>> 2008 - A year of execution in more challenging times >> Download PDF >> Date: 01/12/2008 The forthcoming year is likely to be a challenging one for business in the light of an economic downturn – but that in itself offers opportunities. In the view of our three experts whose opinions are captured in this issue’s Big Debate, 2008 may mean business catches a winter chill, but it should still recover. Significantly, Warren East, Chief Executive of UK semiconductor intellectual property specialist ARM, Nick Wilson, President, European Northern Region at consultancy, outsourcing and services group CSC and Jeremy Stafford, Chief Operating Officer at IT and outsourced services company, Phoenix all believe their organisations are to some degree insulated from serious concern because of their business models. ARM’s semiconductor royalty model typically covers a six-year timeframe; CSC has outsourcing contracts that run for five years; and Phoenix has an annuity rather than project-based IT services business. Both East and Wilson see the international focus on environmental issues and climate change fostering new business opportunities either in CSC’s case, through the provision of business process services, or for ARM, the potential widespread use of new low-power consuming, embedded 32-bit microprocessors. Wilson significantly believes 2008 will be “the year of delivery”, whilst Stafford believes increased regulation and a tighter market opens the door to an offshore world. Nick Wilson, President Northern European Region at consultancy, outsourcing and services group CSC Customers are looking for more business value from the work they do with companies. They want more innovation and more added-value compared with what they’ve always had in the past, such as cost reduction, cost containment. Now they expect us to have more industry knowledge, deeper skills and be able to offshore and leverage scale. The outsourcing market has moved to smaller deals, and the average deal size, though still healthy, around $100-$110m mark, is usually for five years, instead of 10. The market is after global deals, with geographical integration following country needs. CSC has developed a strategic programme, Project Accelerate to match it, comprising of five key growth initiatives focusing proactively on addressing the needs of our customers and markets. One trend we are seeing in the services market, particularly in the government, are contract re-lets, where the customer is not necessarily staying with the same supplier. Our statistics say that happens in nearly half of all cases, so a company that can keep hold of the deal is doing pretty well. Another thing we’re seeing is that once a company has built up trust in a selective outsource with one supplier, you see other ‘towers’ go to that same supplier. The move to multi-sourcing does affect the way the customer interacts with outsourced providers, with the big integrators being the ‘best of breed’ single point of contact. Innovation is very much a buzzword, but it really means different things to different customers. That’s why as a services company you need vertical market expertise to show your customer how you’re going to help them be different. CSC are doing this through large scale, complex IT transformation programmes, with customers such as BAE Systems. This ensures our customers have the increased flexibility, efficiency and transparency they need to keep pace with the changing landscape of their businesses. I don’t think things will change massively over the next 18 months. There will come a turning point when the multi-sourcing market is saturated, before you get to the next level of business model. Everyone is being asked to add more business value, and be more innovative with less money. For that reason, I believe 2008 will be ‘the year of execution.’ Jeremy Stafford, Chief Operating Officer at IT and outsourced services company, Phoenix Our business model is IT services, preferably working with larger partner companies. We’re also in business continuity services, and we have a mid-market presence. We expect the mid-market to consolidate and our challenge is to make sure we have a seat at the table and that we’re one of the three or four players who’s prospered during that consolidation. I think it will be something like the coffee shop market: very fragmented with variable standards of coffee, prices, and outlets, then along came Starbucks and changed the market. I think that is the way the IT services mid-market will evolve within five to 10 years. There are some significant changes occurring: hardware is becoming more reliable; applications are becoming more stable; bandwidth prices are coming down; hosting space is at a premium; and more applications are provided remotely. There are a large number of mid sized companies that have a significant dependency on IT, and they’ve got a significant legacy solution that needs to be embraced in some way, and I can also see Software as a Service (SaaS) providing an answer in green-field situations for very small companies. I do think 2008 is going to be a challenge, because it appears the global economy is going to take a pause for breath. That’s ok for services, because most services are an annuity. Those companies whose work is more project based will find it harder. In terms of end users, central government is slowing up. Local government has lots of re-engineering to do and will be a good place to focus your energy for some time. Financial services looks difficult, and retail will be slow for a while too. After a period, there will be more re-engineering in all of the sectors, including government. We’ve got the coincidence of an economy that’s getting harder, and there is an increasingly bureaucratic overhead on businesses. I would expect that to work to the advantage of the Indian players, with whom we’ve worked closely, because they are less encumbered by that. The business continuity market is a very interesting place with Ovum forecasting that it will double its growth rate with constant media coverage of natural events, floods etc. and increasing corporate governance pressure from professional and industry bodies demanding credible contingency plans. Warren East, Chief Executive of semiconductor intellectual property specialist ARM I was asked the other day what the next big thing is and the conversation had all been about iPhones and GooglePhones. But now people are waking up to the need to conserve power, it’s opening up new applications for us. It may be something like washing machines because there’s a product that employs an electric motor. Low power has always been one of our technology themes, a core central driver and we continue to do that. Our microprocessors are about as efficient as you can get in terms of processing power. If you expand it, while we shipped 2.5bn ARM microprocessors last year, there were about ten billion electric motors shipped worldwide. And of those electric motors, a good 90% of those could probably be twice as efficient if they were replaced by slightly more complex electric motors that included complex controlling of the magnetic field with microprocessors. Selfishly for us, it’s also a huge opportunity to sell embedded 32-bit microprocessors. And the fact that our microprocessor can be embedded in a chip that is in itself a very low power consuming product. So smart buildings, lighting, and air conditioning are opportunities too. ARM has a number of strategic objectives and connecting themes in the landscape for the next five-10 years. These themes are power, digital content, manufacturability and mobility, because we’re finding an increasing number of these end products need to be portable. The market for these sort of products four or five years away is very encouraging. Big drivers like the energy situation aren’t going to go away and it’s up to us in the technology space to solve the problems and make a healthy return out of solving those problems. Within that, you’re always going to get the economic cycles and 2008 at the moment looks pretty grim from a business point of view. We’re in for an economic worldwide cold for the next 18 months or so, but history says things come in cycles and the world will move on. It causes me some concern because although the long cycles of our business model means we’re insulated, I still have to run a business during that cycle, and for a period of time, it will undoubtedly be quite challenging.

Executives from ARM, CSC and Phoenix IT offer their views on the challenges and opportunities that 2008 will bring