Reading tea leaves for a living

Like a lot of people who get paid to read tea leaves for a living, Gartner Chief Executive Michael Fleisher acknowledges that even his firm offered some forecasts about tech spending that turned out to be "overaggressive."

You win some, you lose some, but unlike many in the soothsaying profession, Gartner can rightly claim to be one of the earliest to go on record with a warning that the emperor had no clothes.

In a report in November 1999--perhaps the apex of irrational exuberance--Gartner nailed it, describing e-business as "today's most-hyped IT issue" and warning that the sector was doomed to "fall into a period of disillusionment by 2001."

In its role as adviser to information-technology professionals about how technology will affect their business strategies, Gartner's charge is not to rate publicly traded stocks. Still, Fleisher finds himself faced by the same question as many executives in the Wall Street community who track tech: How did things go south so quickly, and how come you didn't know sooner?

Fleisher takes the question in stride; with some 700 analysts here and overseas, Gartner has a good ear to the ground and gets it right more often than most, he believes.

In a recent interview, he talked about developments in the IT world and expectations for the computer industry in the second half of 2001.

Q: Don't take this as a hostile question, but you guys get paid a lot of money to analyze the present and predict the future. After the past year's tech blowup, don't you think somebody's entitled to a refund?
A: It's an incredibly fair and appropriate question. Needless to say, it's one that I usually get asked in private. But it's really important. You have to separate companies like ours, which give advice, from prognosticators of the future. There's a subtle distinction. Gartner has always had a sense of where the world is headed, but that point of view isn't what we sell; what we sell is advice to clients.

One of the things Gartner has been taking lots heat on is that, to some extent, of us being bursters of the bubble. This has happened to us time and time again because our only job is to say what's going on.

Your "hype cycle" report came out in November '99, saying e-business was the most-hyped IT issue.
We felt confident about what we were seeing. We took a lot of heat from people--something like, "This is you guys being negative; you're going to burst the bubble," etc. But we have to advise people every day.

So how did so many smart people (in the analyst community) get caught making dumb predictions?
Our business is to be analysts of what technology to use, not investing. It's a very different world. The technology industry is going through its adolescence in a very public way, and anyone who ever dealt with teenagers know that they do lots of things that are very dumb that you'd rather they not do in public. This is part of the tech industry becoming an adult. But it's become one of such populist interest that it's going through this period in a public, plain view.

Is there a structural weakness in the system that needs to get corrected?
It's hard for me to comment on the Wall Street side. On our side, our clients have renewed their services with Gartner at an 80 percent retention rate. That's the deciding vote.

Take me inside your world. How do Gartner analysts come up with their analyses and projections?
We have about 700 analysts around the world. About 35 percent of the business is outside the U.S.--and the same percentage of our people, too. Their job is to really understand their markets. They all have experience and, typically, come out of being practitioners.

But there's no way to inoculate analysts from getting caught up in the same kind of euphoria that was so rampant until the tech downturn got under way.
Part of being an analyst is being on the phone with customers, and it provides a grounding in what's happening in the real world. It's hard to get caught up in euphoria when you're dealing with clients every day...Also, we have a number of tools that we force our analysts to use to make sure there is rigor in the analysis they do. And then there is a vetting process in a peer review.

What was your biggest surprise in the market meltdown?
When you look back at the '90-'91 tech slowdown that IT execs lived through, the world was very different then. Tech spending was very tactical then, as opposed to it being strategic today. And when the slowdown hit, most CEOs said, "We can do without (IT) spending for the next two years." And those (IT managers) had to fire people, and it was very ugly...The simple truth is that I didn't recognize how powerful the Pavlovian response is. It was, "Once burned, I'm not going to let that happen again." This time they put the brakes on spending until they felt able to get an idea about spending at large. That was a powerful driver because most people are telling me they're spending less than they have budget to spend.

How do you think second-half demand for IT will shape up compared with the first half?
It's still hazy, but the hazy view is that it's better than today--though not as good as people in the tech community and Wall Street think it is. You'll see critical projects that are of strategic value to business being turned on in full force. And that will give some push. No question we'll see growth, but if you think about how much was going on, I don't think you are going to get back to that euphoria.

So are you a bull or a bear or something in between?
Because everybody seems to be more bullish than need be, I guess I'm a bit of a bear. But long term, I'm hugely bullish. IT isn't going away.

What sectors do you expect will do well?
Among the things that have been most badly hurt, you'll see services come back faster than hardware or software. Clients bought an awful lot of hardware and software, and they need to make it work now.

The pressure's on, then, to analyze companies' health to avoid a situation where your client buys millions of dollars of product from a firm that goes bust. True?
We don't do financial analysis from the point of view of hot stocks. But we do financial analysis in terms of telling clients about this vendor vs. that one. We want to make sure they don't use a company that's not going to be around.

Outside of getting stuck with a lemon, what's IT's biggest challenge?
The biggest challenge they have is less on picking vendors and more on getting off their plates things they shouldn't be spending their energy on. The critical IT asset that our clients have are leaders who drive how the technology will be used strategically in business. If that brainpower is being used to make sure the network runs 99 percent of the time, then it's not being used to grow their business. I still think most of the challenge is to outsource things they don't need to be competitive in.

Outsourcing being key to their role as technology leaders?
If you're not spending 75 percent to 80 percent of your time thinking about what's strategically relevant to your company, then you're not being strategically relevant to your company--not because you're going to be saving lots of money, which you might, but you need to be strategically thinking about what's relevant.  

Gartner provides editorial commentary to CNET News.com.