Gartner Sees Shift to Bite-Sized Business Software

Companies such as SAP and IBM must break their software packages into smaller units as their corporate clients want to cherry pick them to update systems more frequently, consultancy Gartner said on Monday.

With rapidly changing markets, rising competition from emerging economies and ever more demanding customers, companies need to respond swiftly with changes to their organization and approach to customers.

But the software that underpins their operations has become more complex, making it harder to change once deployed, so they can find themselves stuck with a product that no longer suits their needs.

"For years we have responded to change with new technologies and applications, but this has lengthened the IT change cycle at a time when the business change cycle continues to shrink," said Peter Sondergaard, Gartner's global head of research.

Gartner believes that makers of software that helps large companies manage tasks from payroll to inventory to customer relations -- like SAP, IBM, Oracle and Microsoft -- must carve smaller pieces out of their large packages to make it possible to adapt them more quickly.

"The question is: can software makers handle a situation in which their clients want smaller increments of software and at the same time convince them to increase their software spending," Sondergaard said in a telephone interview from Gartner's ITXpo conference in Cannes on France's Cote d'Azur.

And they must also make sure that those pieces can plug into their rivals' competing products, too, as companies cherry-pick more specialized programs from different vendors but want to stitch them together seamlessly.

"This increases the agility of the software because it's now easier to rearrange the process or determine who will actually perform each step in the process," said Yvonne Genovese, a researcher at Gartner.

"In this way, business process is shifting IT projects from large multi-year marathons to rapid deployment gap applications, and reconfiguration of existing systems," she said.

SOFTWARE ECOSYSTEMS
Instead of hoping to keep selling comprehensive products, software makers are trying to create what Gartner calls "ecosystems" -- realms where they shape the environment and create frameworks and standards within which others operate.

The ecosystems "will consist of large and small vendors who need each other to thrive," Genovese said. "Increasingly a company is destined to become part of an ecosystem in order to survive, unless it is an 'ecosystem vendor'."

Sondergaard said U.S. software maker Peoplesoft, for which Oracle has launched an $8.8 billion hostile takeover bid, was a good example for that dilemma.

"PeopleSoft will not become an independent ecosystem. They have to decide which ecosystem they want to belong to," he said. "Obviously, if Oracle buys them, that decision is made."

On the other hand, buyers of software need to switch from one large purchasing decision to picking the right product for individual tasks, Gartner said.

The consultancy said it expected western European software sales growth would remain a laggard behind the rest of the world.

It sees western European IT spending returning to growth again next year, rising 2 percent in local currencies, or 3.6 percent in U.S. dollar terms, up from a 3.8 percent drop in 2004. U.S. IT spending will probably grow by 5 percent in 2005.