Jimmy Schwarzkopf Israel It Market 2009-10

ICE AGE 2

the meltdown and beyond Dr. Jimmy Schwarzkopf Research Fellow

STKI [email protected] http://drjimmystki.blogspot.com/

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http://www.slideshare.net/jimmyschwarzkopf /stki-8th-cio-bootcamp-2009-presentation

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2009: The meltdown 1

Latest STKI-IT Spending Survey Results

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IT Market in Israel: what is changing ?

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What are customers looking for in 2009?

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Who is gaining share of the shrinking IT budget ?

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Latest STKI-IT Spending Survey Results

200 years since Darwin: – Economic activity data from 1989 I feel • GDPlike Darwin in Galapagos • GDP for Business Sector collecting data , looking at patterns – Indexes that could forecast change • Series of State-of-the-Economy-indexes that emerge and trying to figure out • OECD has data on Israel (but only until 2006) – Productivity what they mean • Data from Bank of Israel is becoming ever more available

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Latest STKI-IT Spending Survey Results • Data from Bank of Israel is becoming ever more available – Economic activity data from 1989 • GDP • GDP for Business Sector

– Indexes that could forecast change • Series of State-of-the-Economy-indexes

• OECD has data on Israel (but only until 2006) – Productivity

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How bad is this “recession” ?

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How recessions affected IT vendors

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STKI IT Market Data (K USD)1989 - 2009

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“The only function of economic forecasting (STKI-IT forecasting included)* is to make astrology look respectable” John Kenneth Galbraith

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low per capita ($ USD) IT expenditure

IT spending in Israel is 2.71% of GDP European Union IT spending is 3.3% of GDP

European Union per capita spending on IT amounts to 1100 €

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* IT spending data by STKI

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GDP per hour worked (x5)… excellent indicator but data is usually 3 years behind

IT Market change

Change in GDP per hour worked (*5)

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* IT spending data by STKI

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But in real time: State of the Economy Index as an “indicator “ of IT investment State-of-theeconomy index

is an indicator for examining the direction in which real economic activity is moving, in real time. (Bank of Israel)

Deviation from the trend is calculated via the Markov-switching model and enables the turning points in the business cycle to be identified at an early stage. (Bank of Israel)

Deviation from the trend (*10)

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IT market growth rate

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IT Market in Israel: what is changing ?

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A little history……….

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A little history……….

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So let’s look at the numbers: From the data we see several cycles for the IT Industry in Israel: 1. Up to 1996 : Market v0 : Age of Irrational IT Exuberance 2. 1997-2000: Market V0.1 : Age of re-structuring 3. 2001-2003: Ice Age : Age of “panic” 4. 2004-2007: Market V1 : Recovery, Growth and Integration 5. 2008- 201?: Ice Age 2 : Age of the “re-start” 6. 201?-

: Market V2: Age of Industrialization of IT

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Market V0:

1989 -1996

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Age of Irrational IT Exuberance • 1987 : first year the IT expenditures passed 1b USD • Profit came from moving BOXES • Mainframes from IBM (VM/VSE.. DASD): entering most big companies (some look-alike HDS were bought) – Most were changing from NCR and CDC big machines

• Minicomputers like DEC, DG, Prime, HP were taking a slice (AS/400 - migrating from S/38 and S/36 from IBM) – First time computer users – Microcomputers entering : • As terminals in enterprises • For accounting and office use in SMBs Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Age of Irrational IT Exuberance

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• Software sold through distributors: – Israeli software was successful: 4 dimension, Magic, DB1…. – John Bryce, IBS, Tekem, Contahal, SPL ……… – data bases, mainframe software and 4GL were third party

• BIG VENDORS: IBM , DEC, DG, HP…… – Mostly sold “hardware” and software/ networking came as “add-ons” – Some services like “system engineer” came with the “machine” – INTEGRATED server, storage and networking products

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Market Order V0.1: 1996-2000

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Age of re-structuring • IT departments re-organize infrastructures and applications… under the Y2K umbrella • Services become a profitable and independent “product” • Projects are starting to go to VARs as contractors (before they were sub to the big hardware vendors) • Big UNIX projects (billing, ERP , etc) • VAS vendors grow with Y2K related projects – New “testing” vendors start – Complicated project management Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Age of re-structuring 2 • International software vendors in Israel start being the main movers in software deals (Microsoft, CA, Oracle ….) • Consolidation in the Service Market, several companies are bought by international and local players • Service players get their own sales force and compete with hwre vendors Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

Growth in the 1990’s

All amounts in K $ USD

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ICE AGE: 2000 - 2003

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Age of “panic” • Excess inventory (IT professionals and products) and very few projects: – Vendors “destroyed” the service market by taking projects that could never generate profit – Software & hardware products were sold at ridiculous prices (even 90% discount in one case)

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Age of “panic” • Excess“Unfortunately, inventory (IT professionals and products) a generation of and very few projects: salespeople – Vendors “destroyed” the service market by taking have the notion that they projects that could never generate profit create value by bringing in revenue – Software & hardware products were sold at we prices found out90% that bringing (even discount in one case) ridiculous

revenue means collecting value not creating it not enough to survive in today’s competitive markets.” Source: McKinsey Quarterly

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Age of “panic”

2

• CIO recognized as a profession: – hired from one industry to another and succeed – become part of the COMPANIES MANAGEMENT Team – started talking about tactical and strategic IT

• The internet bubble hit the Israeli IT companies very hard but…… – New power houses in the IT market … (Matrix, Ness, One1, Taldor …..) Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Market Order v1.0: 2003-2007

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Age of Recovery, Growth And Integration • Consolidation of Local and International Vendors changed the way IT business is done: – most International vendors (hwre & sftre) sell through channels and only support (super experts) the local “delivery” of their products – STKI changed the way we look at the market, CIOs now make two decisions: • What product • Who integrates it

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Age of Recovery, Growth And Integration 2 • Boom in server and storage sales – “utilization” of resources fell under 30%: mainly because of high price of consolidation management (tools and people)

• Boom of “application&data” integration: – Resource Management: Financial, logistics, procurement and HR – Transaction Management: core applications – Client Management: CRM and call centers – Analytics: Data Warehousing/ business intelligence/data mining Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Age of Recovery, Growth And Integration

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• Start of “data center” integration, consolidation, virtualization and infra management efforts • SERVICE ARCHITECTURE : – CTO / Architecture VPs are hired in most IT installations and in most vendor management teams – SOA projects that include BPM, enterprise buses, portals and composite applications – Infrastructure projects where services are defined, optimized, managed and delivered Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Ice Age 2 - 2008 – 201?

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JOB MARKET: 2004 vs 2009

We will all feel it

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Age of the “restart” • What's different about this crisis is it's a CAPEX (capital expenditure) crisis – CAPEX involves expenditures used to acquire or upgrade physical assets and IT projects.

• Today's credit crunch directly affects IT because: – Information technology is the No. 1 "CAPEX" (capital expenditure) item.

CAPEX is not just affecting end users but also solvency of the IT vendors Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Age of the “restart” 2 • IT is not buying (CAPEX- frozen) products: – Hardware sales have dropped more than expected during 1Q2009 … about 37% average – STKI might make a change to its 2009 forecasts in the next 60 days

• Some CIOs are starting to feel pressure in OPEX expenses:

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New metric is PAYBACK PERIOD

ROI IN THE NEXT 90 DAYS

cost reductions and revenue enhancement precedence over functional enhancements Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

35 Slide based on force.com presentation

Age of the “restart” 3 “business models” will change and IT is the strategic partner • Companies will have to: – Allow due diligence of products and services – Tools for self service – NEW BUSINESS PROCESSES

• Customers demand: – – – – –

Value Quality Reliability Service Individuality Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Age of the “restart” 4 • Vendors change and the • Users change and when backbone of any new buying services will go business model: to vendors that have: – Delivery management – Crisis management – Pockets of excellence (technologies)

– Pockets of excellence – Good delivery record – Financial soundness

This change is reflected in STKI’s IT categories Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Age of the “restart” 5

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New Model for IT Vendors Crisis Management

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Not only the market but the dollar

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Value 3

What are customers looking for in 2009?

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IT situation: overview • The recession : • IT departments will cut budgets • But will invest mostly in projects that: – cut costs of existing processes and activities – new ways to capture revenue/ growth – Smaller “divided” projects

• Radical transformation of IT Management: • • • •

Different way of consuming IT Industrialization of IT delivery Utilization increase of assets (over 90%) Cloud computing models (in-house, private and public)

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Radical transformation of IT Management Managing the IT Budget Managing IT for business value

Managing the IT capability

Managing IT like a business 43 Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

Managing the IT Budget COST OF DELIVERING versus COST OF BUYING

• IT will have “new economics” – Portfolio Management in order to drive maintenance and cost reductions – New models for “purchasing” USAGE of resources – Flexible sourcing of product usage and service • Budget management will be influenced by the new statement :

“CLEAN UP the waste” Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Datacenters today have 30% utilization Energy waste

30% max in Storage Utilization

Ala-carte telecomm services Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

100s different Software products 25% utilization x86 servers

Hundreds of Enterprise Processes 45

ROY: Optimization of IT Optimize (Return on Yesterday)* High Utilization Of Resources

Develop

+

Install

+

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Deliver

* From SYMANTEC

+

Manage

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Managing the IT capability • Utilization is all about: – Virtualization – Automation – Standardization – Provisioning

• Things to do : – ITIL, CoBIT, ISO 17799 (discipline & efficiency) – IT system performance management – Application Rationalization – AGILE project development Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Application Rationalization • An assessment of applications will show what applications have to canceled and which should remain. • If usage continues, then which have high HATMAA and which do not: – LOW HATMAA need special tools and re-training – HIGH HATMAA need tool for constant reinforcement

Which applications are over supported and which under supported. Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

Resource optimization

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Factories get to nearly full utilization…. IT should also…..

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2 years ago IT was “overhead” 100 years ago Industrial Engineers: – Assembly line revolutionized the economy – Assembly line took state of the art technology and organized work differently for PRODUCT factory

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After the meltdown: IT Engineers – Will take state of the art technology and change workflow (service factory) – Change How Work Is Organized

– Develop New Products And Services Based On New Technologies 51

Building the IT factory Moving IT from: LAB environment to FACTORY environment

Local Factory

Local Factory

Outsourced Factory Outsourced Factory

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Standardized Equipment Economies Of Scale

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Standardized Services Economies Of Scale “Application Image” is a sum of infrastructure services and software services needed to deliver an IT product Two types of IT services: 1. Infrastructure Services or Ensembles 2. Software Services or Mashups 54 Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

The new Service-Based IT

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Delegating the Power to the Cloud

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New in Cloud Computing 1. The illusion of infinite computing resources available on demand, thereby eliminating the need to plan far ahead for provisioning. 2. The elimination of an up-front commitment, start small and increase hardware resources only when there is an increase in their needs. 3. The ability to pay for use of computing resources on a short-term basis as needed (e.g., processors by the hour and storage by the day) and release them as needed.

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Transformation of IT: CIO priorities for 2009 1. 2. 3. 4. 5. 6. 7. 8.

Cost reduction DRP/BCP Server virtualization Server consolidation BI/DW Security CRM WAN Optimization/ application acceleration Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

9. Storage virtualization 10. Desktop virtualization 11. Data De-duplication 12. Governance, risk management and compliance 13. Self-service 14. Mainframe optimization 15. Open Source 58

Creating with IT >business value §Grow Revenue Bends the revenue line up faster than your competitor – includes innovation

§Protect Revenue Holds the revenue line at its current growth rate

Net Revenue

§Reduce Cost

Operating Expense INCREASE THE SPREAD TO INCREASE MARGIN

Short term impact to drive costs down through automation and process improvement

§Avoid Cost Avoidance of future costs that would bend the expense line up – includes innovation on the expense side/process side

§Manage Risk Enables risk management from a firm and regulatory perspective

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Based on Howard Rubin’s presentation

CUTTING COSTS vs OPTIMIZING COSTS • Changing BUSINESS PROCESSES to fit new business models • Fast delivery of “analyzed data” to enable decision making (BI,DW, Data Mining, MDM..) • Self- service and real time delivery of business and consumer services over the INTERNET will grow more than software sales

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So what do we do in the “New Era” ?

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Competition in services? Business Process Improvement New Business Model

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Roadmap: Business Process Innovation Contribution to Business Performance

High

Improve: SURVIVE

Innovate : GROW

Invent: CHANGE 2012

4Q 2009

2011 2010 2010

2009

Low

Redo Existing Processes Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

Rethink Business

Redefine Business 63

SELF SERVICE AND MOBILE “STOP aligning IT with the businessConnect with the CUSTOMERS”

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How new “models” like due diligence of products changes everything: • Los Angeles Restaurants must have a letter in front window reflecting the results of last health inspection (A,B,C) • Restaurant Websites show the results and allow other comments on the restaurant’s service and food.

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Who is gaining share of the shrinking IT budget ?

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This study cannot ………. • The IT market offers service and products in: – Over 500 different hardware classes – Over 1000 different software families – Over 1000 different types of services offered

• The Israeli IT market has: – Over 250 firms that have over 5 employees – Over 100 firms that have between 2-4 employees – Over 1000 individuals that work as “freelancers” Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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This study cannot ………. • The IT market offers service and products in: – Over 500 different hardware classes – Over 1000 different software families – Over 1000 different types of services offered

• The Israeli IT market has: – Over 250 firms that have over 5 employees – Over 100 firms that have between 2-4 employees – Over 1000 individuals that work as “freelancers” Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Amount of ‘big” IT (in Israel) has decreased in the last 3 years

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The Israeli IT Market (% changes) “missed” 4Q2008 was worse than expected

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“hope not” new data after Q2 2009 Q1 was worse than expected 70

IT market share (%) by INDUSTRY

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Industries IT expenditures ($ USD)

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Industries 2003 – 2009 (in $USD)

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Industries 2003-2009

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STKI Technology Spending Cycle Outsourcing

Time

Development Software Transaction processing

Consulting

Hardware

Networking Technology Contract awarded to… Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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As markets changed, STKI also changed its categories (pockets of excellence) "It is not enough that I should succeed, others must fail“ Gore Vidal

• Pockets of excellence

– Users identified the need for experts – Most vendors are moving or moved into the new delivery model

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TOP 9 IT Vendors in Israel These 9 vendors either sell in all Hardware, Software and Services categories or they have extremely large market share in only part of the categories

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Hardware & Software Categories

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Tactics : to lower spending on hardware 1. Elongating PC upgrade cycle 2. Reuse of desktops/notebooks rather than replacing all 3. Increase utilization rates above typical levels 4. Purchasing from fewer vendors in exchange for lower prices 5. Accelerate migration from Unix, Open VMS and OS400

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Hardware Market All amounts in M $ USD

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Servers 1. HP strong in BLADES and HIGH END servers 2. IBM continues to sell System z and System p/i besides their x86 servers 3. SUN strong in UNIX server sales

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MANUFACTURERS

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Clients 1. Notebooks continue to displace desktop units in corporate PC market. 2. Substantial JUMP in “desktop” virtualization 3. NETBOOKS, SMARTPHONES, APPLE are game changers

MANUFACTURERS

in the next 24 months.

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Storage Equipment 1. Clients are storing more and more data into midrange and low-end arrays. 2. DRP projects : new purchases. 3. Biggest issue : how to deploy storage in virtualized environments. 4. Storage virtualization?

MANUFACTURERS

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Networking strong gain for WAN optimization and application acceleration solutions: high ROI by cutting communication costs

VoIP / Call Center MANUFACTURERS

Network MANUFACTURERS

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Printers and “new” services • We were very surprised at the slow use of printing services and software in order to cut costs during 2008

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Special Categories

COMPUTER ROOM (Racks, etc)

SELF SERVICE Mobile and Special Purpose (ATMs, Kiosks, etc)

COMPUTER SUPPLIES AND DISPOSABLES

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Big issues in SOFTWARE • IT departments are “changing” the way they choose software (next slide) • Licensing problems in virtualized and multi-core environments • Open Source will start to be standard in several areas • Focus on “high” maintenance costs: – Customers may consolidate best-of-breed purchases into bundled suites with “cheaper” maintenance – Move to SaaS solutions Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Top 10 criteria for selecting software 1st and 2nd time around

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Source: Deloitte & Touche - 1500 companies surveyed

Software Market

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System Software

DBMS Operating Systems

Middleware

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Information access & analysis Exploding volumes of digital information (video, audio, images, text, transactional data, etc)

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1. Tools for finding and making sense of the information. 2. Tools for data cleansing. 3. Tools for minimizing duplication. 4. Tools for storage management. 5. Tools for backup management. 91

IT Management Software

Service desk

Storage Management Enterprise System Management

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Security Software

All amounts in M $ USD

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Information Management Software

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Cont: Information Management Software

PORTAL & COLLABORATION

DEVELOPMENT AND MODELING

BI / MDM/ ETL

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Business Applications

CRM ERP

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Testing Software 1. APPLICATION TESTING SOFTWARE market is close to saturation. 2. DATA TESTING SOFTWARE will start to dominate this category (needed for SOA projects)

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Value Added Services • This remains the one area that CIOs look for potential cost-reductions by re-negotiating contracts – Third party professional services have been the target for most contract openings during the last 90 days. Maybe changing the “game rules”. • No “big” IT service supplier can survive with the rates being talked today (less than 10% + cost)

– Project delays and slow-downs have helped CIOs cut budgets but the cost could be higher than expected when the IT department wants to start again Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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Value Added Categories

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Value Added Services Market

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Cont: Value Added Services

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IT Consultants & Analysts The use of consultants has been reduced but: – People still don’t check the ethics of consultants – Risk officer should check – Still use integrators as consultants, analysts as consultants and consultants as analysts

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Cont: consulting / analysts

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Hardware Maintenance • Maintenance will change given the change in purchasing and using of equipment: – Keeping equipment longer – Using it at higher capacities – Users need 24X7

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Hardware/ networking/infrastructure /DRP/ Management The need for changing usage and management of infrastructures will force users into complicated projects

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Special integration services

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System Integration Projects • Virtualization and consolidation plus SOA projects will be exponentially more difficult

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TRAINING and HATMAA • Training, assimilation, implementation, rollout,etc: are change management processes.

• Change management that helps users change working processes.

• HATMAA: is the measurement of the change process success.

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Development Services

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Cont Development Services

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Enterprise Risk Management • Governance and risk management became confused with obeying the law • According to any “new age” theory: – Management proposes OPTIONS to the CEO/Board and also shows the RISKS each of them carries. – Risk also changes with TIME – This process is called: “ENTERPRISE RISK MANAGEMENT” 110 Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

Enterprise Risk Management • Should be divided into several categories: – Ethics – Regulation – Operations control and quality – Risks – Data and premises security – Q/A (testing …) – Project and portfolio management

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Enterprise Risk Management Customer Demand Shortfall

Cost Overruns

24

Accounting Irregularities Competitive Pressure

Management Issues

M&A Integration Problems Product Issues

12

Foreign Macro-Economic

Customer Pricing 7

Supply Chain Issues

11

7

7

Loss of Key Customer

6

Commodity Prices

6

3

4 2

1

1

2

1

Strategic

58% Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

Operational

31%

Interest Rates 1

0

0

Financial

Hazard

6%

0%

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Cont: Governance, risk, security …..

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Project Services

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Outsourcing Services many .. many types from call centers (Calanit Carmon) , complete outsourcing (HP-EDS), BPO salaries (Hilan) to cloud computing ( Salesforce.com)

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All OUTSOURCING categories

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IT Service Delivery (“good souls”) This type of service will finally see its maturity: 1. Augmented IT staff providers 2. Project-based on-site third party service providers 3. Specialized on-site third party service providers 4. Near-shore third party service providers 5. Off-shore third party service providers

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Cont. “good souls”

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Thank you Dr. Jimmy Schwarzkopf

http://drjimmystki.blogspot.com/ [email protected] Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Do not remove source or attibution from any graphic or portion of graphic

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