Monday, August 09, 2004

[news] Excerpt from a McKinsey Paper on IT Spending Trends

Monday, August 9, 2004
Dateline: China
I recently urled the abstract for this paper, but CNET and McKinsey were kind enough to post the full-text of the paper on the CNET news site (which downloads at glacial speed, at least from China).  Now that the article from the current issue of The McKinsey Quarterly is in the public domain, I'd like to include an excerpt in this posting.  (Bolded and colored notations are MY emphasis.)
"Although IT customers also want to improve their software, they are wary of big-bang packaged applications--purchases that are just now rolling off accrual budgets.  This time around, CIOs are shunning expensive panaceas, especially large-scale customer relationship management (CRM) systems.  Many tech executives lost face (or jobs) when the promised benefits didn't materialize, often because the technology demanded difficult-to-realize changes in processes and in employee behavior.  Even worse than buying packaged applications, CIOs told us, was buying applications and then customizing them, for this strategy made it necessary to reinvest in customization with each subsequent upgrade.  CIOs now favor narrower, more-targeted, less-ambitious improvements that mitigate the risk of organizational rejection.  Custom software that closely adheres to a company's existing processes (and therefore requires little or no process change) is popular, and so is software developed for a specific industry.  Meanwhile, integration--a higher priority now than it was during the boom--is generating demand for enterprise application integration (EAI) technologies.  Web services are gaining traction faster than anticipated, especially in small telecom and other companies at the forefront of IT innovation.  Of the CIOs we interviewed, 8 percent said that Web services were their primary integration strategy.  Despite these inroads, most companies are still at the experimental stage with this technology, which demands advanced skills and a high degree of commitment from the IT organization.  Others are choosing a different path:  Roughly half of the CIOs we spoke with have been (or are thinking about) investing in integration broker software, often combined with Web services.  Adoption is strongest among telecommunications and financial-services companies, whose technical complexity makes the software especially attractive.  The third-party services market could feel the pinch, however.  Many companies, spurred by lower IT salaries after the economic slowdown, hired talent and brought IT development in-house.  These new hires often support and develop the more-customized applications that today's IT budgets favor.  But this move could boomerang on companies in the future:  The absence of vendor support could reduce economies of scale and push up costs.  Offshoring in less-expensive labor markets could, of course, offset them."
ADDENDUM: Seeing Beyond "Traditional" Market Research ...
I've already received a few messages regarding my "Seeing Beyond" posting.
One of the questions was very simple to answer.  The question:  Can you name a few ISVs in China which could develop a hosted version of their packaged software?  Certainly.  Simple answer:  Bamboo, KingdeeUFSoft (all three are in the ERP space).
A reader also asked me about Fisher-Pry, having heard of this technique but not really familiar with it.  In simple terms, Fisher-Pry functions best as a substitution model.  I'm not thrilled about using it to predict end of life and market size issues per seWhere I find it useful -- EXTREMELY USEFUL -- is in determining when a NEW technology is likely to EMERGE.  I then put on my Geoffrey Moore glasses to look at the technology from a chasm crossing perspective.  And, if I'm really interested, I'll put on my Ed Roberts and Gordon Bell glasses -- and will evaluate the technology using other techniques as well.  But Fisher-Pry itself is extremely simple to use and a Geoffrey Moore analysis is also a no-brainer.  (Ed Roberts' -- and I'm the unofficial president of the Ed Roberts fan club -- various approaches to evaluating new markets and technologies requires me to fire a lot more neurons than Moore's approach.)  To me, Fisher-Pry is all about inflection points and EMERGING marketsTo see an application of Fisher-Pry, read an A.T. Kearney report on wireless futures at (and it's an excellent report, too).  See also a recent evaluation of the remote sensing market at .  For a brief review of Fisher-Pry and a couple of related techniques for technology trend analysis, see .
Finally, another reader questioned whether MIT's Innovation Futures market was doomed to focus on short(er)-term "bets."  My answer is that MIT may need to repackage Innovation Futures for addressing long(er)-term issues.  Many of us in America can remember playing the stock market in one of our classes.  For me, it was in my eighth grade government class.  We had to pick stocks and trade them through the course of the year.  Unfortunately, the very nature of this learning experience put a premium on trading versus investing.  In other words, picking stocks which might be solid over a three-plus year time horizon simply wouldn't work; it was much better to "gamble" on high Beta (i.e., higher volatility) issues.  Innovation Futures suffers from the same "need" to determine winners and losers on a relatively timely basis.  Probably time horizons of three or more years won't suffice, at least not from a "gamblers" perspective (sans venture capitalists).
I'd like to see their system changed to allow different types of "players" and "traders," namely the crop I had suggested in my last posting, but also another class of "all others."  Think of this as an experiment in social computing among technophiles, not online gambling.  In some ways, it could reveal the type of knowledge that is found in the blogosphere.
David Scott Lewis
President & Principal Analyst
IT E-Strategies, Inc.
Menlo Park, CA & Qingdao, China (current blog postings optimized for MSIE6.x) (access to blog content archives in China) (current blog postings for viewing in other browsers and for access to blog content archives in the US & ROW)