IT industry faces radical restructuring as manufacturers realise real value – and outsource

Only the large IT vendors will be able to compete in the future as IT costs escalate and manufacturing companies find themselves having to outsource their IT installation and maintenance, also moving from client-server to a network-centric architecture. This, coupled with an IT downturn, will trigger a radical restructuring of the IT industry. So said renowned US economist and analyst Butler Group associate Paul Strassmann at the Butler Group conference at Heathrow last week. He cited Microsoft’s .Net, Sun Microsystems’ Sun One Net, Hewlett-Packard’s e-speak, Oracle’s Dynamic Services and IBM’s Application Services as winners. Smaller IT companies, he said, will have to change away “from building and maintaining corporate information to assuring the integration of networked services with the firm’s suppliers and customers.” And he added: “The new service offerings will also promise an increased stability in IT usage, since each services provider will have a vested interest to keep their technologies in place as long as possible for maximum profitability. IT cycles should now lengthen again to eight to 10 years, instead of the torrid recent pace of major innovations being thrust on corporate decision makers at least every four years.” Strassmann said all this will be brought about, not just because the high cost of IT and its relative failure to live up to expectations, but because of the “growing realisation that the vast majority of companies will never be able to keep up with the constant evolution in technology.” He also insists that users are slowly becoming aware of the fact that IT can never be a panacea, no matter how advanced, or how much money is thrown at it. “Owning the latest technology does not automatically confer competitive advantage,” he said. And he backs his assertions with his own survey of thousands of companies in the US, which shows IT spend in now way relates to profitability – and the increasingly accepted view that IT can only influence improvements if strategy is changed processes altered. “Up to three quarters of the potential decisive influences on profitability concern strategic choices that even very large investments in computing cannot address or solve.”