Total ICT Spending to Increase by 5 percent in 2012

You may think that the worldwide economic downturn has negatively impacted most CIO's budgets, but so far that hasn't been the case. According to the latest market study by IDC, worldwide IT spending remains on course to grow by 6 percent this year in constant currency, that's only slightly down on last year's pace of 7 percent growth.

Strong performance in software, storage, enterprise network and mobile device markets has offset weaker trends in PCs, servers, peripherals and telecom provider equipment. However, the strength of the U.S. dollar in the first half of 2012 means that IT spending is on course for growth of just 4 percent this year.

Including telecom services, it's now estimated that total ICT spending will increase by 5 percent this year in constant currency to $3.6 trillion (that's growth of 2.5 percent in U.S. dollars).

"In spite of economic uncertainty, which continues to inhibit enterprise investment in some tech segments, the continuing demand for tablets, smartphones, storage capacity and network performance improvements actually outperformed expectations in the first half of the year," said Stephen Minton, Vice President, IDC Global Technology and Industry Research.

That being said, software spending has been very robust -- even in regions where economic trends have been weakest -- as businesses turn to software tools and cloud applications as a means of implementing their IT cost-reduction strategies.

Key Trends in the Worldwide IT Market include:

• American business spending on IT remains on course for weaker performance than 2011 with growth of 5.9% (down from 8.5% last year); the launch of Windows 8 in Q4 may help to drive a meaningful recovery in the PC market next year.
• While Western Europe remains weak overall due to the slow economy, software growth in Northern Europe was robust, and mobile device shipments (smartphones and tablets) have remained on course; excluding mobile devices, however, Europe is on course for just 1% growth in constant currency (a -4.5% decline in U.S. dollars).
• The recovery in Japan has lost some momentum, with IT growth in constant currency now on course for an increase of just 2% this year before flat lining again in 2013.
• Growth in emerging markets is still relatively strong,; in China, where the manufacturing sector has been impacted by slowing exports to Europe, IT spending is now on course for 14% growth this year in constant currency (down from 25% growth in 2011), with PC spending on course for growth of just 7% after a weaker-than-expected first half (down from 19% growth in 2011).
• Strong growth is still expected in India (14%), Brazil (14%), Russia (11%) and South Africa (8%).
• Overall Worldwide IT spending is now expected to grow by 6% in 2013 to $2.1 trillion (ICT spending including telecom services will increase by 5% next year to $3.8 trillion).

"In particular, the strength of software spending seems to prove that many enterprises have unlocked significant productivity and efficiency improvements. If the economy avoids downside scenarios in the second half of the year, a PC upgrade cycle in 2013 should help to maintain this momentum," said Minton.

IDC provides forecasts for IT spending in 54 countries around the world. These forecasts focus on 25 individual market segments across hardware, software, IT services, and telecom services for individual countries in all regions -- including North America, Latin America, Western Europe, Eastern Europe, Asia-Pacific, the Middle East, and Africa.

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Increased Spending on Public Cloud Computing Services

This week, the world's financial markets have been negatively impacted by continued concerns about the global economic outlook. There has been little good news about the economy lately, particularly regarding the U.S. jobs forecast.

That said, enterprise related IT spending has apparently been one positive forward-looking market indicator -- particularly the current and planned use of managed cloud services.

According to the latest market study by In-Stat, enterprise business spending on IT and telecom services -- which include cloud computing, wireless, wireline voice, wireline data, and business IP/VoIP -- will move in a positive direction in 2011, increasing by healthy 6 percent.

"There will be positive growth across all 20 verticals with education and healthcare & social services leading the surge with growth of 10 percent and 9 percent respectively,” says Greg Potter, analyst at in-Stat.

These forecast increases in spending are across all product groups except wireline voice, which will decline by about half a percent.

In-Stat's latest market study findings include:

• Enterprise spending on public cloud computing services is set to expand 139% from 2010 to 2011.
• Enterprise spending on wireless data is set to approach $17 billion in 2015.
• Enterprise spending in the healthcare sector on wireline data will approach 2 billion in 2014.
• Enterprise spending on wireline voice will remain flat, with traditional TDM services continuing their decline, only reaching $3.4 billion in 2011.

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Cloud Services Adoption in Asia-Pacific

It's the time of year when most business technology market research and consulting companies release their predictions for the new year. In its annual outlook for 2010, IDC predicts the Information and Communications Technology (ICT) spending and growth in the Asia-Pacific excluding Japan (APEJ) region will reach $184 billion -- with a 7.7% growth over this year.

IDC predicts most growth will come from India and China, although all countries are expected to experience varying degrees of growth.

"While budgets are still tight, and the buying patterns may have changed irrevocably from what the ICT industry has been accustomed to, the fact remains that there is cautious optimism in the market with some interesting pockets of surprising growth," said Simon Piff, Head of IDC's Asia-Pacific Predictions Committee for 2010.

The net result of the economic slowdown has been an overarching change in how and why companies make new business technology investments.

Proven Technologies Ready for Adoption
IDC foresees projects that generate immediate ROI and tangible improvements in managerial and operational efficiencies will continue to be the ones that garner quick executive buy-in.

The key enabling technologies for 2010 are not necessarily new, as much as they are a more mature and robust implementation of proven solutions that have been available for a while.

Cloud Computing, last year's emerging focus area, will move from being merely a buzzword to a deployment reality -- as service providers address the challenges of providing managed cloud services and organizations realize the flexibility that these solutions can provide.

In fact, cloud services ranks number one on the “Top Ten key IDC predictions that will shape the ICT industry in APEJ in 2010.”

The Maturing of Cloud Services
According to IDC's assessment, service level agreement (SLA) options will improve. They believe that the combination of five-nines performance guarantees -- plus robust business continuity and disaster recovery (BCDR) capabilities -- will be the compelling new adoption momentum that accelerates cloud service growth.

In 2010, the large organizations that are ready to deploy managed cloud services will do so, demanding the same SLAs with BCDR capabilities.

IDC's annual predictions for ICT includes the latest research results from their 1000+ analysts. This insight was followed by an extensive regional review to weigh in on key industry events, typical user characteristics, vendor strategies and economic measures, that help define the technology trends which would impact and drive the ICT market in the Asia-Pacific region for 2010.

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Business Technology Leader Maturity Framework

As 2009 comes to a close, a recent editorial in CIO magazine sums-up a nagging issue -- "Despite the emergence of improved IT management tools over the past decade, CIOs continue to grapple with the same IT challenges they dealt with five and even 10 years ago. Which can make a CEO wonder: when are we going to get there?"

Forrester Research believes that CIOs have typically run "the tech factory" for their firms -- responding to business needs with solutions and operations from both internal and external sources. These IT leaders have pursued operational maturity to optimize solution delivery.

Forrester says that CIOs won't ever get away from delivering on operational maturity. But as technology becomes pervasive -- more stable, standardized, and available as a business-centric service -- it's inevitable that business executives will take greater direct control over technology investment decisions.

Forrester calls this evolutionary transition the shift from Information Technology (IT) to Business Technology (BT). Let's review the key drivers of this transition once more. It's the essential "there" destination that many CEOs eagerly anticipate for their organization.

Greater Response to Business Demand
Traditional IT establishes prioritization criteria and IT governance processes. Weighed down by growing legacy maintenance, typically a third of IT spending is reserved for new projects. IT therefore creates conflict among business organizations -- who must lobby for those limited IT resources.

Broader Focus on Business Value
IT should help deliver business results, yet it's often consumed by technical issues -- re-educating staff, deciding what to re-architect, and debating whether to build or out-task. Meanwhile, new capabilities are increasingly available through managed cloud services -- and purchased directly by business groups via software-as-a-service.

Significantly Faster Pace of Change
The rate of business change continues to accelerate, forcing CIOs to be reactive -- while attempting to increase agility. The CIO's dilemma: either their business organizations will move ahead without internal IT, or, their business executives will fail to take full advantage of new technologies in time to use them effectively.

Framework for the Required Transformation
To help CIOs understand best practices, Forrester has developed a BT Leadership Maturity framework in the form of a self-assessment. This tool is designed to provide a candid benchmark of how well they are performing -- highlighting specific areas where additional work needs to be done.

Forrester concludes that CIOs who fail to move quickly will find their firm falling behind more agile competition. Those who assess and improve their organization's BT leadership maturity are responding to changing market realities -- as well as reducing the likely chaos that would result from allowing the business to move forward on its own with BT, without the CIO's close involvement.

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A Boom in Managed Services - How to Prepare

New studies demonstrate the pros and cons of Business Technology deployments, especially as they relate to IT investments strategies.

First, the downside: in a recent study of IT management excellence, the results showed the continuing disconnect between finance and IT roles, and the value each one brings to the organization.

As the report states: "The lack of alignment within organizations is exacerbated by a lack of awareness on the part of both IT and finance about their own contributions to the problem. Nearly one quarter of the respondents report that discord between IT, business and finance is a frequent occurrence when making IT investments."

Why Clear IT Processes Matter
Lack of alignment is triggering a bigger cascade of problems relating to IT investment. For instance, sometimes companies excuse their lack of IT investment due to limited budget and resources.

In reality, "companies are unsure how to define or implement management processes, therefore they are unwilling to make significant changes and they allow other investment priorities to step to the front."

The temptation in this scenario might be to outsource the contentious area to a third-party to save money. This is exactly the wrong time to act.

Clearly, you have to get your own house in order before you take advantage of out-tasking, and then you have to apply strong governance to the service provider relationship. If you can't manage the process internally, you surely can't manage it externally.

Foundation for Competitive Advantage
Why do you need to get your house in order? Assume your competitors are going to act, and thereby gain an advantage from deploying managed services.

Forrester Research analyst Henry Dewing predicts in The Broad Opportunities in Managed Services that "macroeconomic factors, including rapid technology evolutions, a coming investment wave in IT, and market constraints on capital, increasing the attractiveness of managed services over the next 24 to 30 months."

In fact, Dewing proscribes the managed services model, represented by the confluence of faster technology change, a new technology investment cycle, and capital constraints. It's a proven way to take advantage of new technologies without capital investment -- while still having a hedge against increasing change.

Even more important, Dewing continues, "Given limited prospects for growth and the high cost of capital, Forrester believes that many businesses will turn to managed services to limit capital investments while increasing the flexibility of IT infrastructure."

Now, the upside: if you want to be in a position to take advantage of technological advancement to spur new growth -- while still hanging onto precious capital -- then managed services is likely the way to go.

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