The great corporate information technology glut is over, and not a moment too soon—at least from an IT buyer’s perspective. Having spent more than $1.2 trillion on information technology in the United States alone from 1995 to 2000, companies now want to wring the elusive productivity and bottom-line gains from this massive outlay.

If buyers are glad to end their spendthrift ways, IT providers of course have a different perspective: after years of heady sales growth, they are now engaged in bare-knuckle competition as the industry confronts sated customers and overcapacity. With too much of almost everything—sales reps, manufacturing capacity, engineers, managers—these companies must now accept more reasonable near-term projections of demand than they had anticipated during the years of overbuilding and overhiring. To make matters worse, they can expect stronger price pressure from customers, which have shifted their focus from new investments—currently regarded with considerable skepticism—to the maintenance and management of their in-place IT systems. The mounting pressure from customers whose budgets are falling and the more intense competition will continue to bear down upon the IT vendors’ margins.

Merely getting leaner won’t suffice. When corporate demand for technology revives, within the next 18 to 24 months, the...