Indeed, a theme that runs across the profiles of the Strategic 100 companies is how enterprises are responding to the biggest economic challenge in recent history — a challenge coming after the years of growth that followed the burst of the dotcom bubble.
All indications point to the need to prepare for a deep and protracted recession. Forrester predicts the technology market will weaken, but still grow. It has already adjusted its expectations for global IT market growth — moving from 7 to 8 per cent that it had projected for 2009, to a slower rate of 3 to 4 per cent. One market will not make up the losses in others — vendor strategists must plan for diversity in a geographic market, writes Forrester analyst Andrew H. Bartels in the October report “What the Financial Crisis Means to the Tech Market”.
Mergers and acquisitions
Mergers and acquisitions continue across all categories — Global 50, New Zealand 25 and Rising Stars 25 — albeit on a more subdued level. The Global 50 traditionally consists of the high profile pursuers of this merger and acquisitions strategy, though one interesting development in the past two years is that trading occurs among enterprises in this list. This issue is the last in which EDS will have a separate listing, as the company is currently integrating its operations with now parent company HP. The same is true with Cognos, which is now part of IBM.
Cost cutting is easily the order of the day for ICT companies across the board, as customers cut back on projects and purchases or focus on short-term projects. ICT providers have responded to the current economic client by rethinking their strategies, coming up with less costly though more energy-efficient products and services, and embracing new models to deliver these.
American IT enterprises continue to grab the lion’s share — 60 per cent — of the global ICT market. Japan, with five multinational companies (Canon, Fuji Xerox, Fujitsu, Hitachi, Sony) selected by our expert judges, comes second. These companies also present themselves as excellent role models for established electronic manufacturers intending to extend their presence in IT.
Noticeably, some of the names in the Global 50 and Rising Stars are part of conglomerates like Tata — and more of them are coming from outside the Western world. “The ones to watch for are those that once were startup companies, but have now matured enough to start marketing in the international markets. Those are the ones typically coming from countries like China and India,” says independent advisor Marcel van den Assum.
One of them is Huawei, which has moved from Rising Stars to the Global 50 category. China’s ZTE in this year’s Rising Stars achieved almost 2 per cent of global market share in its category based on local sales alone, and is entering into bids in countries across the region. Expect more of these companies from outside the West challenging the old guard in next year’s list.
Analysts, meanwhile, say the stifled access to credit, for both vendors and enterprise firms, will have serious flow-on effects, disrupting technology manufacture and enterprise hardware spend the world over.
Springboard Research country manager Phil Hassey says the credit factor is his biggest concern, in regards to growth on either side of the information technology business fence in 2009.
Hassey says one direction the market has gone towards, from the vendor side at least, is to pitch rebranded Software-as-a-Service offerings to remove the capital cost of software from the enterprise books. Hassey believes this approach to using enterprise software assets amidst the current credit crisis, has suddenly become even more attractive for enterprise firms.
“Call it whatever you want, but cloud computing is big in the enterprise space already and really that will be stronger in 2009. But generally any new investments the enterprise will make in 2009, will be around business intelligence and collaboration tools,” says Hassey.
“Storage and security is still the big push in the enterprise space and for those vendors that have both products there will be massive growth in those areas.
“Controlling enterprise information assets in the enterprise will be coming up, but also may be thrown in the too-hard basket. However, the approach to cloud computing using different software assets and procurement options, such as hosted applications, will become more attractive.”
Another area that has undergone some serious activity of late is the business intelligence end of the market, which analysts agree dovetails into the security and storage enterprise spend. Hassey says this side of the software industry is possibly a little more resilient, given the current economic situation.
The heads of ICT companies across all categories underscore the uncertainty amidst the economic slowdown, though overall they temper these with optimistic claims they will survive the downturn. A number of companies — those in the outsourced services industry — say the downturn will help expand their business.
Some companies are more resilient to the vagaries of the economic downturn and those who come through unscathed, will find they are stronger than ever. Or, they will survive but fall prey to the cashed-up players who are always on the lookout for ways to expand — their customer base, their research and development, their intellectual property — through the well-traveled mergers and acquisitions route.
Threats and opportunities
So how will all these impact the CIOs who are on the receiving end of directives to prepare to operate with fewer resources? Van den Assum says the current economic turmoil will have a positive impact on CIOs. “The economic environment will force greater clarity between core and supporting business processes,” he says. For instance, the CIO will expect greater demands in areas of competitive differentiation to offer innovative, value-creating solutions. This same challenge or opportunity will apply to software vendors. By the same token, non-core or supporting processes will come under increasing efficiency pressure opening up standardisation, shared service, BPO and SaaS-type strategic initiatives.
As for the ongoing challenge of finding skilled staff — an issue CEOs in the Strategic 100 have been citing for three years now — van den Assum believes the problem will continue, with a different twist. “There will still be ongoing contention around top level expertise,” he says, “and may become even more of an issue as organisations are driven by compelling events.
“For the middle and lower layers, one would have to expect that the pressure will come off simply due to fewer ICT projects proceeding. Although the adage that IT is in demand in both the up and down economic cycles may well prevail. I just can’t see certain suppliers surviving the downturn, which will release skilled people into the market.”
At the same time, the economic downturn is also prompting CIOs to critically assess the technology providers they will work with.
“When end-users consider who they decide to engage, the financial stability of that vendor should always be a selection criteria,” says Sam Higgins, research director, Longhaus. “The reality is that while the share value of some of the Global 50 may well be down, many have been reporting strong revenue and profit growth over the past 12 months putting them in a good position to move forward. Indeed, many of the smaller firms who might have been at risk have been the subject of acquisitions by these larger more stable firms.
“At a local level the strong regional growth of the Asia Pacific region, combined with good economic fundamentals in Australia and New Zealand, will help to soften the economic blow. It may in fact be a boon for local firms whom may find that vendors are willing to do better deals in New Zealand and Australia, as they find it harder in American and European markets.”
The new IT arms race
For all the shifting around with the global slowdown, there is an area that will remain a constant fixture — the focus on sustainability. Strategic 100 vendors are responding to the demand for products and services with the smallest carbon footprint possible. Sustainability has gone beyond the awareness stage for the industry and the next is the demand for concrete actions around green ICT. These have mainly been prompted by the aim to contain energy costs. It is, in essence, the new IT arms race, as both the user and demand side integrate sustainable ICT products, services and practices in the business.
Noticeably, a company that made it to this year’s Rising Stars — Supply Chain Consulting — is providing software and services to allow companies to measure their carbon footprint. “Carbon trading itself is not directly an issue for the CIO, but is increasingly an issue for CEOs,” says Higgins of Longhaus. “When faced with the need to take existing business data and attempt to calculate carbon metrics, it is tempting to simply apply traditional business intelligence solutions.
“Unfortunately, like most customised business intelligence solutions, time is the enemy. So while solutions based on business intelligence to enable carbon reporting are a valid approach, the savvy CIOs are engaging with companies like Supply Chain Consulting to bring specialised solutions to the boardroom table.”
As the economic downturn further unfolds, a number of key players in the industry are buoyed by the fact they have already survived a crash not so long ago.
“This is going to hurt, without question,” notes Tim Dillon, associate vice president research, IDC Australia. “We have been through this several times before… we lose sight of that.”
As CEO Jonathan Schwartz of Sun Microsystems wrote in a letter to shareholders, “Remember the bursting of the internet bubble? The initial wave of open source adoption followed that collapse some six or seven years ago. That same zeal for breakthrough, game-changing economics is back with a vengeance.
“There’s opportunity everywhere I look… I and my leadership team know the drill; we’ve seen this before when the last bubble burst.”
Fairfax Business Media
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