Monday, August 10, 2009

5 Key IT Trends Shaped by the Recession

Prior to the market crash in 2000, enterprise software ruled the software landscape. i2, Oracle and SAP were in high growth mode. The large system integrators were the beneficiaries of most of the IT budgets. Large ERP, Supply Chain and CRM implementations were the primary projects for CIOs.

Fast forward 10 years and the landscape is vastly different. The large software companies have gone into sustenance mode and are aggressively seeking avenues for growth. Its not uncommon to see 60% of their revenues come from support and maintenance. The business applications software giants are no longer releasing game changing applications or solutions. The large system integrators, except for IBM, have been reduced to niche players and are competing with the large offshore vendors. The large offshore vendors have displaced the traditional SIs. They are gradually acquiring more talent while keeping costs low. The tables have completely turned especially for CIOs - they are now in the driver's seat negotiating deals which are clearly in their favor. The traditional SI firms are no longer beneficiaries of large budgets and are focusing their resources on assisting companies with more value add services such as IT strategy, architecture and advisory services. Their engagements tend to be shorter. Besides these changes, there are several macro level shifts that are taking place, some of which could be attributed to the current recession.

1) Accelerated shift towards SaaS solutions

SaaS has clearly emerged as a legitimate option for enterprises. Who could have imagined a SaaS solution for Expense management from a small company called Concur could be the gold standard in 10 years. SaaS has become pervasive in large enterprises. Its common to see integration projects between Oracle or SAP ERP with SaaS solutions. The shift is getting accelerated due to the recession. Larger companies are adopting SaaS solutions in the area of payroll processing, expense management, real estate management, compliance management and contract management among other areas. The SaaS providers have to address challenges pertaining to lowering their cost of sales and marketing but the value to customers is unquestionable.

2) Shift towards the Cloud

The core ERP in the larger organizations continue to remain on-premise but its not long before they will move to a secured cloud (a VPN secured cloud) that offers cheap and secure computing. It will alleviate the need for heavy servers that are only put through their paces during month end or quarter end processing. While Oracle and SAP offer hosted offerings, they are insanely expensive. They are incredibly hard to get out of and they entangle customers in processes and contracts that are impossible to extricate from. Since hosted offerings aren't a viable long term option for CIOs, customers will accelerate the shift of core ERP to a cloud environment where they are managed not by the software vendor but by IT organizations equipped with system management tools designed specifically for the cloud. SAP has announced it is working with Amazon on POCs and you can count on Oracle not being far behind. Custom apps developed by enterprises will be deployed on the cloud instead of Virtual Machines. The cloud will continue to become far cheaper, scaleable and reliable than anything currently available. However, there are several challenges that large software vendors are faced with. Their current software and databases will not work in the cloud and even if they do, they will not realize all the benefits cloud computing offers. For this to change, their underlying stack has to change. Nonetheless, with the rapid investment from software vendors, customers and VCs, true grid computing will soon become a reality.

3) Embracing niche custom apps

That leads me to niche custom apps. CIOs and business owners are realizing the value niche vendors can provide. They tailor solutions to your particular industry's business needs and remain focused on delivering unparalleled customer satisfaction. While there will be a handful of players (mostly Oracle, SAPs of the world) that provide business applications that address most of the mature business processes, the newer players will provide niche apps that address core strategic business areas and processes. Whether its billing for video service providers or revenue and reconciliation for insurance providers, the niche custom apps delivered by smaller services organizations deliver significant value to a business. These kinds of solutions or applications cannot be built or delivered by the traditional SIs or consulting arms of offshore vendors who lack the agility and understanding of business processes required to deliver such business applications. Instead, they are being built by local mid and small vendors in close collaboration with IT and business. This trend will continue to gather momentum even after we are out of the recession.

4) Business Process Insourcing

Processes can be run far more efficiently using a blended model that uses SaaS software complemented by an inhouse team of process specialists. Organizations are finding it is far cheaper and works far better than Business Process Outsourcing (BPO). The costs are lower, there is focus on customer satisfaction and there is more control over one's data. The SaaS providers are typically smaller and are willing to bend backwards as compared to the larger BPO organizations that have become monolithic and lethargic. Innovators and forward thinking CIOs are moving in this direction. This model makes a lot of sense. For example, one can use Intuit Quickbooks in-house and run payroll far cheaper that lets say ADP or Paychex can. Similarly larger companies can use the same model but perhaps use one of the many SaaS payroll processing companies and complement them with inhouse staff to perform the processing. Its far more secure and cost effective than outsourcing to BPOs.

5) Desks without phones

This is a personal favorite of mine. I rarely use a desk phone. A cell phone combined with IM along with email is all that one needs. Already, several startups don't use landlines any more. Imagine the cost savings just by getting rid of all the desk phones. The desk phone will follow the typewriter into oblivion in the next 10 years or perhaps sooner. Services such as Google Voice offer some amazing features that will undoubtedly accelerate the elimination of the desk phone. Some of the forward thinking CIOs have already begun this process as a part of their budget cuts during the current recession. Its time for the desk phones to be carted away from corporate America.

What all this means is that in another 10 years, we will see a much different landscape. With our new found passion for frugality and the diminishing role of IT organizations, I wonder if IT organizations will transform or simply disappear in the next decade. This recession more so than those before is shaping how information technology is used and delivered to enterprises.

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