IT and Business Insights for SMB Solution Providers

The 'New Normal' IT Market and What You Need to Do to Thrive

In this post-recession IT environment, channel partners may again need to adjust the way they do business. By Martin Sinderman

What’s out: being a “low-cost solutions provider,” cutting expenses, and continually trying to save money for clients. What’s in: improving business processes, enhancing efficiency and effectiveness, and helping businesses grow. Welcome to the “new normal” IT marketplace, in which channel partners may need to adjust their business plans to survive and thrive.

In year two of the post-Great Recession environment, “we are in a recovery, but it certainly isn’t a boom,” says Jeff Hine, an analyst with Enterprise Strategy Group (ESG) Inc., an­­ IT industry analysis and business strategy firm.

ESG’s recently released 2011 IT Spending Intentions Survey reflects the economic recovery. Based on data gathered from 611 North American and Western European senior IT professionals from midmarket (100 to 999 employees) and enterprise-class (1,000 employees or more) organizations, ESG reports a trend toward continued stabilization in IT spending, with the majority of respondents planning to increase spending over 2010 levels.

“Pure cost reduction continues to become less important in justifying IT purchase decisions, as customers look for more business process improvement and ROI,” according to the report, which documents a consistent three-year decline in the number of organizations planning to decrease budgets on a year-over-year basis. Some 51 percent of respondents report that their 2011 IT budgets will increase when compared with 2010 levels; 32 percent say they expect their 2011 spending will be the same as last year; and 17 percent report declining year-over-year IT spending plans.

“CIOs are telling us they are looking for a lot more than cost cutting. They want things that will help their company grow and innovate,” says Tiffani Bova, a vice president of research with Gartner Inc., an IT research and advisory company. “I can save you money” is last year’s sales pitch, according to Bova. This year’s pitch is: “Here’s how I can help you get your products out of R&D faster, expand into new markets, increase customer satisfaction, and grow your business.”

“Everybody seems a bit happier these days,” adds Joseph Pucciarelli, program director, technology financing and executive strategies, for market research firm IDC. And among small and midsize IT service providers, “there is a general perception that the economy is going to continue to thaw,” says Pucciarelli. Traditionally, SMBs have been the first to recover from economic downturns, “because they are more nimble, more innovative, and more aggressive in seeking out opportunities than their larger competitors,” he notes.

According to IDC, IT spending growth worldwide was 6.4 percent in 2010. For 2011, the analyst firm’s most recent forecast is 5.7 percent, “a bit lower, but still reasonably good,” Pucciarelli says.

Meanwhile, IT organizations, from SMBs to enterprise-class, are focused on improving efficiency and effectiveness, according to Pucciarelli, “not on cutting out the fat, because the fat has already been cut.”

On what is IT money likely to be spent this year? One technology in which SMBs have expressed strong interest is desktop virtualization, according to John Longwell, vice president of research for Computer Economics Inc., a provider of research and metrics for IT managers.

“This is a technology transition that is important for small and large businesses alike,” Longwell reports. He adds, “Moving clients toward virtual desktops will not only make clients more productive, but also make them easier to support.”

Helping clients migrate infrastructure toward managed environments will be an important part of business as well, says Longwell. “We also see continued investment in data center virtualization and automation, and improving investment in network infrastructure.”

Increasing acceptance of cloud computing, Microsoft’s growing range of cloud-based offerings, as well as moves by major players such as Verizon, AT&T, and HP in this area, are combining to create business opportunities for channel partners wanting to grow business with SMB clients, adds Pucciarelli.

As new cloud-based offerings come to market, “we think SMBs are poised to move to new virtual computing architectures sooner, faster, and arguably at lower cost than their larger brethren,” Pucciarelli says. Smart IT service providers will recognize this, he says, “and will immediately begin investing in training to equip their sales teams to help clients with the transition.”

“IT initiatives are pretty much unchanged from last year,” ESG’s Hine reports, with virtualization, managing overall data growth, and security the top three concerns. Desktop virtualization, cloud computing, and SaaS are all making significant gains in importance, Hine notes, with business services, retail, and the federal government near the top in absolute spending.

At the state and local government levels, meanwhile, demand for vendor-furnished information technology systems and services will increase from $52.8 billion in 2010 to $61.5 billion by 2015, with 2011 spending totaling $54.8 billion, according to Chris Dixon, manager, state and local market analysis, for Input: Deltek Information Solutions, a provider of market intelligence and analysis to help companies develop government business. “The rate of growth [in IT systems and services] slows a bit after 2011,” he reports, “due to the tapering of federal stimulus and further retrenchment by state and local governments.”

“Software products and outsourcing in general will see minor boosts [in spending], as these are the natural places for cash-strapped governments to see improved productivity from existing systems (i.e., software) and to bring new capabilities into the enterprise without having to take on new headcount or systems (i.e., outsourcing),” says Dixon. “Hardware and equipment will face the most downward pressure, as buyers extend life cycles.”

About the Author

Martin Sinderman is a freelance writer and frequent ChannelPro contributor in Savannah, Ga.

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