The Israeli IT market will go through a MEGA TSUNAMI during the next 5 quarters and at the end of this "transition era" we will find "new players" dominating the market. Several "smaller" earthquakes or disturbances in or outside of Israel have the potential to generate this Tsunami:
1. Changes in the strategy reflected in the “DIGITAL PLATFORMS” of enterprises.
The term Digital Platform comes from research done by (http://www.amazon.com/Savvy-What-Executives-Must-Know/dp/1422181014) a team at MIT and will be used by STKI analysts from now on in order to describe the specific applications and infrastructures in client organizations. This “digital platforms” are in the process of change. Most Israeli CIOs will change/rebuild their core systems in the near future. These changed digital platforms will reflect the strategy by management in standardization/integration of business processes.
Every BP will have its own mix of standardization or integration reflecting the CEO’s strategy for the company. This BP will require its own implementation inside the particular digital platform. Several enterprises will look for ERP systems (Mekorot, Tnuva, etc) while others will look only for parts of their core systems (Bank Poalim, Leumi Mashkantaot, etc.).
2. Enterprise Risk Management….. ERM
Everyone is trying to understand the new ERM (Enterprise Risk Management) function. It was missing in all boardrooms and projects.
Where will it be managed ? how will it be measured?
These questions will be answered very fast and vendors will have solutions by 1H2010.
–“Many of the failed or failing organizations suffered from having a much too narrow focus on short-term financial performance. This is exactly the problem that the Balanced Scorecard (BSC) was designed to mitigate. And the BSC's financial perspective is the natural location for enterprise risk management (ERM) objectives and measures. The high-level objective in BSC's financial perspective is growing and sustaining shareholder value. Traditionally, we have advocated two methods to drive shareholder value: revenue growth and productivity improvements. The third method for sustaining shareholder value, missing in many companies' strategies, should be risk management.“-http://blogs.harvardbusiness.org/hbr/kaplan-norton/2008/12/how-to-measure-your-companys-r.html
3. Cloud Computing (internal and external)
I have been trying to explain the concept of "cloud computing" to several of my clients (Enterprise CIOs). If you click here you can get the Hebrew transcript of the CTO Round table on the subject.
In order to explain it better we have to go back in history and remember several instances when the industry gave “virtual” data center/application services.
During the 70s and 80s we had accounting and payroll service bureaus and in the 90s we had ASPs for many applications. What distinguished them was their rigidity.
Then, came the whole notion of services.
Delivering client needed services and using services in order to create composite applications. There were some efforts (still are) that mixed services from the on-site data center with those from another “virtual” data center.
The main and most important advancement that cloud computing offers is the:
ability to deliver the “right” cost-effective composite application to the user where agility is maximized and risk minimized based on the three pillars of: speed, cost and quality.
The most important definition to get through should be COMPOSITE APPLICATION. Well, a composite application is a IT service that a user gets (fast, cheap and with high quality) composed of a mix of application services (called a MASHUP) and a mix of infrastructure services (called an ENSEMBLE).
Well now that we know what services will make up our mashup and what ensemble it needs in order to run we can choose from where we take those services. Our options are from any of 3 data centers: our on-site DC, our off-site DC or from any of vendor supplied virtual data center.
We can decide what ensemble we use in order to run which mashup…… composite application. This whole idea of building App (composite applications) from services (mashups and ensembles) based on other services we have in our data centers or in vendor data centers is called CLOUD COMPUTING.
The next revolution there is also how we pay for the use of this services from virtual data centers. ON DEMAND.
4. iPhone: by 2011 we will be an Apple Country because all of the factors below:
Like in France all cellular suppliers will sell iPhones and like in France we expect that it will have a market share of not less than 70%.
The more than 1 million iPhones (expected to be sold in less than 2 years) will entice Apple and other entrepreneurs to have Hebrew applications
Israel had been a “Microsoft” country. Many products (ie. Lotus) never made a dent. All because of the very expensive localization and translation of software into Hebrew
Hebrew in all Apple products: Now we will have Apple’s office and applications running in Macs and iPhones.
The iPhone has the IT requirements that are essential for a mobile device to succeed in the business environment a. These include wireless access to: Email, Internet, Corporate Intra nets, Enterprise applications (ERP, CRM, SFA, etc.), Customer contact Information and history, Personal and corporate calendars and also the the ability to store business-critical data and to receive behind-the-scenes data and software updates as they become available.
In order to use a “mobile device in the enterprise we also need the following: Security comprises confidentiality, Integrity and availability. In other words that messages are reasonably difficult to decrypt without a key; that one can rely on the source of a message and be sure it reached its intended recipient; and that the asset or network will remain available.
In other words a “Blackberry” look alike. iPhone 3GS supports Exchange encryption and good Microsoft application integration.
5. The "contractor" (gulgalot in Hebrew) RFP from the Ministry of Finance. In order to understand this we have to go back to 1996.
a. When Y2K projects in Israel started there was a need for “keyboard monkeys” for all the testing going on. Software houses hired many “very” unqualified people but passed them through “laundering training” and qualified them for testing (at the same time Mercury (an Israeli software developer.. now part of HP) came out with automatic testing software).
b. Israeli Integrators where charging 40% to 50 % (over the cost of this keyboard monkeys), making it the most profitable part of their business.
c. Many other projects where changed into this type of business and contracting (gulgalot) became the business of choice for most if not all Israeli vendors.
d. By 1998 many vendors where bidding for ERP and OUTSOURCING at a loss knowing that their “contracting” business will cover the loss. This was done because vendors where fighting for market share in a market during consolidation and IPOs
e. During this time many IT professionals in the government and in the IDF decided to leave their jobs and return as “contractors”. Many of them formed small companies of 10 to 30 “friends”. All of them got immediate 3% to 40% increase in their salaries.
f. To make matters worse, the Ministry of Finance in 1999 decided to let IT PROFESSIONALS working in the government leave with “early retirement” bonuses. Their (MoF) complete ignorance made them also cut most IT jobs in the government. Forcing government CIOs to either outsource or hire “contract” workers (usually ex-employees at a 40% premium).
g. By 2001 the government was trying to close IT departments and actively building a “big” central computer center (similar to the one they sold to private hands in the early 1990s). Their plans where to centralize all WEB and ERP development and later run it with “outside contractors”.
h. In 2003 a “terrible” RFP forced CIOs in government to break the law. The contract where so low that “contractors” where hired not at hourly rates but multipliers of that rate. This cost the government money and reputation.
i. Finally in 2009, the Ministry of Finance realized what had been happening. With the new contract several changes will occur:
Low Risk Contracted Workers (those working for many years at the present place) could be “sold” for no more than 12% on cost. Competition on the quality of the contractor not only on the price. High Risk Specialized Workers could get over the amount even present rates. Small “friendship” based companies could not sell to the government.
Most CIOs outside the government will copy this step by the Min of Finance.
THESE CHANGES WILL BE REFLECTED IN THE PROFIT LINE OF IT VENDORS IN 2010. They will have to change
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