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Customers are Turning the Corner
There's a subtle attitudinal shift taking place in the technology market just now that, if sustained, should dramatically improve the fortunes of many product and service providers. While customers are still seeking tools to help them boost productivity, they are beginning to do so with an eye toward increasing revenue and profitability, rather than as a hedge against financial disaster. The short-term impact of this difference on vendors' bottom lines may be marginal, but its long-term ramifications on strategy are potentially huge, as evidenced by several recent corporate moves that smack more of future positioning than current survival. Productivity Rules, Now and AlwaysMuch has been made of the role worker productivity has played in the recent jobless recovery of the U.S. economy, namely how business' ability to do more with less has propped up fiscal performance without creating new jobs. Well, the latest reports suggest that this is about to change: hiring soon will begin again in a meaningful way, and productivity likely will decline as a result. In fact, this is a good thing, as it will reflect the shouldering of some of the existing load by the new workers and the time those workers will take to begin performing effectively. BusinessWeek (May 24, 2004) reports that productivity growth has been running at a remarkable 4.6% annual rate since the end of the recession [in November 2001] and cites experts who believe it will settle between 2.5% and 3% long term, still well above the 1.5% pace that prevailed in the two decades before the mid-'90s boom. Kinetic Information believes much of this will reflect organizations' continuing desire to enhance worker effectiveness even though the financial crisis seems to have passed, and their continuing implementation of process-oriented technology solutions. Vendors Spy, with their Little EyeKinetic Information also believes smart vendors are noticing this trend and are starting to position themselves accordingly. As evidence, we point to two recent corporate transactions. First, integration tools vendor Tibco announced in late April that it would be acquiring BPM stalwart Staffware, a move that exploits striking technological synergy between the two product lines to create a far higher level of enterprise interoperability. And second, Navisite announced in early May that it plans to acquire fellow IT service outsourcing agency Surebridge, a move that strikes us as virtually inevitable given the former's growth-by-acquisition strategy, the latter's recent successes, and the constant need for outsourcers to add more services in order to serve more customers and thus continue to grow. Different as the two markets in which these firms are active may seem, the new alliances reflect a common reality the need to meet the customers where they live. For most of the past three years, that dwelling place was a dark economic space in which customers strove to drive costs out of their businesses. But today's fiscal outlook is somewhat brighter, and the corporate mindset and right behind it, the corporate pocketbook is becoming more open to investment for the sake of near-term growth. Blink and you might miss this change, though, for the technologies being sold today are the same as those being sold yesterday, and are being sold to the same types of executives as before. But dig down a layer and it's clear that something new and more positive is going on, and that solution providers would be well served to begin amending their messages to match. A Prognostication FulfilledBack in November, we wrote that too many vendors of pure-play solutions (as opposed to converged) are chasing too few customers, and that significant numbers of acquisitions [will] be announced in the months ahead. And in January, we predicted that IT services [will evolve] into a broad and inclusive industry in which application management, business process management, content delivery, consulting, and database and storage management all work together under a single service brand. The Tibco/Staffware and Navisite/Surebridge deals of the past four weeks illustrate these two trends perfectly. Given the new focus of customer activity profitability over penny-pinching there's no reason to expect they will not continue in the months ahead. Contact Us for More # Kinetic Information is always eager to hear your opinion, too, so please let us know what you think send us an email, give us a call, or start a conversation in our Client Forum: visit our Web site at www.kineticinfo.com and choose News & Views KI Client Forum. Thanks! |
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