Over a business dinner Monday evening, to no one’s surprise (!), we had an energetic conversation about the 2010 economic outlook, about IT spending, about how IT organizations from different sectors could be expected to perform -- and how IT professionals should approach "capital spending freezes."

The conventional wisdom around the table that has been cited by more than a few companies goes like this: As a business slowdown (recession) becomes evident, small/mid-size and large companies behave quite differently. The small/mid-size companies tend to curtail spending very early in the recessionary cycle – perhaps because they are closer to their customers – perhaps because with less resources at their command, they need to be more cautious. In any case, they tend to lead the economy into the recession. Larger companies tend to show a delayed response as an economic slowdown appears. In effect, they are “the last in.”

As the economic expansion starts, those same small/mid-size companies that were the manifest the slowdown, are the first ones to show signs of economic expansion – perhaps because they are more entrepreneurial and faster to recognize shifting opportunities and to seize them. Large companies, although they were the last ones into the recession, they tend to emerge less quickly.  So, in effect, the scenario is that small/mid-size companies are “First-In and First-Out;” large companies are the “Last-In and Last-Out.”

This pattern is well know as it has more or less been the model of macroeconomic behavior/recovery for many years. As a result, economists, company CEOs and stock analysts all fixate on the buying behavior by different types of companies looking for indications. At IDC, a long-time forecaster of IT spending patterns, the conventional wisdom among us analysts is that IT spending tends to lag economic recoveries by about six-months.

As we discussed this traditional recovery scenario, and to the chagrin of my dinner companions, I shared some insights from my most recent report, The New Normal — Tightening Commercial Credit Poses Issues for IT's Recovery, IDC Doc #221810.

First, in multiple research studies, IDC has found that small/mid-size companies frequently rely upon their revolving line of commercial credit, “revolver” in finance executive slang, to fund IT acquisitions. In some segments, the use of the revolver is as important an IT funding device as dedicated leasing and financing instruments. Against this backdrop, I shared data from Reuters that showed that revolver “issuance” declined 55% from 2007 to 2008, and 28% from 2008 to 2009. The outlook for 2010 and 2010 are concerning. A large number of existing revolvers are scheduled to expire and companies will be attempting to renew them in the face of a tighter credit market.

In my conversations with other business and IT executives, we discussed the difficulties they had experienced in securing their revolver renewals. Many had gone into the renewal expecting a perfunctory review – as has usually been the case – and were surprised to find a much more exhaustive review process. The Reuters data provides a quantitative frame to these qualitative conversations.

I continue to hear from IT professionals that capital funds are difficult to come bye. Projects with less than a 12-month payback are being deferred, etc. So, if small/mid-size companies typically lead the economy out of recession, and the funds that they typically use do that with are harder to secure, won’t that moderate the recovery?

My advice for IT professionals struggling with their capital funding process has been to pour their time, efforts and energy into quantifying the cost of standing still. In other words, what happens if we do “nothing.” The traditional approach to IT investment has been to focus on the “ROI” or return on investment of a particular purchase.

Unfortunately, my comments moderated the jovial discussion around the dinner table. The link betweeen IT spending and commercial credit is not normal dinner conversation.

What do you think? Is my recommendation to focus on the cost of doing “nothing” a rational approach for business executives trying to secure funding?  What is the capital funding climate like inside your organization?