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e-Xpertise in Industry Issue #23
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In this issue...
| Feature Article: |
Cambashi EMEA Market Observatory: Provisional results for 2004 from Nick Ballard, with his forecast for growth in 2005. |
| Hot Topic: |
Service Automation "For how much longer will people deliver IT services?" asks Peter Thorne. |
| Book Review: |
"Who says elephants can't dance?" by Louis V Gerstner Jr is reviewed by Allan Behrens. |
| Noticeboard: |
National Manufacturing Week: 7-10 March,
Chicago. |
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Quote for Today
Anyone
who has never made a mistake has never tried anything new.
Albert Einstein
Feature Article: Cambashi EMEA Market Observatory - Provisional Results for 2004
At risk of blowing our own trumpet, we take some satisfaction in noting that Cambashi's 2004 prediction of 3.9% growth in Engineering Applications revenues in EMEA, proved close to the provisional result of 3.6%, as measured in Euros. (In fact, we revised our predictions quarterly, to 3.7% and then to 3.6% in September 2004 see graph on Cambashi's website).
Three major factors came into play in 2004;
Looking at EMEA manufacturing business confidence indices, we
see a decline towards the end of 2004, following a pick-up in the middle of
the year. This is mirrored by a sharp fall in the growth of Engineering Applications
revenue in Q4 2004 over the previous year. Not surprising perhaps, given the
rapid re-adjustment between the $US and Euro at the end of 2004. Since the Chinese
Yuan is pegged to the $US, European exporters (and Germany in particular) found
themselves between a rock and a hard place, having just come to terms with previous
exchange rate adjustments. As the exchange rate climbs, profit margins are squeezed
and prices in $US are pegged-back to remain competitive. Manufacturers in EMEA
hold-back on investment - and IT is one area where budgets are hit.
For 2005, all the indications are that manufacturers in EMEA are in for another
tough year. Vendors of engineering applications software and systems will have
to work hard to unlock their budgets. Increasingly, budgeting is done on a quarterly
basis - though whether manufacturing organisations are yet capable of responding
within these timescales is open to debate - so vendors need to be attentive
if they are to catch the moment. With users looking for the best returns on
investment, those vendors who can develop innovative delivery and use schemes
may get better traction with prospects.
We already see the "big boys" offering on-demand services to large
corporations, rather than sell tin and software. This trend, with a shift to
operational costs, rather than capital investment, is likely to dribble-down
into small-and-medium sized businesses. Leasing has already made an impact in
these companies. We expect that many will start to look for pay-for-use schemes
for their software and subscription services, rather than maintenance and support
contracts. Similarly, hosted solutions like PLM and collaboration tools may
prove more attractive than internal installations across the enterprise.
We forecast demand in Euros as the $US/ Euro fluctuations can distort comparisons.
Our econometric model shows growth in GDP as highly sensitive to the exchange
rate. If it remains constant, we anticipate that revenues for the vendors of
engineering applications will be about 1% higher in 2005 than in 2004. We will
be revising these estimates in our EMEA Market Observatory prior to the end
of each quarter, so look out for updates.
For how much longer will people deliver IT services? There is
a developing science analysing IT services which needs to be considered when
making a business plan.
The human function in IT services - consulting, analysis, system integration
and so on - is a craft industry. The individuals involved bring together skills,
training and experience to adapt methods, techniques and approaches to meet
the needs of specific situations. They use tools to make their work more productive,
and they may integrate standard components into their work. Many projects look
broadly similar, but, examine the content in detail, and each one is unique.
In 1900, automotive production was a craft industry. Over the next couple of
decades, Henry Ford and Alfred Sloan were widely credited as the driving forces
behind detailed analysis of the car manufacturing process. Their work identified
well defined steps that could be selected for automation, and explained how
these steps fitted in to the overall process. Car manufacturing became a rigorously
systematic and highly automated activity.
Could the same happen to IT services? If so, an investor's view of IT service
companies will be transformed. A critical barrier to growth - the ability to
recruit the right people - will evaporate. A critical risk - people are expensive
to maintain when their time has not been sold - will vanish. Management teams
in service companies will invest to develop these capabilities. Of course there
will always be a limit, therefore there will be demand for people who can go
beyond the limit. The Formula 1 automotive industry is still to some extent
a craft. However, as automation capabilities grow, the service provider groups
in IT companies will need to adjust their skills and resources.
There have always been 'methodologies' in IT - typically a connected set of
small steps. From the buyer's point of view, the methodology is a critical piece
of evidence that the provider understands how to do the job required. But, as
with car manufacture, most methodologies contain at least one element that looks
ready for automation. Service organisations will correctly point out that they
continuously adjust their methodologies as they integrate new tools into their
processes, and that this use of tools is a tangible example of growth of automation.
This is true, but there is an important distinction between the efficiency improvements
possible with new tools, and the new business model required when people are
no longer needed.
First-to-market with a fully automated offer has a unique opportunity to differentiate
their offer, and find new buyers with new budgets.
Consider a hypothetical case in application integration. Even today, there is
no longer a need for a coachload of consultants to rebuild code. Instead, there
are tools that enable database applications to be nudged step-by-step to the
level of interoperability needed for efficient operation in today's environment.
These tools are used by IT professionals as part of a service bought by IT professionals
on behalf of their users. The state of technology means that the human element
in all of this is vital - the mapping of 'equivalent' data items between two
applications may be trivial in one case and spectacularly complex in another;
and a person's judgement is needed to determine which cases are worth doing.
But imagine if, at some point in the future, both cases - the simple and the
complex - were routinely handled by a new piece of software. Yes, of course
this is a pipedream. But it would mean that users would totally dominate the
buying decision. The IT group in the user organisation would, as always, retain
a compatibility veto, but they would no longer be the key source of assessment
of the service provider's skills and value.
Perhaps automatic application integration is a hard example to believe. But
there are technologies knocking on the door. For example, web services are visible
to many users through a desktop offer to "find an application suitable
for this file-type". Business process modelling systems can adjust workflow
by adjusting a diagram. Infrastructure virtualisation allows configuration of
servers, creation of network connections and so on using point and click interfaces.
So product planners in service delivery companies have a real opportunity. Pick
the service component which your company can automate and be first in that field.
Assign resources to the tools that are used in these areas. Find the people
who really understand, get them to define the roadmap for automation, and do
it. In parallel, guide marketing initiatives and sales actions to address the
new buyers of the automated 'service'.
It is a dream for many service companies to develop products and enjoy the higher
margins they offer. In practice this transformation has proved to be a serious
management challenge. But for those that succeed, the rewards are generous.
So be quick to enjoy a competitive advantage - it won't last long!
A version of this article was first published
on IT section of the Financial Times website, the FT-IT
Subscription site.
Book
Review: "Who says elephants can't dance?"
by Louis V Gerstner Jr
HarperCollins Publishers 2003 : ISBN 0 00 717087
4
UK £8.99
"Who Says Elephants Can't Dance?" provides a frank view of the challenges
and changes executed by Louis V Gerstner, Jr., and his team during his time
as CEO at the global IT giant IBM Corporation. The book, which is highly readable
and scripted by Gerstner himself, is augmented by numerous emails and memos.
It provides an interesting insight into culture, technology and management change
during Gerstner's tenure. It starts with Gerstner's recruitment and highlights
the almost catastrophic situation of IBM during the early 90s. The first steps
taken to stop the 'bleeding' and return the organisation to profitability included
creating a clear vision for the operation and management structures to support
change.
Gerstner provides a refreshingly frank account of both external and internal
forces driving change, and the principles and processes that Gerstner and his
management team put in place to address them. The most significant change was
attempting to turn the corporate culture from a political, inwardly looking
operation, to an inclusive, customer centric, team culture, focused on performance.
It was not an easy challenge in an organisation where previous measure and reward
systems had been based principally on job tenure and IBM loyalty. Changes in
corporate philosophy were paralleled by changes to product and IBM value offerings
to their customers. Of particular interest is the charting of IBM's move from
proprietary solutions to the world of open systems and its acquisition of technology
to underpin its middleware focus, notably Lotus Corporation, whilst creating
one of the largest IT services operations in the industry.
Of lesser value are a number of the appendices which detail Gerstner's email
correspondence with his employees. Overall it is an insightful and thought provoking
read, valuable to many who face the challenge of change in both large and small
operations.
National
Manufacturing Week: 7-10 March, Chicago.
Edwin Ecob of Cambashi is planning to attend this event.
SITI: 8-10 March, Madrid.
CeBIT:
10-16 March, Hannover.
Richard Henshell of Cambashi plans to attend this
event.
Softworld:
16-17 March, Birmingham.
Nick Ballard and Dan Roberts of Cambashi plan to attend this event.
MICAD: 5-7 April, Paris.
COFES2005:
14-17 April 2005 in Scottsdale, AZ.
Peter Thorne of Cambashi is planning to attend this event.
If you would like to meet with our consultants at these events then please email Kathy.Strachan@cambashi.com who would be pleased to arrange a suitable time.
A full list of industry events can be found at IT industry events on the Cambashi website