By: Clive Longbottom, Head of Research, Quocirca
Published: 27th August 2009
Copyright Quocirca © 2009
The "largest, deepest, longest recession" in history looks like it was overblown—Germany and France are already out of recession, and it is likely that the UK will follow soon—at least at a technical level. Therefore, it should follow that we're going to see an upturn in IT spend—just in time to pay for cloud computing initiatives, Windows 7 installations and to re-animate projects put on hold in 2008/9 as the money ran out.
But hang on—fiscal drag will still have a big part to play here, in the form of the cyclical nature of funding for IT.
The main financial calendars are either January to December or April to March. Therefore, the main discussions on budgets will take place between September and December ready for a January budget, or between January and March for an April one.
So we're just about entering the main period of budget discussions. Will they be looking at the financial outlook and saying: "OK—it's all over; take a chunk of money and throw it at non-essential IT work"? Doubtful. First, there will need to be proof that what we are seeing is a real recovery. Many experts do not think that what we are seeing is a typical "V" or "U" shaped recovery, where we hit the bottom and then recover cleanly. In fact, looking at how the stock indices are climbing too rapidly, we're likely to see another mini-collapse, leading to a "W" shaped recovery, where we have to go down again before we can climb out in a sustainable manner.
Even when the recovery is shown to be sustainable, IT will not be the major focus for the majority of companies. Cutbacks have been on capital expenditure on production items, on skills and resources, on inventory, on sales and marketing. These are far more the lifeblood of the business than the perceived amount of value of the benefits of any implementation of new technology. The main focus will be on rebuilding cash flow, on investing in the immediate needs of marketing and sales, on renewing equipment that is constraining the business' capabilities.
Does this mean that 2010 will be a complete wilderness for IT expenditure? Not really—but it does mean that IT vendors will still need to bring innovative offers to the fore, with flexibility in means of payment and maintenance as sweeteners to the deal. It is still likely that we will continue to see attrition among IT vendors and channel organisations, with user organisations being far more in the driving seat of negotiations than they have for the last decade or so.
However, organisations cannot afford to try and stand still completely with no technological investment. Point investment in areas that back up and facilitate the major needs of the business will still be needed—such as support for marketing campaigns, investment in technology that can reduce the cost of carrying out standard business processes, or investment in technologies that enable organisations to do more with their existing IT assets.
Virtualisation is still likely to be a hotspot, as will expenditure on systems management that can bridge the physical/logical divide. Process automation should still do reasonably well, and newer, cheaper business intelligence is still seen as a strong performer. Outsourcing is a real winner, as organisations look at the cost of maintaining older internal infrastructures, while also looking at the cost of keeping up with the pace of change of technology in areas such as virtualisation, cloud and software as a service. More and more organisations are realising that IT is not a core competency for them, and that they should therefore look towards placing responsibility for the technology to those whose business relies on it—such as outsourcers. The main focus here has to be not to do it for pure cost reasons: do it for the reason that the outsourcer can do the function better than you can, do it because the outsourcer can be more flexible for the future than is possible in house. In the mid-to-long term, money will be saved—but more to the point, sales and margin will be improved, so generating more profit to the business.
It is unlikely that 2010 will see the re-emergence of the big IT project. Point solutions are going to continue to be the order of the day, with only the brave, rich or stupid implementing massive platform changes just for the sake of it.
Next year's budget discussions should be far more interesting in IT terms. The build up of business pressures will mean that old infrastructures will be nearing breaking point, and the pressure will move to IT investment to remove constraints on the business. Companies will find themselves heavily constrained by monolithic applications that are stopping them from competing effectively against the rest of the market. In 2011 and 2012—providing that no further financial calamities occur—we should see big projects coming back. The question is, who will be around to service these? Will we still be looking to the enterprise application vendors such as Oracle and SAP, to cloud computing service providers such as Google and Amazon, to super-hybrid managed service providers sitting in massive co-location datacentres hosting and aggregating multiple solutions from others, or will there be new incomers showing the way?
Well, that's a different matter—watch this spot for a view on that.
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Published by: electronicdawn Ltd.