PAC report: The economic meltdown spurs new IT spending challenges  

The IT sector is entering into its second major downturn in the space of eight years. Pierre Audoin Consultants (PAC) maintains that while there are some valuable lessons to learn from the previous market decline that followed the dotcom boom-and-bust, suppliers face a different set of challenges in 2009.

11/22/2008


The Software & IT Services market is entering a period of uncertainty following four years of sustained growth. This is being driven by the economic slowdown, a financial crisis that may not yet have reached its peak, and volatility in prices for energy and raw materials. But what lessons can the sector learn from the previous downturn at the start of the decade?
PAC believes suppliers can draw valuable experience from how market conditions changed back in 2001, but they must be aware that this time around, the context is very different.
2001 was an IT crisis, with the implosion of the e-business bubble forcing many organizations to reassess whether IT really mattered to the success of their business. But the current situation seems closer to that of 1992-1993, which was an economic rather than an IT crisis. And at that time, the IT markets recovered quite quickly.
What else changed between 1992 and 2008?
Looking back at 1992, only a few processes were strongly supported by IT. Two trends started in the 90s: better support for all processes and their integration, resulting in new concepts such as ERP and later SCM, CRM, PLM, and e-business. While not all projects in these areas met expectations, these topics are acknowledged as strategic for improving the performance of any company. No business can exist today without a reliable IT operation, and future performance improvements will heavily rely on IT. So as we move into 2009, IT clearly matters!
The main challenges for IT users will not dramatically change with the crisis. The need for more flexibility and agility requires IT support. Another lesson learned in the post-e-business-crisis phase is that cost saving and process efficiency alone won’t guarantee performance improvement. To succeed, a company must innovate. Here again, IT has a key role in the product development process.
So what does change with the current economic crisis? First of all, companies changed from an "Attack" to "Defend" strategy. This means optimizing existing products portfolio and processes, focusing on customer retention and streamlining the deployment of the existing workforce. The crisis means reduced investment capacities and focus on a short-term ROI. Overall, this will result in a slowdown of IT investments, although nothing comparable with what we experienced in 2001.

Chart
The Software & IT Services market is entering a period of uncertainty following four years of sustained growth. Companies are changing over from an "Attack" to a "Defend" strategy. This means optimizing existing products portfolio and processes, focusing on customer retention, and streamlining the deployment of the existing workforce.


Most projects have been reviewed—or will be reviewed in the coming months—resulting in some postponements, cancellations, and delays. The fastest reaction has come from small companies, while large businesses traditionally take advantage of a crisis to optimize their efficiency. Topics like collaboration and workflow, risk and performance management, and flexibility are the priorities.
So growth will be affected, and in some cases result in a decline. This will put reinforced pressure on prices, in particular by very large accounts. But a dramatic price collapse is not expected. The timid recovery of onshore daily rates was lower than the salary increases in the last four years, and IT users know this well. Most users understand that offshoring requires a time- and cost-intensive learning curve, meaning the pace of offshoring won’t accelerate substantially.
Overall, the software product business will suffer more than the services business, though maintenance fees will generate stable revenues. Project services will be strongly impacted too. Overall, the outsourcing business will see more new deals; however the pressure on existing deals—especially in mature countries and industries—will result in a slight slowdown of growth.
In terms of countries, medium-size Western European economies like Austria, Belgium, Denmark, Finland, Italy, the Netherlands, Norway, and Switzerland are expected to be among the least affected. France and Germany will be in the average, while the U.S. and the U.K. will be severely hit. These two countries combine several negative factors: very liberal and more reactive economies, strong investment banking industry, importance of the housing crisis, and very mature IT services market. Emerging countries like China, India, or Russia will be impacted too, but they will remain in two-digit growth rates.
Overall, the market situation will be much tougher than in the last four years, however, there will be interesting segments to address, selected topics or services in certain industries—even in the most mature countries.





The Engineers' Choice Awards highlight some of the best new control, instrumentation and automation products as chosen by Control Engineering subscribers. Vote now (if qualified)!
The System Integrator Giants program lists the top 100 system integrators among companies listed in CFE Media's Global System Integrator Database.
Each year, a panel of Control Engineering and Plant Engineering editors and industry expert judges select the System Integrator of the Year Award winners in three categories.
This eGuide illustrates solutions, applications and benefits of machine vision systems.
Learn how to increase device reliability in harsh environments and decrease unplanned system downtime.
This eGuide contains a series of articles and videos that considers theoretical and practical; immediate needs and a look into the future.
HMI effectiveness; Distributed I/O; Engineers' Choice Award finalists; System Integrator advice; Inside Machines
Women in engineering; Engineering Leaders Under 40; PID benefits and drawbacks; Ladder logic; Cloud computing
Robotic integration and cloud connections; SCADA and cybersecurity; Motor efficiency standards; Open- and closed-loop control; Augmented reality
Programmable logic controllers (PLCs) represent the logic (decision) part of the control loop of sense, decide, and actuate. As we know, PLCs aren’t the only option for making decisions in a control loop, but they are likely why you’re here.
This digital report explains how motion control advances and solutions can help with machine control, automated control on assembly lines, integration of robotics and automation, and machine safety.
This article collection contains several articles on how advancements in vision system designs, computing power, algorithms, optics, and communications are making machine vision more cost effective than ever before.

Find and connect with the most suitable service provider for your unique application. Start searching the Global System Integrator Database Now!

Control room technology innovation; Practical approaches to corrosion protection; Pipeline regulator revises quality programs
Cloud, mobility, and remote operations; SCADA and contextual mobility; Custom UPS empowering a secure pipeline
Infrastructure for natural gas expansion; Artificial lift methods; Disruptive technology and fugitive gas emissions
Automation Engineer; Wood Group
System Integrator; Cross Integrated Systems Group
Jose S. Vasquez, Jr.
Fire & Life Safety Engineer; Technip USA Inc.
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
The Engineers' Choice Awards highlight some of the best new control, instrumentation and automation products as chosen by Control Engineering subscribers. Vote now (if qualified)!
The System Integrator Giants program lists the top 100 system integrators among companies listed in CFE Media's Global System Integrator Database.
Each year, a panel of Control Engineering and Plant Engineering editors and industry expert judges select the System Integrator of the Year Award winners in three categories.
This eGuide illustrates solutions, applications and benefits of machine vision systems.
Learn how to increase device reliability in harsh environments and decrease unplanned system downtime.
This eGuide contains a series of articles and videos that considers theoretical and practical; immediate needs and a look into the future.
HMI effectiveness; Distributed I/O; Engineers' Choice Award finalists; System Integrator advice; Inside Machines
Women in engineering; Engineering Leaders Under 40; PID benefits and drawbacks; Ladder logic; Cloud computing
Robotic integration and cloud connections; SCADA and cybersecurity; Motor efficiency standards; Open- and closed-loop control; Augmented reality
Programmable logic controllers (PLCs) represent the logic (decision) part of the control loop of sense, decide, and actuate. As we know, PLCs aren’t the only option for making decisions in a control loop, but they are likely why you’re here.
This digital report explains how motion control advances and solutions can help with machine control, automated control on assembly lines, integration of robotics and automation, and machine safety.
This article collection contains several articles on how advancements in vision system designs, computing power, algorithms, optics, and communications are making machine vision more cost effective than ever before.

Find and connect with the most suitable service provider for your unique application. Start searching the Global System Integrator Database Now!

Control room technology innovation; Practical approaches to corrosion protection; Pipeline regulator revises quality programs
Cloud, mobility, and remote operations; SCADA and contextual mobility; Custom UPS empowering a secure pipeline
Infrastructure for natural gas expansion; Artificial lift methods; Disruptive technology and fugitive gas emissions
Automation Engineer; Wood Group
System Integrator; Cross Integrated Systems Group
Jose S. Vasquez, Jr.
Fire & Life Safety Engineer; Technip USA Inc.
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
The Engineers' Choice Awards highlight some of the best new control, instrumentation and automation products as chosen by Control Engineering subscribers. Vote now (if qualified)!
The System Integrator Giants program lists the top 100 system integrators among companies listed in CFE Media's Global System Integrator Database.
Each year, a panel of Control Engineering and Plant Engineering editors and industry expert judges select the System Integrator of the Year Award winners in three categories.
This eGuide illustrates solutions, applications and benefits of machine vision systems.
Learn how to increase device reliability in harsh environments and decrease unplanned system downtime.
This eGuide contains a series of articles and videos that considers theoretical and practical; immediate needs and a look into the future.
HMI effectiveness; Distributed I/O; Engineers' Choice Award finalists; System Integrator advice; Inside Machines
Women in engineering; Engineering Leaders Under 40; PID benefits and drawbacks; Ladder logic; Cloud computing
Robotic integration and cloud connections; SCADA and cybersecurity; Motor efficiency standards; Open- and closed-loop control; Augmented reality
Programmable logic controllers (PLCs) represent the logic (decision) part of the control loop of sense, decide, and actuate. As we know, PLCs aren’t the only option for making decisions in a control loop, but they are likely why you’re here.
This digital report explains how motion control advances and solutions can help with machine control, automated control on assembly lines, integration of robotics and automation, and machine safety.
This article collection contains several articles on how advancements in vision system designs, computing power, algorithms, optics, and communications are making machine vision more cost effective than ever before.

Find and connect with the most suitable service provider for your unique application. Start searching the Global System Integrator Database Now!

Control room technology innovation; Practical approaches to corrosion protection; Pipeline regulator revises quality programs
Cloud, mobility, and remote operations; SCADA and contextual mobility; Custom UPS empowering a secure pipeline
Infrastructure for natural gas expansion; Artificial lift methods; Disruptive technology and fugitive gas emissions
Automation Engineer; Wood Group
System Integrator; Cross Integrated Systems Group
Jose S. Vasquez, Jr.
Fire & Life Safety Engineer; Technip USA Inc.
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
click me