Though Challenged, the IT Industry Will Survive2:48 PM EST Mon. Nov. 05, 2001
ntil recently, information technology (IT) defined the "new economy." Now, however, a new IT is defining the economy in general,international terrorism. This "new economy" is marked by fear, uncertainty and volatility, but also by a knowledge that IT must play a role in improving it.
The Sept. 11 events were a likely indicator, not an aberration, of what is to come on the global political and economic landscape. IT has become inexorably entwined with the economy and society. Its fortunes, therefore, are tied to the government's, market's and society's abilities to effectively respond to terrorism. The IT industry thrives on investments, risk-taking and innovation. Unfortunately, the current market environment is not conducive to the first two elements. Terrorism certainly did not cause this problem but has contributed to it, though its direct impact on overall spending seems limited at this time. Pragmatism, frugality and an emphasis on tangible returns will continue to dominate IT investment decisions through 2003.
There are certainly many niche technologies (e.g., biometrics, teleconferencing) that recent events will benefit. But they are just that,niches. Biometrics represents only $200 million to $300 million of the overall $100 billion security market, for example. Security, storage and supply chain (i.e., building the extended enterprise) will remain leading IT market growth areas in 2002/03.
To enable innovation, therefore, IT vendors must deliver products and services that address the new challenges facing end-user organizations. This is nothing new. IT for IT's sake is still bad, even with biometrics. IT vendors must understand today's holistic business environment (e.g., process, industry, geopolitical) and map their offerings against defined pain points in that environment. More than ever, demand for an IT offering is affected by business drivers.
IT service providers' roles will become more critical. At the same time, IT products must have the contextual relevance to meet a specific client's needs.
IT product customization and integration will continue to drive service opportunities, though, in step with demand for the underlying products. Web services tied to the rapid deployment of integrated, custom application components is a growth arena, but one that will not begin to mature until 2003. Finally, outsourcing will continue to grow, but the emphasis will continue to shift toward full-service IT providers and business-process outsourcing.
The short term will remain challenging for the IT industry. Many small companies will struggle and fail during the next 12 to 18 months and forced consolidation will continue. Funding will also continue to constrict as few VCs will realize positive returns from the past two years' investments, and many of them will exit.
While long-term opportunities are brighter, tomorrow's big winners will be those companies that employ IT to solve compelling business problems and exploit business-process innovation, not just turn out compelling IT. Largely, this is already true. Dell Computer's success is based on its business-process prowess. AOL is a media company. Accenture wins deals talking business futures.
The current pain and suffering in the IT industry is cleansing the system and instilling lessons learned by the survivors. Sept. 11, in contrast, was a cruel wake-up call, one that in the context of the IT industry reminds us of the bigger picture, but also of the need to aggressively employ IT to make that picture a better one. n
Stan Lepeak has analyzed and commented on the IT industry for more than a decade. He serves as senior VP and research director at the IT software and services firm Ajunto.com, Philadelphia. Contact him at email@example.com.