A Prognosis for 2004
By
Michael Blumberg, CMC
Chief Operating Officer
D.F. Blumberg Associates, Inc.
The latest economic news suggests that we are due
for a business recovery in 2004. What exactly does
this mean for the high-tech services industry? Assuming
the leading economic indicators for the United States
continue to show a positive trend, we can look forward
to market growth in the range of 8% to 12% over the
next few years. As many of us know, the high-tech
services market has been relatively soft for the last
12 to 18 months. This has resulted in a slow down
of investment in tools, technology, and resources
to manage services businesses on a profitable basis.
The economic recovery will provide the impetus for
high-tech service businesses to begin re-investing
in opportunities that will generate new, profitable
sources of revenue. This will result in companies
stepping up their spending on service infrastructure
and related technology, which should be a real boon
for software developers, consultants, and systems
providers. As part of this upswing, we anticipate
that service companies will place a greater emphasis
on deploying applications that not only improve the
productivity and efficiency of field personnel, but
also streamline service processes and integrate data
transactions that occur between field personnel, customers,
and back-office information systems.
These types of improvements will require an increased
focus on optimizing business processes via the integration
of enterprise systems and other point solutions (i.e.,
scheduling, service parts, diagnostics, etc.) vis-à-vis
mobile applications and related technology. To ensure
the successful implementation of these projects, we
will see an increasing number of deployments preceded
by thorough analysis and planning of system requirements
by either the professional service arm of software
vendors or through independent management consulting
firms.
We also predict that the economic recovery will result
in the consolidation of the vendor market place. In
essence, we anticipate that a number of software vendors
will either merge with or acquire other vendors as
the business cycle begins to pick-up. The recovery
will enable vendors with deep pockets and/or large
war chests to acquire or merge with other vendors
to either increase market share or revenue. This consolidation
will come in the form of either large enterprise system
vendors acquiring smaller enterprise vendors as a
means of gaining market control or from point solution
vendors merging with other point solution vendors
or integrated system vendors as a means of expanding
their system functionality and thus revenue potential
and customer base.
Not only will the vendor community benefit from the
economic recovery, so will the service providers (i.e.,
end-users). We anticipate that service providers in
non-traditional IT service businesses (e.g., HVAC,
industrial automation, utilities, etc.) will place
an increased emphasis on managing service as a profit
center or strategic line of business, which requires
the correct infrastructure and resources to be in
place. We will see firms in these non-traditional
market segments deploying new technologies and approaches
to service management that were once typically the
domain of traditional IT service providers. This includes
the development and implementation of value-added
and professional service portfolios and related pricing
strategies.
In essence, providers in just about every service
market will begin to accept the premise that value-added
and professional services pull through break/fix services,
rather than vice-versa. This will force many service
providers to lead with professional services as a
mechanism for generating profitable project revenue
and securing recurring, high-volume, lower-margin
maintenance revenue. To ensure margin on maintenance
revenue, providers will continue to place an emphasis
on benchmarks and continually evaluate how process
and infrastructure improvements can lead to improved
bottom line performance. The more aggressive and market
savvy providers will learn how to leverage their investment
in technology to market and sell more services to
their customer base, where in the past technology
had traditionally been viewed as a tool for controlling
costs by providers. We also anticipate that the service
provider community will continue to look towards mergers
and acquisitions as a mechanism for accelerating growth.
In summary, we believe that 2004 will be a very promising
year for high-tech services. However, economic recovery
is not an entitlement. Companies who perform well
and benefit from the recovery will be those who develop
and execute a business strategy based on a solid foundation
of optimal business processes, state-of-the-art technology,
best practices, and quantitative research and analysis
of market and competitive data.
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Michael R. Blumberg, CMC, an authority on marketing
research/strategy formulation in the high-technology
service market, is COO of D.F. Blumberg & Associates,
Inc, a Fort Washington, PA based management consulting
firm that provides client services in strategic planning,
market research, productivity improvement, and management
systems design and implementation. You may reach him
at michaelb@dfba.com or (215) 643-9060.
