Change of Course for Technology Trade Winds
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As the Internet matures, the focus of technology will shift away from innovation and towards implementation as businesses lick the wounds inflicted by the billions of dollars worth off losses stemming from experimenting with unproven Internet software, according to a new report.
As such, the focus will now be the integrators of proven software services as opposed to the innovators of them. That's the conclusion of the latest research from Goldman Sachs analysts Thomas Berquist and Gregory Gould.
"We believe a new era is beginning in which technology will become more tightly intertwined with corporations' business rules. While innovation is still important, experimentation is over," the analysts wrote in their report.
And according to that premise, smaller software vendors -- those innovators that have been the predominant focus over the last few years with the proliferation of the World Wide Web -- will suffer the greatest. Integrators are more likely to work with fewer software vendors going forward because of steep learning curves in adopting new products and training administrators to maintain those services, the report said.
"Integrators are more risk averse at selecting software vendors as partners than organizations are because they need to educate a large body of people on how to sell and install the software and they want to chose vendors that are going to be market leaders for the long term," the research said.
Integrators that will benefit the most include the Big 5 consulting firms, EDS, Computer Sciences Corp., Cap Gemini and IBM Global Services. Larger enterprise-level application software vendors such as SAP, Oracle, Siebel and PeopleSoft will also benefit.
Of course, to put the findings in the proper context will require some background.
Does anyone out there remember ... COBOL?
Prior to the 1980s, there was not an abundance of shrink-wrapped applications available to the corporate user. Most software applications were custom-built on mainframes and/or minicomputers to the needs of a business and maintained in-house by COBOL-skilled administrators. But by the end of the 80s, vendors like Microsoft, Oracle, Borland and Sybase were offering PC-based client/server tool to developers -- both within an organization and at systems integration shops. And organizations quickly realized they didn't have the resources (money, skilled labor, etc.) to build their own applications. The era of innovation was in full swing.
The end of that decade brought about new buzz words like "empowering," "re-engineering" and "globalization." With those mantras came a call-to-arms from systems integrators, which were developing a new approach of selling solutions by supplying and implementing software. There was little doubt that software could increase productivity through automation. By the 1990s, this market opportunity introduced a whole new buzz word to the business world and culminated in a new era of Enterprise Resource Planning (ERP).
In fact, ERP systems integrators became vital to the success of a software vendor. On the supply side, systems integrators became new distribution channels for software applications. At the same time on the demand side, those very same systems integrators became the key decision-makers in selecting the software for the business. Dataquest estimated that Big 5 consulting firms, for example, selected the software to be implemented over 60 percent of the time -- not their clients. In time, the role of the systems integrator was relegated (or promoted -- depending on your view) to strategist, rather than implementer.
By the time the Internet first opened its doors for commerce in the mid-1990s, smaller startups were anxious to take advantage of the door left open by bureaucratic, established firms. At first, these larger firms ignored the efforts of the startups looking upon their products as low-end. Innovation was in full bloom and shops sprung open with catchy names like USWeb and Agency.com.
As the pendulum swings...
By now, the mistakes of the dot-commers have been well-documented. And the established firms have caught up to the Internet Protocol (IP) approach to customer relationship management, supply chain management and commerce. Big companies will now take the lead from the smaller innovators because they have a better understanding of how to leverage technology into the business processes, Goldman predicted.
"The way to gain competitive edge going forward will not only be what new technology is used, but how corporations leverage all of their technology investments," the report said.
To be sure, the Goldman analysts dismiss the notion that innovation is completely dead. In some areas such as commerce or collaboration, innovation is still redefining betters ways of conducting business. But those companies, Goldman warns, need to improve their distribution and integration skills or face consolidation into larger branded vendors.