exactly how much corporations are paying for the employee PC packages, a consideration that obviously would make a difference as to whether a program stays or goes.

So while the situation hasn't come to ripping home PCs, cell phones and pagers out of the hands of workers - Research In Motion, a wireless device manufacturer, says the "vast majority" of its products are still purchased by businesses for their employees - analysts agree there is an increased scrutiny on how those items are used and paid for.

Yankee Group's Kerravala says a consulting firm he worked at previously changed its policy on cell phones as the economy soured.

"When I got there, the company paid for your cell phone. You never even saw the bill," he says. "What they moved to was the employee got his own cell phone and then submitted the bill to get reimbursed for calls that were business-related. That stopped people from abusing the privilege."

Ulrich Seif, CIO at National Semiconductor, says technology purchases are kept under control at his company by making sure they all are ultimately signed off on by him. Employees that need cell phones to do their jobs, such as sales executives and IT support staff, get them from the company. PDAs are also available to those who decide they need them.

"But common sense prevails, and in this economic climate I have yet to see an order for a PDA," he says. "National was founded in 1959 . . . so we have seen the ups and downs quite often, we also have a solid contingent of longtime employees. All of this has created an individual sense of fiscal responsibility."

Barbara Gomolski, a research director at Gartner, says she has seen cuts come more in the area of monetary bonuses than in IT perks, but wouldn't be surprised to see companies pull back on such IT extras.

"Such incentives are discretionary, and discretionary spending on IT has been hit hard by the events of Sept. 11," she says.

Contact Senior Writer Jennifer Mears

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