Mar 17, 2010
Sep 20, 2009
Israeli IT Market Forecast for Q42009
2010: Israel IT changes by a real tsunami
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
Aug 21, 2009
Start of Expansion in the Israeli IT market
Based on the many meetings, client technological road maps, round tables and social occassions this last month I can start "forecasting" an expansion in the market after over one year of downturn that even felt like a meltdown (Q42008 and Q12009).
Jul 21, 2009
Finally: as expected the Israeli Economy has positive growth
Jun 30, 2009
Office of the CIO: IT Cost Transparency
IT Cost Transparency (WIKIPEDIA article) is a new category of IT Management software that enables IT organizations to model, track and charge the total cost to deliver and maintain the services they provide.
It is increasingly a task of the “Office of the CIO”.
IT Cost Transparency solutions track:
· financial information such as labor,
· software licensing costs,
· hardware acquisition and depreciation,
· data center facilities charges
· operational data from ticketing and monitoring,
finally using project portfolio and asset management systems to provide a single, integrated view of IT costs by service, department, GL line item and project.
This can and is used for chargeback.
Costs, budgets, performance metrics and changes to data points are tracked over time to highlight trends and the impact of changes to underlying cost drivers in order to help managers address the key drivers in escalating IT costs and improve planning.
It also tracks utilization, usage and operational performance metrics in order to provide a measure of value or ROI.
software solutions include:
§ Simplified or automated collection of key cost driver data
§ An allocation or cost modeling interface
§ Custom reporting and analysis of unit cost drivers, including CIO dashboards
§ Ability to track operational metrics such as utilization, service levels, support tickets along with cost
§ Bill of IT reports for chargeback or service allocation to Lines of Business
§ Forecast and budget tracking versus actual and over time
§ Hypothetical scenario planning for new project ROI analysis
§ Cost benchmarking against industry averages or common metrics
IT Roadmaps and Strategy
2010 will test the Israeli Insurance Industry
2010 will test the Israeli insurance industry.
The “recession” hit an industry that had been seen as a safe employment haven, and, because of its financial conservatism,it shifted its cost-cutting focus into high gear very early in the recession leaving their traditional vendors especially vulnerable.
We see now a series of “new initiatives” in areas like loan management, capital investment management, agent performance management, business intelligence and analytics, CRM (defining who is the client, finally) and parts of the core insurance applications.
Another area that we are going to see a lot of movement is INFRASTRUCTURE management and more outsourcing.
Jun 3, 2009
Scale of UK IT spending cuts revealed
In an article Computing.co.uk
Scale of UK IT spending cuts revealed
UK firms cut investments in hardware and software by nine per cent during the first quarter of 2009, according to the latest government figures.
With companies responding to the economic downturn, the extent of IT budget cutting has been revealed by the Office for National Statistics (ONS).
The figures show that IT has been targeted as a prime area for cost cutting. Overall business investment dropped 6.8 per cent in the first quarter of 2009, compared to the first quarter of 2008.
The ONS reports that private sector businesses spent £1.53bn on software and £1.54bn on hardware in the first three months of 2009, compared to £1.68bn and £1.70bn in the year-ago quarter.
Spending was also down for both software and hardware from the final quarter of 2008.
Cutbacks in the construction sector were the most swingeing – year-on-year spending on software dropped by 42 per cent, hardware by 38 per cent.
Other sectors where IT spending was slashed include manufacturing, where hardware spending fell by 32 per cent, and services firms, where software spending dropped by 18 per cent.
Despite the overall gloomy picture, in some areas IT spending increased. In distribution services, spending of software rose 24 per cent year on year; and the companies included in the ONS's "other production" category increased spending on hardware by 44 per cent and software by 24 per cent.
May 25, 2009
Why this is the time to grow and invest in your business
May 21, 2009
New data from Bank of Israel shows that we are hitting bottom
May 3, 2009
Finally something good: a "break in the clouds" of the economic storm
All of us have been predicting negative IT spending over the past couple of months. I guess the reason for this is because there is very little good news to talk about.
But, I see some hopeful signs in the latest numbers, as did Wall Street, where stock prices are recuperating and the graph above (from the ECONOMIST) about CFO confidence. Also Finance chiefs from the G7 powers said (last week) that the global economy may be past the worst phase of a recession although recovery was not yet assured, and they pledged to make sure that big financial firms are sound. "Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilization are emerging," the G7 said in a closing communique.
The U.S. Department of Commerce, in its quarterly report on gross domestic product(GDP), said that consumer spending increased by 2.2 percent in Q1 on a sequential basis, after falling 4.3 percent in last year's fourth quarter. Consumers account for about two-thirds of overall spending in the U.S., so the first-quarter jump was seen as a good omen for the economy as a whole.
Here in Israel ,based on Bank of Israel data, we can also be a little happy that the data is showing that we hit the bottom. How long and fast are we going to recover ? I don’t know.
I thought that I would have to redo my calculations and maybe IT spending would contract more than expected. Now, I think that STKI data for this year is correct.
We know that we can forecast IT spending trends by looking at the deviation from the trend-growth of the State-of-the-Economy Index. See pictures 1, 2 and 3 .
Mar 31, 2009
History and Forecast of IT spending in Israel
STKI DATA vs Bank of Israel
STKI Forecast for 2009
Mar 25, 2009
Mar 8, 2009
Feb 6, 2009
“It’s not only the beginning of a new year, it’s also the end of the IT business cycle that began in 2003”
“It’s not only the beginning of a new year, it’s also the end of the IT business cycle that began in 2003”............
THIS ARTICLE IN HEBREW. THE MARKER..PRESS HERE
2001-2003 were “IT depression” years. Spending stopped, projects were canceled and excess inventory flooded the market, destroying pricing.
Why? Because IT had a long way to fall. IT spending in 2001 had fluff and fat everywhere. When the bubble burst, the fall was precipitous. IT fell from its high of 3.4 billion dollars in 2001 to less than 2.5 billion USD in 2003. At the end of this fall a new IT business cycle started, which STKI called the “market order V1.0”.
The market order V1.0 that started in 2003 was characterized by heavy vendor consolidation as well as a market that grew from its low in 2003 to a peak of 4.3 billion USD in 2007 (over 70% growth in 4 years). During that time the IT services market moved towards consolidation in favor of larger local players (Matrix, Malam-Team, Ness, etc) and the IBM, HP, etc. (International Players). Although users of technology, between 2003 and 2008, were far more disciplined and did cut out the nonsense, IT growth was spurred by the booming Israeli economy and the new available technologies (standard servers, enterprise applications, etc.).
The economic slowdown starting in 2008 and hitting us hard in 2009 will accelerate the market transformation from market order v1.0 to market order v2.0.This market transformation of the Israeli IT market has already started, with market players preparing for a new landscape. What's different about this crisis is it's a capex (capital expenditure) crisis because it involves expenditures used to acquire or upgrade physical assets.
Today's credit crunch directly affects IT because, for many companies, technology is the No. 1 "capex" (capital expenditure) item. That means IT leaders need to pay more attention to financial metrics such as the weighted average cost of capital, or WACC. WACC measures the rate that a company is expected to pay to finance its assets (the higher the WACC, the higher the "hurdle rate" in a return-on-investment calculation, or the minimum rate of ROI that must be met to undertake a project).
The start of the new landscape is also about a negative growth rate regime, so the players need to innovate, leveraging the existing knowledge and align continuously to market opportunities. The economic slowdown will further increase and accelerate the need for Business Transformation (BT) IT Services in most Israeli Enterprises. These services include business intelligence, business process innovation, virtualization, social computing, mobile computing, Green IT, SOA, extended Internet (connecting the physical world to the digital world): all these are front and center on the agendas of large companies. Will many of these projects get cut back? Yes. But many are part of long-term company plans -- they will persist despite economic slowdowns.
Another metric getting scrutiny is payback period, not just about ROI, but what ROI can I get in the next 60 days. This will change not just what gets funded but also how you think about sequencing projects and which components you're going to launch first.
Companies will intensify their focus on goals they have pursued in the past few months but now they will break up projects into smaller components with deliverables every 3 months. They will be evaluating and possibly reducing the application portfolio by a certain percentage and eliminating redundant functionality.
Projects that show concrete cost reductions will take precedence over those that provide functional enhancements.
In market orderV2.0, the two ends of the outsourcing services market i.e. low-end services like support services and high-end services like Business Transformations (BT) services will undergo further consolidation. Low-end volume services, because of increased competition, will find margins coming down and larger players will acquire their counterparts, while at the same time accelerating their movement towards better margins and specialized Business Transformation (BT) IT Services in 2009. As the IT people who will run BT, vendors will be forced to engage in a discussion of process, customers, and operations, not only references to SOA, web services, and storage management. The client’s executive team will look at these BT vendors as legitimate partners in driving revenue, profit, and market share.
Market Order V2.0 will be an era of following dynamic strategy as any existing strategy will not remain effective for long and would need to be re-constructed. The economic slowdown will only accelerate this transformation, which would manifest itself in terms of cost savings, productivity enhancement and customer retention in the short run, giving way to new engagement and delivery models in the long run.
Technologies that can deliver near-term cost savings will remain in focus while the larger capital-intensive green investments with longer payback cycles will move down the priority list. On account of the slowdown the technologies that deliver significant cost savings such as virtualization, unified communications, open source etc. will see heightened interest and adoption by enterprises in 2009.
As the economic meltdown forces enterprises to consider new computing models that promise lower capital costs, such as cloud computing, which refers to a variety of techniques in which technology capabilities are provided as a service. Focus on reducing per-unit costs, such as cost per server, per terabyte of storage, per help desk ticket, per programmer or per line of code.
We should still investigate the economics of the cloud, including migration, transition and security costs, as well as the solvency of the vendors that offer it. Capex is not just affecting end users but also technology vendors.IT ‘Cloud Computing’ service offerings–including software as a service (SaaS), hosted delivery model will get tested and adopted on a small scale. The cloud model’s advantages of lower capital outlay and operating costs, coupled with the reassurance of more major players coming on board and building capabilities (including enabling and educating the channel), will encourage more customers at the margin to invest in cloud offerings. Enterprises which have been shying away (on account of issues of security, connectivity etc.) will be forced to re-evaluate the model. Organizations across verticals will evaluate different models with services delivered through the cloud, hosted and managed by suppliers (International IT vendors), Telecom Service Providers, Israeli System Integrators or pure hosting players.
As enterprises look at optimization technologies like virtualization, cloud computing and hosted delivery models, a key challenge will be information security. Keeping the entire data secure on the cloud while at the same time making it accessible remotely and addressing other vulnerabilities will force organizations to look at integrated security solutions. The heightened security risk perception will force enterprises to inspect Business Continuity services seriously. As a consequence, the Security Solutions space is expected to evolve and grow in 2009.
The channel space had undergone a shift during Market Order V1.0 (2003-08) with linear distribution models giving way to multiple types of channels. These multiple channels (like system integrators and ISVs) added more value to the technology adopted by the end user. Keeping the key attribute of ‘value addition’ intact newer forms of channels would emerge during Market Order V2.0, with the market transforming yet again. The key differentiator for the new channel forms will be their ‘services’ play as compared to the ‘product’ play of the past. This services play will occur around the emergence of ‘Cloud Computing’ technologies and the need for reliable hosting and delivery channels.
“Unfortunately, generations of salespeople have been brought up with the notion that they create value by bringing in revenue…bringing in revenue means collecting value, not creating it. And that is not enough to survive in today’s competitive markets.” Source: McKinsey Quarterly
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