Early Optimism for 2007
iopener asked six industry executives to look back at the last year and ahead to 2007, and with a number of business trends on the horizon, most have cause for optimism.
The key themes to have come from these discussions were around:
- business process outsourcing (BPO)
- Web optimisation for global content delivery
- the role of IT personnel within organisations
- the shift away from Europe and into Asia as a foothold for expanding US companies
- increased venture capital funding - for companies that deserve it
- the continued success of AIM for companies looking to IPO.
Duncan Tait, VP and GM, UK Global Outsourcing and Infrastructure Services at Unisys believes 2007 will be a significant year for Unisys, with continued growth in financial services. “A number of companies are turning to BPO to cut costs, especially in the wake of mergers and acquisitions, and many are seriously adopting outsourcing as the ‘price’ of M&A.”
Laurence Garrett, Partner, 3i, is optimistic that the VC market will be as strong in 2007 as it has been in 2006, fuelled in part by widespread adoption of new Internet technologies. “The 2000 hangover is over. Now, broadband is a reality with around 40% worldwide penetration, and Wi-Fi has come of age too. VC funding is also expanding.”
2007 will also be a key year for many CIOs who have spent the last year working to align their IT systems with business needs. Ben Wishart, Group IT Director at Whitbread is one who’s already looking ahead. “I see us making a huge step forward in terms of our innovation agenda in the next 12 months. There is an appetite and an attitude that wasn’t there when we were going through a state of change over the last couple of years. I certainly think my role will focus more on technology-enabled business innovation.”
Duncan Tait, VP & GM Global Outsourcing and Infrastructure Services, Unisys A number of trends have been noticeable during 2006 and moving into 2007. There has been a big push in Outsourcing and BPO, particularly in financial services.
The mortgage is considered to be the cornerstone of banks’ relationship with customers and they must get value by differentiating the quality of their mortgage servicing through improved processes. So banks are asking Unisys to manage their payments processes to free resources for more strategic activities.
Indeed, a number of companies are turning to BPO to cut costs, especially in the wake of M&A activity. What that means is that a number of organisations are seriously adopting outsourcing as the ‘price’ of M&A. Where a merger or acquisition is being played out, the CEO’s method of combating the risk is to outsource a whole chunk of the business case of risk to an outsourcer. Much of this has been driven by regulatory compliance, especially Sarbanes-Oxley, creating some sophisticated governance solutions to guarantee accountability.
Another trend we’ve seen is a major change in IT Outsourcing, with the break-up of those ‘megadeals’ where companies offered to look after “your mess for less”.
A number of Tier One outsourcing companies are now downsizing, offering good opportunities to find new staff with expertise in engagement teams, or as Solutions Architects. Deal sizes have come down, and that has meant more collaboration in some government and private sector deals.
Companies like Unisys and our competitors both in the public and private sectors now have to collaborate on contracts, most importantly, putting the client first.
One of the other major trends we’re seeing within Europe is the change in labour laws that is likely to eventually mean more outsourcing.
The mindset towards offshoring has changed too. Previously it would have generated a few heated arguments, now it’s just a 15-minute discussion in a two-hour meeting, and clients actually expect to see offshoring in a contract.
In summary, we think we’re an attractive option for organisations planning IT or BP outsourcing.
Laurence Garrett, Partner, 3i
Now is certainly a good time for UK start-ups. The ecosystem for venture has improved; business angels have become more active and organised, and the interface between angel networks and venture capitalists is improving. That’s something that we at 3i passionately believe in.
The economic outlook has changed too. Venture capitalists can now provide sensible valuation progression to the earlier angel investors. Indeed in 2006, we have been closely working alongside angel investors in companies like Reciva and Netronome.
What everyone now wants to see is some evidence of success, and prospects for continued growth. Management teams, angels and venture capitalists have all been burnt by promises. Now they’re working collectively to build businesses.
Looking ahead to 2007, the economy is generally good, though with some pressure in the employment market. Higher interest rates do not impact VCs’ buyouts, and you can still find well priced opportunities.
The amazing success of AIM in 2006 is likely to continue, with an increasing flow of IPOs from non-UK companies thanks to less onerous regulation. AIM is especially attractive if you can get into market cap of $150m, though companies below $80m may have liquidity issues.
Mobility, community, and non-PC connectivity will be the key areas offering investment opportunities. In addition the ‘Cleantech’ sector has become economic for investors.
On our portfolio, we expect companies like DiBcom in mobile TV and Cambridge Semiconductor, a company Gillamor Stephens has worked very closely with, to come of age. Cellular wireless semiconductor company Icera is also worth keeping an eye on. Icera’s management team led by Stan Boland has a superb track record, demonstrating how entrepreneurial businesses can progress if the ambition level and choice of venture partners is right.
Ben Wishart, Group IT Director, Whitbread
The last couple of years have been particularly busy for Whitbread, with some major housekeeping going on in terms of branding, taking some costs out of the business, and systems implementation.
We’ve had an Oracle ERP implementation to complete, and our new Chief Executive has reigned in autonomy from our brands and adopted a ‘One Whitbread’ replication model for back office processing.
We’ve been enormously successful in taking out £25m worth of costs by divesting some businesses and renegotiating virtually every major contract. We’ve reduced headcount, and created a systems team offering a pure shared service operation for the common business areas of each brand i.e. finance and HR.
We’ve centralised the information systems function and ‘the business’ is very positive about the progress we’re making from a systems perspective. Two years ago, many would have said centralising isn’t going to work, but we’ve done it and we’re making it work.
In terms of vendor management, we’ve renegotiated our outsourcing contract with CSC because our business had changed markedly since our original contract with them. I have to give a lot of credit to CSC. They have a customer-oriented and customer-friendly approach, and are flexible.
For us in Whitbread, I see us making a huge step forward in terms of our innovation agenda in the next 12 months. There is an appetite and an attitude that wasn’t there when we were going through this state of change over the last couple of years. I certainly think my team’s role in 2007 will focus more on technology-enabled business innovation than in the last year.
We’ll also shortly be launching our vision of 2012 and what the travel experience will be then, including how technology can help a person interacting with our brands.
Carlos Ramon, VP of Sales and GM International, Akamai
2006 has been dominated by the implications of Web 2.0 and a need to optimise website performance to ensure the delivery of content and applications to a global audience. We are seeing three key trends:
- an improvement in the quality and standard of our customers’ websites. We now see a movement from static to dynamic aspect of websites, with more video, streaming and engaging the customer through communities.
- Sites now have to reach a global audience, which has serious implications for performance. Instead of catering for a local audience, sites have to be optimised to provide global delivery.
- Corporate applications are now Web-enabled, with customers demanding global content and critical applications run on their sites.
The trend going into 2007 is that the market is now more comfortable with companies like Akamai managing their services globally. It’s not a choice that would have been commonplace three years ago when managed service providers were still having to earn their credibility. But now, if you’re a CIO delivering scalability, reliability, performance and security, then you’re more likely to want a managed service provider to deliver that for your customers, just as Audi, Cathay-Pacific, Tesco and Nokia already do.
Another development we expect to see in 2007 is greater dissemination of Internet utilisation indices, which we publish on Akamai’s main website. So, we are like the ‘weather forecasting centre of the Net’, bringing reliability, security and intelligence to the on-line delivery world.
Mark Pretty, Director, Braithwaite Steiner Pretty
Half of the world’s population lives in Asia and as an economic region, excluding Japan, it is still in the process of awakening. The massive pool of people migrating from poverty to middle-class have found their income is fuelling a consumer-driven boom. And there is a frenzy of business activity competing to supply these needs. This kind of growth fuels corporate spending and is driving the grab for new technologies.
We are also witnessing a maturing venture-backed local IT community.
There are many adjustments that Western businesses need to make to be successful in Asia and that learning curve can cost money. There’s no cookie-cutter model that works in all markets. It’s important to select which countries to enter first but then to stay committed.
Business practices take some understanding too. One software company VP told me that in a discussion with a Chinese CIO, he was asked why they should pay $5m for an enterprise license when they could buy a pirated copy locally for $20,000?
If you want to expand into Asia, get some local help. You can’t change the way Asia does business, so you need to accept it, avoid the pitfalls, and learn how to work with it. The upside is huge. Above all else, take the step soon. Early entrants gain a foothold with key accounts, setting them up to dominate the market.
John Hoagland, Managing Partner, Mainstay Partners
Don’t expect major change as a result of the mid-term elections. With the real prize of a Presidential election two years off, the Democrats won’t risk giving up the centre-ground. Instead, they will consolidate their position by co-opting traditional Republican issues – low taxes, small government, and national security – and real changes will be minor.
A proposed 20% tax credit for Research & Development became mired in the legislation process earlier this year. But legislators want something they can really deliver to their constituents. So, don’t be surprised to see this enacted retroactively to January 1 2006 and extended through 2007. That will make the hiring market for technical talent even tighter, and emphasise internal reporting to ensure activity is properly classified.
The National Venture Capital Association reports 47% of US VC backed companies have immigrant founders. Given the shortage of technical talent in the US, expect it to be easier for foreign, skilled workers to get H-1B visas in 2007 particularly as the Democrats have typically favoured more lax laws than the Republicans.
Don’t expect an overnight reversal, but the election may signal a light tap on the brakes for the borderless economy. The US is now a net debtor of over $1 trillion to China alone and security interests may start to reign in rampant consumerism.
The US ICT market should remain robust led by strong corporate profits and the introduction of Vista. With the dollar remaining relatively weak, EU-based companies should continue to look West.
