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While software and IT services (SITS) spending recovered in most geographies in 2011, there will be big disparities in performance by region and & 2012 will definitely be a challenging year for the IT industry, says leading research and consulting company Pierre Audoin Consultants (PAC).
Strong disparities by segment
The uncertainty over Greece, Portugal, Italy, Ireland and Spain, and the risk of contagion for the Euro region and abroad, has severely dented the economic outlook for Southern and Eastern Europe in recent quarters. However, the situation differs by country. And despite an overall slowdown in growth, the economic environment has remained relatively robust in the Americas, APAC and Africa.
This disparity is also reflected in the IT market. In countries with a challenging economic environment (e.g. Greece, Italy, Portugal) businesses and organizations are mainly focusing on short-term IT spending reductions, while in other regions (e.g. Australia, the US or BRIC countries) they are more open towards investing in order to boost revenue and efficiency (most often taking advantage of new IT concepts).
The finance industry (above all investment banking) and public sector agencies remain under pressure from high debt and deficits. By comparison the situation in manufacturing has remained relatively positive. But even within the same industry there are strong discrepancies by country depending on the economic and legal environment. For example, German car manufacturers are much more optimistic than their French neighbors, while following the decision for nuclear phase-out, German major utilities are much more reluctant to invest than their French counterparts,
However, even those organizations aiming to take advantage of innovative offerings and models are also looking for savings in their operating budget. Getting “more for less” from their IT suppliers helps them to finance investments in innovation.
More for less
There are different ways to reduce IT costs. Firstly, most organizations are still in the process of consolidating their IT landscapes, including both infrastructure and applications. “Only a few of them can already claim to see the end of the long and exhausting journey towards a lean and flexible IT,” says Christophe Châlons, Chief Analyst of PAC.
Infrastructure consolidation is now most often associated with virtualization. In the application area, application retirement is increasingly a focus. Additionally, users and decision makers are more and more ready to implement standards with limited customization. They are also looking to implement consumer standards in the business IT (“consumerization”). Both are pre-requisites for most cloud models.
“Industrialization, shared services centers and offshore are still gaining momentum – both on the user and the supplier sides,”
says Franck Nassah from PAC’s IT Services team. The reduction in the number of IT suppliers is also further accelerating, with users looking for a smaller number of preferred suppliers to support them across multiple regions.
“The trend towards outsourcing in its different forms continues unabated, as it both generates costs savings and a shift from CAPEX to OPEX,” adds Karsten Leclerque from PAC’s IT Services team. “There is a shift from spending on internal skills and external project services towards outsourcing and the wide spectrum of Cloud Computing offerings for both infrastructure and applications,” concludes Nick Mayes from PAC’s IT Services team.
Organizations are prioritizing those projects that they consider to be absolutely essential, either for compliance issues or to generate short-term savings or return on investment. Only companies with a strong cash reserve can take advantage of the crisis for realizing an in-depth transformation of their business model – most often with the help of new technologies. A major difference to the last crisis (2008-2009) is that such companies are still quite numerous.
For 2012, PAC sees three major innovation areas:
1. Mobility and tablets: “Companies and organizations aim to integrate new mobile devices like smart phones and tablets in their business model, first of all for sales, marketing and customer care purposes, but also increasingly for “in-house” users like management, production or logistics” says Nicole Dufft from PAC’s Connected Enterprise team.
2. Analytics is not a new topic, however “real-time analytics, associated with in-memory technology, data visualization, stream processing and Big Data, or how to make the most efficient usage of the information overload, are giving a boost to investments in this area,” says Olivier Rafal from PAC’s Software team.
3. New concepts and technology in multichannel integration are stimulating innovative projects. Integrating ‘legacy’ routes to communication, like phone or letter with first-generation e-technologies, such as e-mail and web-stores, and now the increasingly powerful social networks is becoming a key success factor for most organizations. “This applies to government and to industry, including finance, manufacturing, retail, telecom and transport,” adds Philip Carnelley from PAC’s Software team.
“As mobility, cloud computing and the Internet, including social networks, are becoming strategic ingredients and key enablers for more and more processes, security has remained a major concern,” completes Frank Niemann from PAC’s Software team.
Further investment areas and growth drivers for the IT industry include the ‘Internet of things’ (M2M) and related embedded systems, collaboration, CRM, compliance, sustainability and risk management. Lastly, industry-specific topics such as PLM integration (with both ERP and MES), post-merger integration, e-health/tele-health and smart grid/smart metering will generate huge opportunities.
2012 will be a challenging year for the IT industry. “However, there will still be plenty of growth areas. Identifying the right ‘hot spots’ and addressing them with appropriate offerings and business models should enable most IT suppliers to survive and grow,” concludes Christophe Châlons.
About Pierre Audoin Consultants (PAC):
From strategy to execution, PAC delivers focused and objective responses to the growth chal-lenges of Information and Communication Technology (ICT) players.
Founded in 1976, PAC is a privately held research & consulting firm for the software and ICT services market.
PAC helps ICT vendors optimize their strategies by providing quantitative and qualitative market analysis as well as operational and strategic consulting. We advise CIOs and financial investors in evaluating ICT vendors and solutions and support their investment decisions. Public institutions and organizations also rely on our key analyses to develop and shape their ICT policies.