On Monday, Gartner announced that worldwide IT spending is on pace to a level of $3.7 trillion in 2014, a 2.1 percent increase over 2013. However, that number is a full percentage point lower than Gartner’s 3.2 percentage growth forecast in April. According to the Gartner news release: “The slower outlook for 2014 is attributed to a reduction in growth expectations for devices, data center systems and to some extent IT services.” A Gartner vice president further indicates: “Price pressure based on increased competition, lack of product differentiation and the increased availability of viable alternative solutions has had a dampening effect on the short term IT spending outlook.”
We call Supply Chain Matters reader attention to the Gartner revised forecast for a couple of reasons. Keep in mind that a downward adjustment of a full percentage point in just a couple of months alone is a rather significant indication that IT market dynamics are changing rather quickly. First, it is an obvious indication that despite a healthy IT investment climate, competition among vendors and services providers is driving down pricing, especially when it relates to cloud based offerings.
Second is the profound impact that cloud-based computing options are having on current IT spending. This is reflected in data center systems spend where Gartner points to: ”lower-cost alternative architectures and cloud-based storage” as driving constrained spending. In the Enterprise Software segment, despite a rather hefty 6.9 percent expected growth rate for 2014 for this segment, Gartner points to slighter lower growth expected for applications software and rapid move to cloud-based offerings by many organizations. These market realities have manifest themselves in recent revenue and financial performance from both SAP and Oracle, both of which have been obviously impacted from the quicker movement toward cloud-based enterprise software alternatives in the market. By contrast, cloud ERP providers have seen dramatic growth rates. Workday, a cloud-based HR and Financial Applications software provider announced that its total revenues increased 74 percent in its first fiscal quarter. Subscription revenues increased 80 percent from same period last year. As another example, Salesforce.com’s fiscal first quarter total revenues grew 37 percent while subscription revenues grew by 34 percent.
Third is the clear indication, now acknowledged by Gartner, that individual lines of businesses have garnered more influence on technology selection while the role of IT is shifting from “purchaser to coordinator”. That is a profound statement coming from the research firm that has catered primarily to CIO and IT audiences. The shift of technology buyer is clear and is being reflected in market forecasts.
In May, Gartner reported that the worldwide supply chain management and procurement software market grew 7.3 percent in 2013. All indications from the Gartner Executive Supply Chain conference held in May were that such growth will continue this year. With the shift of buyer influence toward lines of business, and with the increased attractiveness of cloud computing alternatives, we expect best-of-breed cloud providers catering to supply chain, B2B business network and supply chain business process intelligence needs to also demonstrate market success.
For technology selection and approval teams, be aware that heightened competition and more attractive and less disruptive IT software and infrastructure options are turning in your favor. There is little need to tolerate the past arrogance of your friendly ERP sales person who peddles the notion that cloud-based solutions will come to market in the coming months. (Perhaps longer) The market has come to the realization that there is no need to wait for unfulfilled promises.
©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
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This week, the Institute of Supply Management (ISM) released its December 2013 Semiannual Economic Forecast, which serves as an outlook for U.S. manufacturing and supply chain activity in the first-half of 2014. This is ISM’s supplemental reporting to its monthly PMI reporting, which is very closely watched by Wall Street and business media. The report provided some noteworthy indications of what manufacturers are planning for in the New Year.
Expectations for 2014 are positive as 69 percent of survey respondents expect revenues to be greater in 2014 than in 2013. Respondents are planning for manufacturing revenues to increase 4.4 percent in 2014, almost a percentage point higher than consensus economic forecasts of global growth of 3.5 percent.
ISM reports that manufacturing employment is expected to increase by 2.4 percent which is a sign of continued confidence. Respondents report operating at 80.3 percent of their normal capacity, up slightly from 80.2 percent reported in April 2013. Capital expenditures are expected to increase by 8 percent in 2014 over 2013.
Of most interest were responses to a special question focused on expected supply chain improvements planned for 2014. Supply chain and B2B technology and services providers, please take note.
The report indicates that 69 percent of respondents are planning improvements to supply chain processes, which is a rather strong indication of aggressive investment and renewal plans. Areas of investments were described as strategic sourcing, supply base rationalization and supplier relationship management on the procurement side of supply chain. Other areas of cited investment were inventory management and control, which we presume is supply-chain and multi-tiered in scope, along with improved cross-functional planning and scheduling. It would appear that manufacturers have internalized the need for supply chain to have a more outside-in focus, with emphasis on proactively identifying risk, while deepening relationships with key suppliers. Enhancing cross-functional planning is a sign of more closely aligning both planning and fulfillment execution processes into a singular management control process.
Thus, from the lens of U.S. manufacturers, optimism is running high for a banner year and renewed investment in 2014.
Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our series of predictions for the coming year. These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming New Year.
In Part One of this series, we unveiled the methodology and complete listing of our 2014 predictions.
Part Two in this series summarized Prediction One related on what to expect in the global economy and Prediction Two, what to expect in procurement costs.
Part Three summarized Predictions Three, continued momentum associated with the resurgence in U.S. and North America production, and Prediction Four, talent recruitment and retention as a continued challenge.
Part Four addressed some unique industry specific supply chain challenges in 2014.
Part Five predicted increased implications regarding current supply chain social responsibility strategies and practices.
Part Six explored the implications of increased supply chain risk on global sourcing strategies in 2014.
Part Seven dived into Prediction 8 related to expected global transportation consolidation developments, along with Prediction 9, our forecast for increased momentum in the “Internet of Things”.
In this final posting, we dive into our final prediction regarding what to expect in the information technology and services market arena next year.
Prediction 10: Continued Technology Investments in Cloud Computing, Predictive Analytics and Select Supply Chain Services.
As noted in Prediction One, barring some ongoing remaining uncertainty, global economic growth in 2014 is forecasted to grow at a minimum of one percentage point from 2013, a number expected to be 3.6 percent. That is a significant and long anticipated movement.
Industry supply chains will thus continue to turn their attention to increased business process and technology investments in 2014 to support business needs for increased top-line revenue and profitability growth, even more heightened industry competition, and enabling supply chain teams for more responsive to events. At the same time, continued uncertainties that abound in certain geographic markets and significantly increased risks associated with supply or value-chain disruption will place much more emphasis on more predictive planning that is closely integrated with customer focused fulfillment and execution process needs. The current explosion in Multi-channel and/or Omni-channel fulfillment capability challenges outlined in Prediction Five will further drive increased technology investments in that area.
We believe that the prime areas for added investment will include:
- Enhanced sensing of product and specific geographic regional demand.
- Deeper and broader supply and value-chain visibility, including identifying and mitigating risk areas within lower tiers of the supply chain.
- More predictive analytics and supply chain wide intelligence. That would include the overall integration of predictive planning capabilities that span supplier sourcing, ongoing supply and demand network design and/or reconfiguration, multi-tiered inventory optimization and multi-channel fulfillment management.
- More emphasis on leveraging a single B2B network platform, connecting all key suppliers, with needs for integrating value-chain wide planning, team collaboration and customer and supplier fulfillment execution needs.
We concur with other industry analyst firms such as Gartner and IDC that the ongoing shift of influence and the ultimate decision in technology buying continues away from IT and towards the business side, with the continued counsel of the CIO and IT teams. The fate of technology investments to enable expected and more timely business outcomes now rests in the hands of business and supply chain teams.
The days of huge multi-year technology transformation initiatives will continue to shift toward targeted, tactical business process change initiatives of an average 3-6 months duration that phase-in capabilities toward a desired end-goal. The main focus will therefore continue to favor the Geoffrey Moore definitions of “systems of Innovation” and “systems of engagement.”
Hence, cloud computing and/or cloud-based applications technology options will continue to gain added attention across supply chain and B2B fulfillment areas because of needs toward quicker time-to-value. Because so many supply chainand customer fulfillment processes are deemed to be mission critical for the business, B2B platform vendors will need to continue to enhance data security management and control practices, especially in the light of continued incidents and threats of data breaches across multiple industry networks. We continue in our belief that augmentation of cloud computing with managed services will be an attractive alternative for some select product or service management focused supply chains. We additionally believe that in 2014, supply chain teams will tend to hold favor toward private-based cloud options for the more mission critical aspects of product fulfillment, but will be somewhat more open to either hybrid or public cloud options supporting deeper analytics, value-chain wide collaboration or business intelligence.
In the area of predictive analytics, we predict 2014 will begin the emergence of a broader set of technology or services vendors offering deeper, cloud-based analytical capabilities in analyzing structured and unstructured data. These capabilities will have a strong dependence on supply chain wide event-driven data planning and execution streams. Predictive analytics will thus move toward more sense, predict and respond forms of approaches, including managed services of data scientists. This will afford the opportunity for supply chain teams to springboard capabilities in this area beyond the timetables of in-house development and better enable the foundations for supply chain control tower capabilities. Additionally, vendor marketing strategies that hype “Big Data” enablement will meet the reality of what teams really require, namely smarter, highly focused and more predictive data and insights that enable much more timely decision-making.
Finally in 2014, we anticipate broader consideration and evaluation of private and public social based interaction technologies to supplement existing product sensing and demand planning process needs, strategic vendor collaboration and broader external interactions within Sales and Operations Planning (S&OP) processes. While a limited amount of supply chain teams explored this area in 2013, primarily on the sensing of product demand, we anticipate broader business process explorations and pilot capabilities occurring in 2014.
Ladies and gentlemen, it’s a rap, and that leads us to the conclusion of our series of ten predictions for the upcoming year.
We trust that these predictions and insights will help you and your organization prepare for personal and organizational team initiatives in the coming year. Once again, readers are encouraged to provide feedback or add your own view of what to expect in 2014 in the Comments section below each of our eight postings.
Throughout 2014, Supply Chain Matters will be providing periodic updates regarding these prediction areas and our research services arm will additionally feature some select research reports that dive even deeper into some of these supply chain management areas.
Our complete research report, 2014 Predictions for Global Supply Chains will be available for no-cost complimentary download via our blog Research Center in early January. In the meantime, if you desire to receive a personal copy via direct email, please send your request to: supplychaininfo <at> theferrarigroup <dot> com. Please include your name, organization, title and email address in the request.
We extend to all of readers and followers our best wishes for a productive and rewarding New Year along with continued personal success.
Executive Editor of Supply Chain Matters, Managing Director, The Ferrari Consulting and Research Group
©2013 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.
This weekend, The Financial Times reported (paid subscription required or free metered view) a significant finding, one that probably is not a surprise, but none the less should be of continued keen interest to product management, supply chain and IT functional support teams. The FT article cites findings from the recently released 2013 China Climate Survey Report conducted by the American Chamber of Commerce in China.
The FT headline is that a quarter of U.S. companies conducting business in China indicate that they have had trade secrets stolen or compromised through cyber related attacks on their China operations. The Chamber report cites 34 percent of respondents indicating material damage to China operations, a 12 percentage point increase from the previous annual survey. Once more, 14 percent indicated that these breaches caused material damage to global operations and a majority of these same respondents, 95 percent, indicate that this situation was unlikely to improve. More than 40 percent indicated that risk of a data breach is actually increasing. Almost half of all US companies surveyed indicated that intellectual property (IP) theft had damaged their operations.
The annual Chamber survey recorded a significant deterioration in perception of the investment environment in China, dropping from 43 percent a year ago, to 28 percent in the latest survey. Worries over corporate espionage were cited as a primary reason for the drop in confidence. Over one-third of respondents believe that industrial policies favor state-owned enterprises to the detriment of their own company. De-facto technology transfer as a requirement for China market access was cited by 37 percent of respondents as an increasing requirement, a 10 percentage point increase from the prior year. This is a further indicator of concern related to IP protection.
These findings certainly echo the current public concerns now be openly expressed by many global governmental and legislative leaders regarding the increasing threats of cyber attacks. That included a recent trip to China from newly appointed U.S. Treasury Secretary, Jack Lew.
In response to questions raised by this survey, FT reports that:”… the Chinese foreign ministry described any accusation of Chinese cyber theft as “irresponsible” and urged US officials and companies not to politicize economic and trade issues and to stop hyping the issue of cyber security.”
Supply chain related technology and cloud services providers should take note of the survey finding that more China based companies are considering cloud computing options but the majority distrust China based providers because of data security concerns.
Readers can downloaded the full report at this web link.
Supply chain and IT professionals need to heed these growing concerns. Insure that supply chain risk mitigation plans include special emphasis toward business and information policies for all owned operations within China. Emphasis should also be focused on information transfer and management practices that involve suppliers residing in the region.
China is both a vast growth market for goods and services and the global center of multiple industry manufacturing operations. In the survey, the majority of the respondents continue to cite high profit margins in China. While those facts cannot be overlooked, attention to cyber security and IP protection should continue to be of a high priority.
Research firm Horses for Sources recently introduced its HfS Blueprint methodology for business process outsourcing capabilities which they argue is an assessment methodology that is not reliant on the arbitrary viewpoint of a single analyst. HfS is obviously pitching an alternative to either Gartner’s Magic Quadrant or the Forrester Wave methodology.
Our view is that technology vendors will embrace any and all alternatives to being held hostage to a single industry analyst firm. However, for technology buying teams, while these evaluations can be helpful, they must be placed in a proper balanced context. Assessment of any technology vendor or service provider should be determined by consistency in rating among multiple analyst firms. That would include that a vendor has demonstrated a consistently positive presence over a period of time, for instance two or more assessments. Additional attractiveness will be dependent on a number of other factors, including continual evaluation of more mature technologies and/or services which traditional industry analyst firms tend to de-emphasize, along with consistency in definition of the application and/or service.
Buyer reliance on these methodologies has been waning because there are so many other additional sources of information that selection teams can tap on their own. They would include independent voices. Access to these methodologies also comes with a price that being a subscription to the individual analyst firm’s evaluation services. That is where the win-win proposition plays itself out for vendors and traditional analyst firms. Vendors woe and lobby individual analysts to be rated favorably while the analyst firms garner a steady stream of subscription revenues. Any technology product marketing executive is all too aware of how subjective individual analyst rankings can become, especially when evaluation criteria is constantly in a state of purposeful change.
According to the HfS description of its methodology, vendors and service providers will have their capabilities ranked by two high level criteria, Execution and Innovation. That is somewhat similar to the two axis of Gartner’s MQ.
The differentiators for Blueprint are described as crowdsourced inputs from four major constituencies: an Executive Council of Enterprise Buyers, Service Providers themselves, a body of advisors, consultants and other industry stakeholders, and finally, the HfS analyst team. What seems not to be described is the overall weighting applied to each evaluation body. Perhaps that will be better clarified.
Data is collected from interviews with buyers, vendor briefings, and available information. Again, we cannot determine the overall weighting applied to each of these inputs.
Supply Chain Matters applauds the availability of alternative evaluation methodology for technology selection teams and we wish HfS well in its endeavor.
However, by our view, success of this or any new methodology will be highly dependent on the weighting criteria of major constituency viewpoints, perhaps with a stronger voice for buyers and the body of advisors, consultants and other industry influencers that are described as part of this process. The more weighting that is placed external to the analyst firm, the more such methodologies can be viewed as objective and balanced.
Then again, the existence of a yet another methodology is another reference that can serve as a tie breaker for technology evaluation teams.