The crisis as an opportunity for the IT industry
"Providers need to offer a measurable financial benefit for the customer's core processes."
The economic and financial crisis has also hit the IT industry: customers are cutting back their IT budgets and IT company stock prices have fallen sharply. At the same time, a crisis like this accelerates changes in technologies, customer requirements and competitive structures. Yet IT companies are by no means helpless in the face of revenue and value losses. The crisis even offers opportunities, which can be generated by targeted, crisis-oriented sales programs.
Effects of the crisis on the IT Industry
Current forecasts expect global spending on information technology to increase in 2009 by 2% at best. The most pessimistic scenarios expect a fall of 5%. In 2008, the expectations for 2009 had been much higher. This has been reflected on the stock markets: the total shareholder return of all IT companies listed worldwide was 43% down in 2008 compared to the same period of the previous year. This means that IT is one of the industries hit hardest by the crisis, after the automotive and financial services industries.
However, not all business segments are being affected to the same extent. Particularly fields that give the companies an immediate return on investment (ROI), such as outsourcing, grow even in times of economic downturn. By contrast, there has been a sharp decline in other areas, such as investment in new hardware and software.
Customers currently tend to be risk-averse and price-sensitive. They can be roughly divided into three categories: "early birds", "recent movers" and "the unimpressed". While the early birds already started launching cost-cutting programs at the first signs of the crisis, the recent movers are just beginning to reduce their spending on IT now. The unimpressed have shown no reaction to the crisis; they are consciously investing in new technologies and preparing themselves for the time afterwards.
These categories are also reflected in current project orders: while the early birds and recent movers are primarily implementing projects to reduce overall IT costs as quickly and comprehensively as possible, the unimpressed are concentrating on IT projects that invest in the company's value-creation processes. Such focused IT investment projects promise efficiency gains in the short to medium term, and usually pay for themselves in about 36 months. Typical examples are IT-based process automation, supply chain management systems and sales support systems.
Occasionally, these companies also implement strategic IT projects aimed at securing the company's medium- to long-term competitiveness.
The crisis will accelerate the process of market consolidation that is already taking place among IT service providers and force them to position themselves clearly: niche strategies or a critical size will be essential for survival; medium-sized and highly diversified providers will disappear in the upcoming market consolidation.
Crisis-oriented sales programs
IT service providers certainly have options for countering impending losses in sales and value, and can make targeted use of the opportunities the crisis offers. To do this, they must resolutely adapt their marketing strategies to the current needs of the market and shape their product portfolio accordingly. In particular, their offerings for cost-cutting projects and focused investment projects must clearly show how they create value in the areas of safeguarding liquidity, cutting costs, reducing capital tie-up, and making a strategic contribution. Providers need to offer a measurable financial benefit for the customer's core processes and show initial results quickly. Investment payback should not take more than three years, preferably two. In terms of terminology and market processing, the offerings should be made attractive not only to the department decision maker, but also to the CFO. This requires experts who not only have the corresponding network, but can also communicate in decision-makers' language.
Financing models are also especially important. Innovative financing solutions such as compensation payments for hardware, or combinations of a delayed payment start and low interest rates, can supplement the crisis-adapted portfolio of services and offer companies additional incentives to buy. Especially large IT service providers have a competitive advantage due to their financial strength.
In the case of strategic investment projects, it's crucial for an IT service provider to establish itself as a trustworthy and competent interlocutor who not only has something meaningful to say on individual projects, but can also discuss visions, the associated strategies, and long-term competitive advantages. The basis for this is a personal network at the board level. The IT service provider should position itself here as a technology leader. It can compensate for any lack of expertise or contacts by means of strategic collaborations with consulting firms and other IT service providers.
A crisis-oriented sales program can assist IT providers in developing a profound understanding of the customers' needs and fundamentally rethink existing business relationships. For example, this can help persuade customers who were initially focused solely on the IT service provider's products and technologies to become interested in all of the provider's know-how as well as complete solutions. Moreover, a crisis-oriented sales program can enable IT companies to reposition themselves in the market and make an active contribution to change across the entire industry by means of new strategic sales partnerships.
The article was written by Julia Daecke, Senior Consultant for the InfoCom Competence Center. It was published in the CIO magazine.
Effects of the crisis on the IT Industry
Current forecasts expect global spending on information technology to increase in 2009 by 2% at best. The most pessimistic scenarios expect a fall of 5%. In 2008, the expectations for 2009 had been much higher. This has been reflected on the stock markets: the total shareholder return of all IT companies listed worldwide was 43% down in 2008 compared to the same period of the previous year. This means that IT is one of the industries hit hardest by the crisis, after the automotive and financial services industries.
However, not all business segments are being affected to the same extent. Particularly fields that give the companies an immediate return on investment (ROI), such as outsourcing, grow even in times of economic downturn. By contrast, there has been a sharp decline in other areas, such as investment in new hardware and software.
Customers currently tend to be risk-averse and price-sensitive. They can be roughly divided into three categories: "early birds", "recent movers" and "the unimpressed". While the early birds already started launching cost-cutting programs at the first signs of the crisis, the recent movers are just beginning to reduce their spending on IT now. The unimpressed have shown no reaction to the crisis; they are consciously investing in new technologies and preparing themselves for the time afterwards.
These categories are also reflected in current project orders: while the early birds and recent movers are primarily implementing projects to reduce overall IT costs as quickly and comprehensively as possible, the unimpressed are concentrating on IT projects that invest in the company's value-creation processes. Such focused IT investment projects promise efficiency gains in the short to medium term, and usually pay for themselves in about 36 months. Typical examples are IT-based process automation, supply chain management systems and sales support systems.
Occasionally, these companies also implement strategic IT projects aimed at securing the company's medium- to long-term competitiveness.
The crisis will accelerate the process of market consolidation that is already taking place among IT service providers and force them to position themselves clearly: niche strategies or a critical size will be essential for survival; medium-sized and highly diversified providers will disappear in the upcoming market consolidation.
Crisis-oriented sales programs
IT service providers certainly have options for countering impending losses in sales and value, and can make targeted use of the opportunities the crisis offers. To do this, they must resolutely adapt their marketing strategies to the current needs of the market and shape their product portfolio accordingly. In particular, their offerings for cost-cutting projects and focused investment projects must clearly show how they create value in the areas of safeguarding liquidity, cutting costs, reducing capital tie-up, and making a strategic contribution. Providers need to offer a measurable financial benefit for the customer's core processes and show initial results quickly. Investment payback should not take more than three years, preferably two. In terms of terminology and market processing, the offerings should be made attractive not only to the department decision maker, but also to the CFO. This requires experts who not only have the corresponding network, but can also communicate in decision-makers' language.
Financing models are also especially important. Innovative financing solutions such as compensation payments for hardware, or combinations of a delayed payment start and low interest rates, can supplement the crisis-adapted portfolio of services and offer companies additional incentives to buy. Especially large IT service providers have a competitive advantage due to their financial strength.
In the case of strategic investment projects, it's crucial for an IT service provider to establish itself as a trustworthy and competent interlocutor who not only has something meaningful to say on individual projects, but can also discuss visions, the associated strategies, and long-term competitive advantages. The basis for this is a personal network at the board level. The IT service provider should position itself here as a technology leader. It can compensate for any lack of expertise or contacts by means of strategic collaborations with consulting firms and other IT service providers.
A crisis-oriented sales program can assist IT providers in developing a profound understanding of the customers' needs and fundamentally rethink existing business relationships. For example, this can help persuade customers who were initially focused solely on the IT service provider's products and technologies to become interested in all of the provider's know-how as well as complete solutions. Moreover, a crisis-oriented sales program can enable IT companies to reposition themselves in the market and make an active contribution to change across the entire industry by means of new strategic sales partnerships.
The article was written by Julia Daecke, Senior Consultant for the InfoCom Competence Center. It was published in the CIO magazine.
Language
English | German
CIO expert column
More news
- up ↑
- Roland Berger opens reading room at the International Cultural Centre in Krakow
- How China wants to lead the world market for electric cars
- The crisis as an opportunity for the IT industry
- "You have to play dirty to win the game"
- German environmental industry will be the country's foremost industry by 2020
- down ↓
A world without agents?
Imagine a world without insurance agents - It is hard to picture, but some in the European insurance... >>
Pricing in wealth management
Times in wealth management have been difficult since the recent developments in the financial... >>
New restructuring study from...
German businesses have come out of the financial and economic crisis in good shape: 63% expect to... >>
Roland Berger Strategy...
As new Partner and Competence Center head, Martin Erharter has been working on pharma &... >>
IN DIALOG - Prof. Dr. h.c....
In an interview with Germany's "Top Career Guide Automotive", Roland Berger, Founder... >>
Have we whined enough? (Die...
In an interview with the German daily newspaper Die Welt, Burkhard Schwenker, Supervisory Board... >>
