TIERS and MARKET STUDY

Market Analysis (Israel)

View more presentations from Dr. Jimmy Schwarzkopf.

view articles in the press:

http://www.themarker.com/tmc/article.jhtml?ElementId=skira20100406_1161007

http://it.themarker.com/tmit/article/10054

http://www.pc.co.il/?p=29383

http://www.pc.co.il/?p=29459

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).

And as I wrote in several occasions the IT start of expansion in Israel will probably start after the high Jewish holidays of September and October.

The STKI forecast for IT market growth of -12% for Israel is still on track and the forecast of other analysts can be read here .

The picture (above) shows the 1990-2009 yearly data (STKI IT market forecast and BoI data):

1. STKI identified a high startistical correlation between it's IT rate of change numbers and the numbers given by the Bank of Israel (composite state-of-the-economy index (deviation from the trend) based on the Markov regime-switching model).

2.- The composite index and especially the deviation from the trend numbers gives an accurate description of the business cycle ex post facto, with regard to their high correlation with the GDP, final uses and employment series, and with regard to identifying the turning points in the cycle in real time. The probability of recession successfully detects a downturn immediately, and more sharply about two months after its onset. The start of expansion, however, takes longer to detect. Bank of Israel page on the subject.

Finally: as expected the Israeli Economy has positive growth

As expected the Israeli economy has a monthly positive rate of change.

STKI expects Q32009 to be not good for IT vendors. Part of it because of summer vacations and Jewish holidays.

We expect projects to start and end of year seasonal buying to help vendors show finally a "better quarter" during Q42009.

The government, telecomm and financial markets will be the first to recover.

IT spending will be -12% for the year but we expect a much better 2010.

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

The economic crisis has wreaked havoc on many companies and industries, yet results from a McKinsey survey taken in early June suggest that, for some at least, the changes have not been all bad.

For example, we at STKI have been part and will take past in many IT roadmap assessments that will finalize this summer.

This roadmaps are connected to the company's strategic planning process. Again we see no difference between Israeli companies and their counterparts in the USA and Europe.

If you are a client of STKI please feel free to call and schedule your "roadmap analyzer" meeting.

Excelent IDEA: sell "used" software licenses

While looking at some weekend bloggers I found the following at Frank Savo (Computer Economics)'s.

Company called USEDSOFT (www.usedsoft.com)

UsedSoft trades with second-hand software licences, which have been resold at least once by developers or dealers directly to users. Those licenses handle non-material copyrights for software. Used software is traded basically for two reasons:

First, applications may run out of use, e.g. after mergers and insolvencies.

Second, software licences are purchased, but do not get to be used.

The purchase of second-hand licences offers the user companies significant saving perspectives compared to the initial software acquisition – without having to cope with any disadvantages in exchange, since

• software cannot wear out.
  
  
• usedSoft guarantees and notarises the legal security of an acquisition by purchase and sales invoices, respectively licence certificates.
  
  
• the after-sales services of the developers (maintenance, support) for all software licences sold by usedSoft are available to the user without any restrictions.

Yet, not only the purchasers of used licences benefit from this concept: The second-hand market also offers overlicensed enterprises the chance to sell licences which are no more needed. Thus, part of the formerly invested assets can be repatriated to the company.

The Business Concept

Purchase: Due to excellent connections to users on an international level as well as to liquidators, usedSoft has a wide portfolio of inexpensive software licences for all application areas. You wish to sell licences? usedSoft buys in software licences rendered useless from enterprises and other institutions. This may be due to system changes, staff reductions, cuts in business segments, respectively insolvencies etc. Moreover, when selling software, usedSoft accepts other used licences as payment. On demand, usedSoft can also update purchased licences of older software versions.

Sale: Generally, usedSoft has software licenses of the prevalent standard products in stock; special requirements can be provided quick and easily over the existing supply network. If needed, just add a short message to your Licence Request. One of the usedSoft sales agents will immediately contact you and submit a tailor-made offer covering your specific demands. With each sold licence, usedSoft provides you with a notarised confirmation documenting the legitimacy of the purchase.

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.

Have you shifted IT's attention from fighting the crisis to getting the most from the recovery???

Well we have arrived...... at least in Israel......

even... Goldman Sachs... agrees with me (look here)

Last week we saw real EBITE growth in most sectors of the Israeli Economy another useful indication that the economy is turning around.

We have bottomed (scared to put statistics but look below);

now we have to do something (look here)

We (IT) are critical in the management's team thinking and planning for the recovery (it really doesn't matter if it will be 4Q2009 or 2Q2010). IT has to start planning and doing NOW.

There are risks because we dont know if the recovery will be fast (during 2010) or it will take couple of years. This are risks that IT has to take. The reason is simple: no company can afford to take the chance of NOT being ready with new products and services when the "race" begins.

There is an excelent research by McKinsey that shows winners (coming out of recessions) and what they did. I would like to quote some of it:

-"Some companies emerge from a recession stronger and more highly valued than they were before the economy soured. By making strategic choices that sometimes defy conventional wisdom, they increase their stock market valuations relative to those of their former peers and thus gain more power to shape their industries"-

This is what successful companies did during the recession:

1.- Maintained a greater appetite for acquisitions .

2.- Were not afraid to spend their cash reserves in a recession

3.- Traded lower short-term profitability for long-term gain, refocused rather than cut spending.

4.- Spent significantly more on selling, general, and administrative (SG&A) costs .

5.-Seeked to extend their position through innovation, more than doubled their already higher-than-average level of spending on R&D.

6.-Expenditures on advertising grew (as a percentage of sales).

Well, we are not out of the recession, and I am not recommending companies to run out and spend on IT; but now IS THE TIME to decide on recovery strategies and to implement them.

Interesting to see how IT spending differed per industry

click (on the picture) in order to enlarge 

History of IT in Israel

is it logical ? ? not to me

Today I visited a client whose IT budget is no more than 1.6% of its revenues. His boss asked him to cut 20% of the capital investment and 10% of the operational budget (a total of 10% compared to budget 2008). 

In order to do this the company will stop projects that could have increased revenues, some that could reduce costs and some cuts would increase the risk of IT failures. 

Now my thoughts: 

by cutting .16% of revenues (as expenses) the company lost much more.

Does it make sense to cut IT without a real analysis??????? 

I cannot understand the logic...........  any comments ??????

What is happening? Part 3

status quoLet’s look into IT procurement “best practices” in a recession (not a complete list and based on STKI Round Tables and meetings):

1)       The IT procurement organization has a responsibility to keep vendors aware of corporate objectives and strategies. This will keep vendors focused on how they can help fulfill business goals.

a.       Use Web2 technologies (blogs, etc) to create IT procurement transparency. Explain buying decisions and mandates through social systems.

2)      Question the status quo.

a.       Is the procurement process matched to the new economic realities?

b.      Are current replacement plans necessary? Can we move them back? Delay deployment plans of unpopular systems like Vista.

c.       Don't let blind cost cutting destroy relationships, quality or compliance standards.

d.      Look to buy new tools that will improve monitoring of contract compliance and service level agreements.  EXAMPLE: PPM project portfolio management as a gatekeeper that prevents overspending.

e.       Cut the weak, superfluous vendors that were hanging on in good times.

f.        Don't just cut -- be ready to invest. Be prepared for acquisitions and the upturn. Don't rule out a relationship with an amazing new vendor.

g.       Everyone thinks they are good negotiators -- they're not.

h.      Move from long-term contracts to short-term. This will lower risk.

3)      Software licensing issues:

a.       Stop constant, unnecessary upgrades.

b.      Cut maintenance contracts on mature or non-critical software. Take the risk and lower cost.

c.       Cut back on software proliferation -- use these times to create fewer, stronger standards and rationalize licenses.

d.      Re-negotiate perpetual licenses, if needed (although some have better value than new contracts).