But the gloomy financial situation made me worried about the fate of many of these small companies. Everyday brings reports of cutbacks or worse at some of the cool little companies I follow. How would these little guys survive when corporate budgets really began to get tight?

As I rounded a corner to a field at the top of the hill, a cheesy show tune entered my head unbidden, with slightly different text: Somewhere… Under the Radar… Life Goes On… This might be the model for at least muddling through, if not thriving. While it will be harder for strategic projects based on big ticket, infrastructure-oriented vendors to get off the ground, it could be easier for little tactical implementations to slip through, if people in the business can see enough value to justify what they put on their credit card. Many vendors try to move as quickly as they can to enterprise-wide deployments, naturally enough. But in the current economic climate, I expect to see a lot more vendors aiming to stay low and under the radar, at radically lower price points supported by radically lower costs of operations. With CFOs looking for big numbers to cut, this isn’t a bad place to be necessarily.

It won’t be comfortable, of course. Tactical projects become targets for consolidation and architectural harmonization. Silos of content and other data remain an intractable problem. Going low for enterprise vendors means they inevitably become someone’s target to eradicate. They need to keep innovating with great products and great service just to defend their position.

Still, it’s better to have a position to defend, even a small one. Small vendors going for enterprise projects will find inhospitable reactions over the next couple years. Aiming low and surviving will provide better chances.

With all those millions invested in compliance, risk management and business intelligence software, how did this mess seemingly come as such a big surprise? I suspect that it wasn’t a surprise to those who invested this money wisely. But either the warning signs were ignored, or the software was used to justify or mask ever-riskier investments. With the glut of capital in the system looking for a home that produces good returns, the pressure was on to find ways to invest it. Deep understanding of compliance rules or risk management algorithms makes it easier to game the system. And that’s what many financial institutions did. Well, at least the problem of ‘excess’ capital has been solved.

Another explanation derives from the false sense of well-being that comes from automated systems. Back office fulfillment systems make it possible to execute the blisteringly complex financial derivatives thought up by financial wizards. The applications show all of the individual obligations in nice neat columns, giving the impression of control, However, assessing the risk and attaching a valuation to a bank with billions of dollars or Euros of notes based on shaky mortgages goes beyond the capabilities of any computer system. Those comforting reports only show the last level of information. Once the basis of those complex constructions start to wobble, the most expensive reporting systems can’t portray what is really going on. That is a task more suited to a Ouija board or Tarot cards. 

Without these back office systems, financial institutions could not have created or executed these complex instruments. Without those compliance and reporting systems showing that they follow the rules, they would not have been allowed. Ipso facto IT is to blame.

I haven’t seen this idea in the wild yet, but I don’t think it will take long. Who has seen similar accusations out there?