by Mike Evans, Cambashi
In 2004 we expect the IT budget of European industry to increase for the first time in five years.
In recent times we have all got used to the idea that no one is investing in IT for industry. Users have had to manage with the technology they already had in place; weak demand has caused suffering for many vendors.
In 2003 there was no real growth but we can see that users have stopped cutting budgets. As industry accounts for 30% of all expenditure on IT, this is a major development and, to many, a welcome one.
200m people are employed in industry world-wide and industry accounts for 1/3 of total IT spend. Cambashi looks at the whole picture and focuses on three application groups: engineering, enterprise and control & automation.
Theres a new kind of smart buyer
As users switch to the idea that there may be some budget on the way they are determined not to repeat the mistakes of the late 90s. Todays users are much more computer literate and realistic: they now resist sales calls to tell them about the next big Three Letter Acronym.
One favourable legacy of the 90s is that individual and team productivity is well established. Users now want to build on the computing infrastructure and applications they have and utilise them even more effectively. They are looking to IT for help with specific business initiatives.
Cost cutting over the past few years means that outsourcing has increased in quantity and complexity. Many business initiatives are supported not by a single application in a single company, but by several applications, in different organisations, in different locations.
This arrangement requires lots of services glue to make it work. The most pressing need in many organisations is to improve the way that internal departments work with each other and with customers, associates and suppliers. This synchronization is difficult to achieve, and almost impossible without support from information technology. The clear opportunity now is for horizontal integration.
Integration is going to require systematic change but we see that leading companies are willing to make the commitment and are already tackling these issues.
The supply side is already scurrying about
Not only is there money on the demand side, we also see a different approach on the supply side. IT in industry has the opportunity to reach new technical heights because vendors are trying to link specific applications into larger IT markets.
Weve had CAD companies looking at PLM (Product Lifecycle Management) and now we see Dassault forging links in the automation market with Schneider. Many smaller niche applications have been bought to extend large vendor product portfolios.
Infrastructure vendors are moving forward in two directions.
To appeal to larger customers they want to align with partners in both software and consulting services so that they can provide solutions that match business initiatives.
For smaller and mid-sized prospects they are aiming to package their offer with partners into easy to deploy solutions for specific initiatives. One example of repackaging with integration is MS Office linking to Microsofts CRM via MS Outlook on the desktop.
The diagram below shows the direction of revenues.
Region World $US EMEA $US EMEA Euro Application Area 2003 Vendor 2003 Vendor 2003 Vendor 17,100m 7400m 15,117m Engineering Applications 5200m 2100m 1883m
Industry always sets the pace
Industry is where things in IT happen first. Software products, graphics, ERP and standard operating systems like UNIX all started here. Industry has compelling reasons to innovate and has very savvy users. Look at how automation has moved from customised hardware to mainly software running on standard hardware; and with a huge improvement in price performance.
Industry applications rise above the general level of sophistication and integration. Without EDA (electronic design automation) tools for example we would not have MP3 players and picture phones.
All industry applications have elements that gradually drift into the infrastructure first as middleware, then as operating software and finally into hardware. One current example is document management. This was a stand alone application but it is now being absorbed into engineering and enterprise applications.
One of the most important next shifts in industry will be the drift of embedded software development. From being a bespoke in-house activity this will become another integral aspect of an engineering application.
Our market analysis examines both demand and supply issues in more detail but the clear message is good news all round. After cutting costs, users and suppliers have reached the point where both can make money. It may be at a slow rate but in 2004 we expect real growth.
Mike Evans is one of