Jimmy Stki Summit 2009

ICE AGE 2
the meltdown
and beyond
Dr. Jimmy Schwarzkopf
Research Fellow
STKI
jimmy@stki.info
http://drjimmystki.blogspot.com/
1
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Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Copyright © 1990-2009 IMDb.com, Inc.
2009: The meltdown
1
Latest STKI-IT Spending Survey Results
2 IT Market in Israel: what is changing ?
3 What are customers looking for in 2009?
4 Who is gaining share of the shrinking IT budget ?
7
1
200 years since Darwin:

• Data from Bank of Israel is becoming ever more available
I feel
• GDPlike Darwin in Galapagos
– Economic activity data from 1989
collecting data , looking at patterns

• GDP for Business Sector
– Indexes that could forecast change
that emerge and trying

• Series of State-of-the-Economy-indexes
• OECD has data on Israel (but only until 2006)
to figure out
– Productivitywhat they mean
8
1
• Data from Bank of Israel is becoming ever more available

– Economic activity data from 1989
• GDP
• GDP for Business Sector
– Indexes that could forecast change
• Series of State-of-the-Economy-indexes
• OECD has data on Israel (but only until 2006)
– Productivity
9
How bad is this “recession” ?
10
How recessions affected IT vendors
11
“The only function of economic forecasting
(STKI-IT forecasting included)* is to make
astrology look respectable”
John Kenneth Galbraith
* my additions 12
low per capita ($ USD) IT expenditure
IT spending in Israel is 2.71% of GDP

European Union IT spending is 3.3% of GDP
$ 600 USD <
European Union per capita spending on IT amounts to 1100 €
13
* IT spending data by STKI
GDP per hour worked (*5)… excellent
indicator but data is usually 3 years behind
IT Market change
Change in GDP per hour worked (*5)
14
* IT spending data by STKI 14
But in real time: State of the Economy
Index as an “indicator “ of IT investment
State-of-the-
IT market growth rate
economy index is
an indicator for
examining the direction
in which real economic
activity is moving, in
real time. (Bank of
Israel)
Deviation from the

trend is calculated via
the Markov-switching
model and enables the
turning points in the
business cycle to be
identified at an early
Deviation from the trend (*10)
stage. (Bank of Israel)
All IT spending data by STKI 15

STKI IT Market Data (K USD)1989 - 2009
STKI 2009
FORECAST
All amounts in K $ USD 16

2 IT Market in Israel: what is changing ?
17
Deviation from the trend (*10) Value Added Services % groth Infrastructure (hwre) % growth
Total IT Market % growth Software % growth
18
Deviation from the trend (*10) Value Added Services % groth Infrastructure (hwre) % growth
Total IT Market % growth Software % growth
19
So let’s look at the numbers:
From the data we see several cycles for the IT Industry in Israel:
1. Up to 1996 : Market V0 : Age of Irrational IT Exuberance

2. 1997-2000: Market V0.1 : Age of re-structuring
3. 2001-2003: Ice Age : Age of “panic”
4. 2004-2007: Market V1 : Recovery, Growth and Integration
5. 2008- 201?: Ice Age 2 : Age of the “re-start”
6. 201?- : Market V2: Age of Industrialization of IT
20
Market V0: 1989 -1996
Value Added Services
Infrastructure (hwre)
software

Age of Irrational IT Exuberance
• 1987 : first year the IT expenditures passed 1b USD
• Profit came from moving BOXES
• Mainframes from IBM (VM/VSE.. DASD): entering most
big companies (some look-alike HDS were bought)
– Most were changing from NCR and CDC big machines
• Minicomputers like DEC, DG, Prime, HP were taking a
slice (AS/400 - migrating from S/38 and S/36 from IBM)
– First time computer users
– Microcomputers entering :
• As terminals in enterprises
• For accounting and office use in SMBs
22
Age of Irrational IT Exuberance 2
• Software sold through distributors:

– Israeli software was successful: 4 dimension, Magic, DB1….
– John Bryce, IBS, Tekem, Contahal, SPL ………
– data bases, mainframe software and 4GL were third party
• BIG VENDORS: IBM , DEC, DG, HP……
– Mostly sold “hardware” and software/ networking came as
“add-ons”
– Some services like “system engineer” came with the “machine”
– INTEGRATED server, storage and networking products
23
Market Order V0.1: 1996-2000
software

Age of re-structuring
• IT departments re-organize infrastructures and
applications… under the Y2K umbrella
• Services become a profitable and independent
“product”
• Projects are starting to go to VARs as contractors
(before they were sub to the big hardware vendors)
• Big UNIX projects (billing, ERP , etc)
• VAS vendors grow with Y2K related projects
– New “testing” vendors start
– Complicated project management
25
Age of re-structuring 2
• International software vendors in
Israel start being the main movers in
software deals (Microsoft, CA,
Oracle ….)
• Consolidation in the Service
Market, several companies are
bought by international and local
players
• Service players get their own sales
force and compete with hardware
vendors
26
ICE AGE: 2000 - 2003
software

Age of “panic”
• Excess“Unfortunately,
inventory (IT professionals and products)
a generation of
and very few projects:
salespeople
– Vendors “destroyed” the service market by taking
have the notion that they
projects that could never generate profit
create value by bringing in revenue
– Software & hardware products were sold at
we prices
ridiculous found out90%
(even that bringing
discount in one case)
revenue means collecting value
not creating it
not enough to survive
in today’s competitive markets.”
Source: McKinsey Quarterly
28
Age of “panic”
• Excess inventory (IT professionals and products)
and very few projects:
– Vendors “destroyed” the service market by taking
projects that could never generate profit
– Software & hardware products were sold at
ridiculous prices (even 90% discount in one case)
29
Age of “panic” 2
• CIO recognized as a profession:

– hired from one industry to another and succeed
– become part of the COMPANIES MANAGEMENT
Team
– started talking about tactical and strategic IT
• The internet bubble hit the Israeli IT companies

very hard but……
– New power houses in the IT market … (Matrix, Ness,
One1, Taldor …..)
30
Market Order v1.0: 2003-2007
software

Age of Recovery, Growth And Integration
• Consolidation of Local and International
Vendors changed the way IT business is done:
– most International vendors (hwre & sftre) sell
through channels and only support (super
experts) the local “delivery” of their products
– CIOs now make two decisions:
• What product
• Who integrates it
STKI changed the way we look at the market

32
Age of Recovery, Growth And Integration 2
• Boom in server and storage sales
– “utilization” of resources fell under 30%: mainly
because of high price of consolidation management
(tools and people)
• Boom of “application&data” integration:

– Resource Management: Financial, logistics, procurement and HR
– Transaction Management: core applications
– Client Management: CRM and call centers
– Analytics: Data Warehousing/ business intelligence/data mining
33
Age of Recovery, Growth And Integration 3
• Start of “data center” integration, consolidation,

virtualization and infra management efforts
• SERVICE ARCHITECTURE :
– CTO / Architecture VPs are hired in most IT
installations and in most vendor management teams
– SOA projects that include BPM, enterprise buses,
portals and composite applications
– Infrastructure projects where services are defined,
optimized, managed and delivered
34
Ice Age 2 - 2008 – 201?
software

JOB MARKET: 2004 vs 2009
We will all feel it
36
Age of the “restart”
• What's different about this crisis is it's

a CAPEX (capital expenditure) crisis
– CAPEX involves expenditures used to acquire or
upgrade physical assets and IT projects.
• Today's credit crunch directly affects

IT because:
– Information technology is the No. 1
"CAPEX" (capital expenditure) item.
CAPEX is not just affecting end users

but also solvency of the IT vendors
37
Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI 37
Age of the “restart” 2
• IT is not buying (CAPEX- frozen) products:

– Hardware sales have dropped more than
expected during 1Q2009 … about 37% average
STKI “might” make a change to its 2009 forecasts in the next 90 days
• Some CIOs are starting to feel pressure in

OPEX expenses
38
New metric is PAYBACK PERIOD
ROI IN THE NEXT 90 DAYS
cost reductions and revenue enhancement

precedence over
functional enhancements
39
Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI Slide based on force.com presentation
“business models” will change and IT is the strategic partner
• Companies will have to:

– Allow due diligence of
products and services
– Tools for self service
– NEW BUSINESS PROCESSES
• Customers demand:
– Value
– Quality
– Reliability
– Service
– Individuality
40
• Vendors change and the • Users change and when

backbone of any new buying services will go
business model: to vendors that have:
– Delivery management – Pockets of excellence
– Crisis management – Good delivery record
– Pockets of excellence – Financial soundness
(technologies)
This change is reflected in STKI’s IT categories

41
42
New Model for IT Vendors
Crisis Management
43
Not only the market but the dollar
Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI 44

Value
3 What are customers looking for in 2009?
45
IT situation: overview
• The recession :
• IT departments will cut budgets
• But will invest mostly in projects that:
– cut costs of existing processes and activities
– new ways to capture revenue/ growth
– Smaller “divided” projects
• Radical transformation of IT Management:
• Different way of consuming IT
• Industrialization of IT delivery
• Utilization increase of assets (over 90%)
• Cloud computing models (in-house, private and public)
46
Radical transformation of IT Management
Managing the
IT Budget
Managing IT for Managing the

business value IT capability
Managing IT
like a business
47
Managing the IT Budget
COST OF DELIVERING versus COST OF BUYING
• IT will have “new economics”
– Portfolio Management in order to drive
maintenance and cost reductions
– New models for “purchasing” USAGE of resources
– Flexible sourcing of product usage and service
• Budget management will be influenced by the new
statement :
“CLEAN UP the waste”
48
Datacenters today have 30% utilization
100s different
Energy waste Software
products
30% max in 25%

Storage utilization
Utilization x86 servers
Ala-carte
telecomm Hundreds of
services Enterprise
Processes
49
ROY: Optimization of IT
Optimize (Return on Yesterday)*
High Utilization Of Resources
Develop + Install + Manage

+ Deliver
* From SYMANTEC
50
Managing the IT capability
• Utilization is all about:
– Virtualization
– Automation
– Standardization
– Provisioning
• Things to do :
– ITIL, CoBIT, ISO 17799 (discipline & efficiency)
– IT system performance management
– Application Rationalization
– AGILE project development
51
Application Rationalization
• An assessment of applications will
show what applications have to
canceled and which should remain.
• If usage continues, then which have
high HATMAA and which do not:
– LOW HATMAA need special tools and
re-training
– HIGH HATMAA need tool for constant
reinforcement
Which applications are over
supported and which under
supported.
Resource optimization
53
Factories get to nearly full utilization….
IT should also…..
54
2 years ago IT was “overhead”
100 years ago After the meltdown:
Industrial Engineers: IT Engineers
– Assembly line – Will take state of the art
revolutionized the technology and change
economy workflow (service factory)
– Assembly line took state of – Change How Work Is
the art technology and Organized
organized work differently – Develop New
for PRODUCT factory
Products And
Services Based On
New Technologies
55
Building the IT factory
Moving IT from:
LAB environment to
FACTORY environment
Local
Local Factory
Outsourced
Factory Outsourced Factory
Factory
56
Standardized Equipment
Economies Of Scale
57
Standardized Services
Economies Of Scale
“Application Image” is a sum of

infrastructure services and software
services needed to deliver an IT
product
Two types of IT services:
1. Infrastructure Services or Ensembles

2. Software Services or Mashups
58
The new Service-Based IT

Delegating the Power to the Cloud
60
New in Cloud Computing
1. The illusion of infinite computing resources available

on demand, thereby eliminating the need to plan far
ahead for provisioning.
2. The elimination of an up-front commitment, start small

and increase hardware resources only when there is
an increase in their needs.
3. The ability to pay for use of computing resources on a

short-term basis as needed (e.g., processors by the
hour and storage by the day) and release them as
needed.
61
Transformation of IT:
CIO priorities for 2009
1. Cost reduction 9. Storage virtualization
2. DRP/BCP 10. Desktop virtualization
3. Server virtualization 11. Data De-duplication
4. Server consolidation 12. Governance, risk
5. BI/DW management and
6. Security compliance
7. CRM 13. Self-service
8. WAN Optimization/ 14. Mainframe
application optimization
acceleration 15. Open Source
62
Creating with IT >business value
§Grow Revenue
Bends the revenue line up faster
than your competitor – includes
innovation
§Protect Revenue
Net Revenue Holds the revenue line at its current
growth rate
§Reduce Cost
Short term impact to drive costs
down through automation and
Operating Expense process improvement
§Avoid Cost
INCREASE THE SPREAD Avoidance of future costs that
TO INCREASE MARGIN would bend the expense line up –
includes innovation on the expense
side/process side
§Manage Risk
Enables risk management from a
firm and regulatory perspective
63
Do not remove source or attibution from any graphic or portion of graphic Based on Howard Rubin’s presentation
CUTTING COSTS vs OPTIMIZING COSTS
• Changing BUSINESS PROCESSES to fit new

business models
• Fast delivery of “analyzed data” to enable
decision making (BI,DW, Data Mining, MDM..)
• Self- service and real time delivery of
business and consumer services over the
INTERNET will grow more than software sales
64
So what do we do in the “New Era” ?
65
Competition in services?
Business Process Improvement
New Business Model
66
Roadmap:
Business Process Innovation
High
Improve: SURVIVE Innovate : GROW Invent: CHANGE
Business Performance
Contribution to
2012
4Q 2009 2011
2010
2010
2009
Low
Redo Existing Rethink Redefine

Processes Business Business
67
SELF SERVICE AND MOBILE
“STOP aligning IT with the business-

Connect with the CUSTOMERS”
68
How new “models” like due diligence of products
changes everything:
• Los Angeles Restaurants must
have a letter in front window
reflecting the results of last
health inspection (A,B,C)
• Restaurant Websites show the

results and allow other
comments on the restaurant’s
service and food.
69
4 Who is gaining share of the shrinking IT budget ?
70
This study cannot ……….
• The IT market offers service and products in:

– Over 500 different hardware classes
– Over 1000 different software families
– Over 1000 different types of services offered
• The Israeli IT market has:
– Over 250 firms that have over 5 employees
– Over 100 firms that have between 2-4 employees
– Over 1000 individuals that work as “freelancers”
71
Amount of ‘big” IT (in Israel) has
decreased in the last 3 years
72
The Israeli IT Market (% changes)
“missed”
4Q2008 was
worse than
expected
“hope not”
new data
after
Q2 2009
Q1 was worse
than expected
73
IT market share (%) by INDUSTRY
74
Industries IT expenditures ($ USD)

Industries 2003 – 2009 (in $USD)

Industries 2003-2009
All amounts in K
M$$USD
USD 77
STKI Technology Spending Cycle
Outsourcing
Development
Consulting
Time
Software
Transaction
processing Hardware
Networking
Technology
Contract awarded to…

78
As markets changed, STKI also changed its
categories (pockets of excellence)
"It is not enough that I should succeed, others must fail“
Gore Vidal
• Pockets of excellence
– Users identified the need
for experts
– Most vendors are moving
or moved into the new
delivery model
All amounts in M $ USD 79

TOP 9 IT Vendors in Israel
These 9 vendors either sell in all
Hardware, Software and Services
categories or they have extremely
large market share in only part
of the categories
80
Hardware & Software Categories
81
Tactics : to lower spending on hardware
1. Elongating PC upgrade cycle

2. Reuse of desktops/notebooks rather than
replacing all
3. Increase utilization rates above typical levels
4. Purchasing from fewer vendors in exchange
for lower prices
5. Accelerate migration from Unix, Open VMS
and OS400
82
Hardware Market
All amounts in M $ USD
83
Servers
1. HP strong in BLADES
and HIGH END servers
2. IBM continues to sell
System z and System
p/i besides their x86
servers
MANUFACTURERS
3. SUN strong in UNIX
server sales
All amounts in M
K $$USD
USD 84
Clients
1. Notebooks continue to
displace desktop units in
corporate PC market.
2. Substantial JUMP in
“desktop” virtualization
3. NETBOOKS, SMARTPHONES,
MANUFACTURERS
APPLE are game changers
in the next 24 months.

Storage Equipment
1. Clients are storing more and

more data into midrange and
low-end arrays.
2. DRP projects : new purchases.
3. Biggest issue : how to deploy
storage in virtualized
MANUFACTURERS
environments.
4. Storage virtualization?
All amounts in M
K $$USD
USD 86
Networking
strong gain for
WAN optimization
and application
acceleration
solutions: high VoIP / Call Center
ROI by cutting MANUFACTURERS
communication
costs
Network
MANUFACTURERS
All amounts in M
K $$USD
USD 87
Printers and “new” services
• We were very
surprised at the slow
use of printing services
and software in order
to cut costs during
2008
All amounts in M
K $$USD
USD 88
Special Categories
COMPUTER ROOM
(Racks, etc)
COMPUTER SUPPLIES
SELF SERVICE AND DISPOSABLES
Mobile and Special Purpose
(ATMs, Kiosks, etc)
All amounts in M
K $$USD
USD 89
Big issues in SOFTWARE
• IT departments are “changing” the way they
choose software (next slide)
• Licensing problems in virtualized and multi-core
environments
• Open Source will start to be standard in several
areas
• Focus on “high” maintenance costs:
– Customers may consolidate best-of-breed purchases
into bundled suites with “cheaper” maintenance
– Move to SaaS solutions
90
Top 10 criteria for selecting software
1st and 2nd time around
91
Source: Deloitte & Touche - 1500 companies surveyed
Software Market
All amounts in M
K $$USD
USD 92
System Software
DBMS
Operating Systems
Middleware
All amounts in M
K $$USD
USD 93
Information access & analysis
Exploding volumes of 1. Tools for finding and
digital information (video,
audio, images, text,
making sense of the
transactional data, etc) information.
2. Tools for data
cleansing.
3. Tools for minimizing
duplication.
4. Tools for storage
management.
5. Tools for backup
management.
94
IT Management Software
Service desk
Storage Management
Enterprise System Management Security Software

All amounts in M $ USD 95
Information Management Software
All amounts in M
K $$USD
USD 96
Cont: Information Management Software
PORTAL &
COLLABORATION
DEVELOPMENT AND
MODELING
BI / MDM/ ETL
97
Business Applications
CRM
ERP
All amounts in M
K $$USD
USD 98
Testing Software
1. APPLICATION TESTING
SOFTWARE market is close
to saturation.
2. DATA TESTING SOFTWARE
will start to dominate this
category (needed for SOA
projects)
All amounts in M
K $$USD
USD 99
• This remains the one area that CIOs look for
potential cost-reductions by re-negotiating
contracts
– Third party professional services have been the target
for most contract openings during the last 90 days.
Maybe changing the “game rules”.
• No “big” IT service supplier can survive with the rates being
talked today (less than 10% + cost)
– Project delays and slow-downs have helped CIOs cut
budgets but the cost could be higher than expected
when the IT department wants to start again
100
Value Added Categories
101
Value Added Services Market
All amounts in M $ USD

102
Cont: Value Added Services
103
IT Consultants & Analysts
The use of consultants has been reduced but:
– People still don’t check the ethics of consultants

– Risk officer should check
– Still use integrators as consultants, analysts as

consultants and consultants as analysts
All amounts in M
K $$USD
USD 104
Cont: consulting / analysts
105
Hardware Maintenance
• Maintenance will change given
the change in purchasing and
using of equipment:
– Keeping equipment longer
– Using it at higher capacities
– Users need 24X7
All amounts in M
K $$USD
USD 106
Hardware/ networking/infrastructure /DRP/
Management
The need for changing usage and

management of infrastructures
will force users into
complicated projects
All amounts in M
K $$USD
USD 107
Special integration services
All amounts in M
K $$USD
USD 108
System Integration Projects
• Virtualization and
consolidation plus
SOA projects will be
exponentially more
difficult
All amounts in M
K $$USD
USD 109
TRAINING and HATMAA
• Training, assimilation,
implementation, rollout,etc:
are change management processes.
• Change management that
helps users change working
processes.
• HATMAA: is the measurement of
the change process success.
All amounts in M
K $$USD
USD 110
Development Services
All amounts in M
K $$USD
USD 111
Cont Development Services
112
Enterprise Risk Management
• Governance and risk management
became confused with obeying
the law
• According to any “new age” theory:
– Management proposes OPTIONS to
the CEO/Board and also shows the
RISKS each of them carries.
– Risk also changes with TIME
– This process is called:
“ENTERPRISE RISK MANAGEMENT”
113
• Should be divided into several categories:
– Ethics
– Regulation
– Operations control and quality
– Risks
– Data and premises security
– Q/A (testing …)
– Project and portfolio management
All amounts in M
K $$USD
USD 114
Customer Demand Shortfall Cost Overruns

24
Accounting Irregularities
Competitive Pressure
Management Issues
M&A Integration Problems
Supply Chain Issues
11
Product Issues
12 Foreign Macro-Economic
Customer Pricing 7 7
7
6 Commodity Prices
6 Loss of Key Customer
4 3 Interest Rates
2
2 1
1 1 1
0 0
Strategic Operational Financial Hazard
58% 31% 6% 0%
115
Cont: Governance, risk, security …..
116
Project Services
All amounts in M
K $$USD
USD 117
Outsourcing Services
many .. many types
from call centers (Calanit Carmon) ,
complete outsourcing (HP-EDS), BPO salaries (Hilan) to
cloud computing ( Salesforce.com)
All amounts in M
K $$USD
USD 118
All OUTSOURCING categories
119
IT Service Delivery (“good souls”)
This type of service will finally see its maturity:
1. Augmented IT staff providers
2. Project-based on-site third party service providers
3. Specialized on-site third party service providers
4. Near-shore third party service providers
5. Off-shore third party service providers
All amounts in M
K $$USD
USD 120
Cont. “good souls”
121
Thank you
Dr. Jimmy Schwarzkopf
http://drjimmystki.blogspot.com/
jimmy@stki.info
122

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ICE AGE 2

STKI Summit 2009

STKI Summit 2009

2 IT Market in Israel: what is changing ?

3 What are customers looking for in 2009?

4 Who is gaining share of the shrinking IT budget ?

200 years since Darwin:

collecting data , looking at patterns

that emerge and trying

• Data from Bank of Israel is becoming ever more available

IT spending in Israel is 2.71% of GDP

European Union per capita spending on IT amounts to 1100 €

Change in GDP per hour worked (*5)

Deviation from the

All IT spending data by STKI 15

All amounts in K $ USD 16

Total IT Market % growth Software % growth

Total IT Market % growth Software % growth

1. Up to 1996 : Market V0 : Age of Irrational IT Exuberance

All amounts in K $ USD 21

• Software sold through distributors:

Value Added Services

All amounts in K $ USD 24

All amounts in K $ USD 27

• CIO recognized as a profession:

• The internet bubble hit the Israeli IT companies

Value Added Services

All amounts in K $ USD 31

STKI changed the way we look at the market

• Boom of “application&data” integration:

• Start of “data center” integration, consolidation,

All amounts in K $ USD 35

We will all feel it

• What's different about this crisis is it's

• Today's credit crunch directly affects

CAPEX is not just affecting end users

• IT is not buying (CAPEX- frozen) products:

• Some CIOs are starting to feel pressure in

cost reductions and revenue enhancement

• Companies will have to:

• Vendors change and the • Users change and when

This change is reflected in STKI’s IT categories

Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI 44

Managing IT for Managing the

30% max in 25%

Develop + Install + Manage

“Application Image” is a sum of

Two types of IT services:

1. Infrastructure Services or Ensembles

Dr. Jimmy Schwarzkopf’s work Copyright 2009©STKI

1. The illusion of infinite computing resources available

2. The elimination of an up-front commitment, start small

3. The ability to pay for use of computing resources on a

• Changing BUSINESS PROCESSES to fit new

Redo Existing Rethink Redefine

“STOP aligning IT with the business-

• Restaurant Websites show the

• The IT market offers service and products in:

All amounts in K $ USD 75

All amounts in K $ USD 76

Contract awarded to…

All amounts in M $ USD 79

1. Elongating PC upgrade cycle