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2017 ICT Enterprise Insights in Merchant Payments

Key findings from the 2016/17 survey results

Publication Date: 02 Nov 2016 | Product code: IT0059-000078

Kieran Hines


Summary

CatalystThe rapidly changing business landscape is increasingly impacting ICT strategy and investment.

Industry ICT suppliers must understand enterprises' needs at a country and industry level to ensure

that their product, marketing, and sales strategies are aligned to customer requirements. To provide

this insight, Ovum's ICT Enterprise Insights program, based on interviews with around 7,000 senior IT

executives, answers the key questions. This brief focuses on the top findings from this program for

payment strategies among merchants.

Ovum viewPayments technology and services will be a core investment area for merchants in all verticals in

2017. The need to deliver on rapidly growing customer expectations around the purchasing journey,

and particularly the role that the online and mobile channels play within this, will be the focus point for

enhancements both to the payment experience and to wider marketing and CRM strategies.

Investment in new payment services will be an important focus area as merchants look for solutions

which align with the specific needs of the products or services they sell and the purchasing journey

they want to provide.

The rapid growth in digital sales is also affecting wider store and physical fulfilment strategies. The

need to redefine the in-store experience will see continued investment in physical payment

acceptance infrastructure to enable the reimagining of the in-store environment, deliver a more

customized end-user experience, and provide a true cross-channel customer journey.

Key messages Merchants plan to invest heavily in new payment solutions and related services in 2017,

upgrading existing solutions and adding new capabilities in order to drive sales conversions,

reach new markets, and enhance the wider customer transaction experience.

There will be strong growth in spending on projects to increase sales via online and mobile,

with 66% of merchants increasing their investment in these areas, and 30% increasing spend

by more than 6%.

In line with the investment focus around driving digital sales and the acceptance of new

payment tools, there is a diversity in the partners that merchants would prefer to partner with,

opening the door for online payment gateways, online payment providers, and mass-market

technology companies to deliver services.

Recommendations

Recommendations for enterprisesMerchants of all types and sizes will be focusing heavily on the role that payment services can play in

driving new sales and enhancing the customer experience in 2017. For some merchants, payment

investments will focus on expanding acceptance capabilities, both to increase incremental sales and

© Ovum. All rights reserved. Unauthorized reproduction prohibited.


to reach new customer segments or international markets. At the same time, others will be focusing

on the role that payment innovations can play in reinventing the purchasing journey, with advances in

personalization and customization a priority alongside the drive to make payment authorization as

“invisible” as possible. Remaining on top of the latest payment innovations, and the role that this can

play in enhancing the customer experience, is essential for merchants of all sizes and in all industries.

Ensure you have a clear payments strategy, but be flexible to adopting payments

innovation. The pace of product innovation and competitive change on the supply side of the

payment industry has never been more intense, and it is essential that merchants have a

clear view on the role payment services will have in their future customer proposition, as well

as the flexibility to respond to the opportunities arising from the launch of new products and

services.

Use new payment services to support the full cross-channel customer journey. As

customers continue to default to online and mobile for core elements (in some cases, all

elements) of the purchasing journey, having a credible multichannel proposition will

increasingly become essential. The role of the in-store channel, and the integration of mobile

into the physical store experience, will be key here. Consequently, identifying and working

with providers that are able to deliver a seamless cross-channel payment experience will be

increasingly critical.

Look beyond the payment itself. While payments have traditionally been seen as a

standalone area by many merchants, new payment services can play a critical role in the

reimagining of the end-to-end customer journey. At the same time, the role that transaction

data can play in loyalty and contextual marketing services should not be understated (indeed

it has huge value in areas such as inventory management and wider ERP too) and

demonstrates that merchants should formulate their payment strategies with this broader view

in mind.

Recommendations for vendorsWhile cost reduction is an important benefit of payment investment, the ultimate aim is still to drive

sales. However, the growing complexity around managing payments remains a challenge. As

investment flows into projects to grow online and mobile sales, there is an opportunity for payment

providers to position themselves principally as supporters of commerce growth. Strengthening

multichannel service offerings, particularly around cross-border and loyalty/CRM, will be critical.

Focus on supporting sales growth. The ability to support multichannel distribution is

already becoming table stakes, yet relatively few providers today have a truly seamless

offering across digital and physical payment acceptance. Many mid- to large-sized merchants

have multiple acquirer and gateway relationships, creating clear opportunities for

consolidation. Opening the door to cross-border commerce is an important area on which to

focus, with regulatory, payment tool, and local-market language support all important.

Flexibility and contextual relevance will be key. As merchants increasingly focus on

delivering a customer experience tailored to both the dynamics of their business and the

requirements of an individual customer, the ability to provide payment solutions flexible

enough to meet an array of different customer experiences will be key. Supporting pre- and

post-sales customer engagement activities will also become increasingly important. As

payment services themselves become more and more commoditized, focusing on adding



value – through slick and low-friction processes, supporting loyalty and customer analytics,

and enabling new transaction flows – will increasingly be a differentiator.

Do not forget fraud and security. Transaction-level security is critical for all merchants, and

the threat of high-profile data breaches remains top of mind for many large merchants in

particular. Technologies such as tokenization will have an important role to play, while

decisioning services and broader cyber-security support remain core competencies.

POS hardware, CRM/marketing, and payment acceptance will drive IT investment in 2017

Payment solutions will be an important focus area for merchants looking to improve the customer experienceFigure 1: The top three IT investment priorities for merchants over the next 18 months

Source: Ovum ICT Enterprise Insights

Merchants plan to invest heavily in new payment solutions and related services in 2017, upgrading

solutions and adding new capabilities in order to drive sales conversions, reach new markets, and

enhance the wider customer transaction experience. Across all retail and service businesses,

accepting new payment tools will be the single largest top-three IT priority, with 38% of merchants

investing in this area. This is a particularly strong focus area in the hotel (49%) and food & grocery

sectors (48%), in both cases highlighting the role that payments has in the evolution of both the digital

and in-person customer experiences in each industry. At regional level, the focus on investing in new

payment acceptance is greatest across Asia, in which 42% of merchants view this as a top-three IT

project. This is led by services businesses, with the opportunities to drive incremental sales through

the use of mobile payment services a particular focus.



Fraud solutions remain a core focus area, and are the single most important IT project for 13% of all

merchants in 2017. Unsurprisingly, given the cost of chargebacks and persistent fraud challenges in

industries such as travel, this is a bigger focus in businesses trading predominantly via the digital

channels, for which decisioning solutions remain an ongoing investment area.

Upgrading or replacing point-of-sale (POS) hardware is also a key investment area, with 27% of

merchants (rising to 29% among retailers) focusing on this as a leading project for 2017. Enhancing

the physical payment experience will play an increasingly important role for many merchants,

particularly where it enables a significant improvement in the wider customer purchasing journey. For

larger businesses, the ability to move away from traditional POS structures is particularly attractive,

enabling store sales teams to bring payment-taking capabilities and potentially additional

inventory/options or ordering capabilities direct to the customer. For many smaller merchants, the

focus will be on enabling and expanding digital payment acceptance, with the range of accounting and

business management applications emerging in the mPOS segment in particular being a driver of

investment. In addition, upgrades to, or the introduction of new, POS services can also bring

immediate benefits in the form of better access to inventory management and business performance

data.

Reflecting the ongoing migration to EMV-accepting infrastructure, POS hardware investments are a

particular priority in the US. Across all sectors, 33% cite this as a top-three IT priority for 2017 rising to

36% among service businesses and reflecting a slightly lower focus placed on the impact of the

liability switchover among firms in the hotel, leisure, restaurant, and transport verticals.

The growing emphasis on driving digital customer engagement, and particularly on gaining insight into

a customer’s activity across both the physical and digital channels, will see investment also focus on

marketing and CRM activities. At a global level, slightly under 38% of merchants will be focusing on

these areas as a leading IT project. Closely linked to this is the emphasis placed on customer

analytics and loyalty/rewards, which is a focus area for 33% of merchants.



Driving digital channel sales and new payment acceptance sales will see the greatest budget growth in 2017Figure 2: ICT budget growth by area for merchants in 2017


Investing in driving sales via digital channels is the biggest single area of budget growth for merchants

in 2017. The growing importance of digital channels across large parts of the customer journey,

particularly in completing purchases, will also see merchants expand their investments in projects

aimed at growing sales via online and mobile. Budget growth on digital channel projects will be strong

in 2017, with 66% of merchants increasing their investment in these areas compared to 2016 (which

also saw strong growth on the prior year) and 30% increasing spend by more than 6%. Merchants in

South East Asia (86%) and the Middle East and North Africa (73%) will see the highest growth year-

on-year, but this is an area of spending increase that is consistently high across all regions.

Closely linked here is growth in spending on both the acceptance of new payment tools and the

development or enhancement of mobile app estates. Across all markets and segments, 65% of

merchants will increase their spending on new payment acceptance in 2017. Restaurant and bars

(71%) are the segment most focused here, reflecting the role that digital wallets and the use of mobile

payment services will have on changing the user experience in this sector. At the same time, the

development or enhancement of mobile apps will be an important growth area for just under 65% of

merchants, particularly those in South East Asia (84%) and Latin America (81%).

Improving the payment process, particularly in digital channels, remains a key focus area for many

merchants. Overly complex requirements might lead to basket abandonment, which is extremely

costly to those merchants affected. In addition to investing in online and mobile platforms, merchants

will also pay close attention to the mechanics of the payment process itself. The gateways and

acquirers that focus on streamlining these areas, while also minimizing fraud risk, will be the ones that

benefit in the future.



Underpinning all of this are clear expectations over the way in which the distribution of revenues

across channels will continue to change. Merchants surveyed as part of Ovum’s ICT Enterprise

Insights study believe that in-store or physical distribution will account for a 7% smaller share of total

sales in 2018 than in 2016, with growth in online and mobile (browser and app) accounting for the

change. Sectors which have traditionally relied on in-store distribution, such as department stores (fall

of 12% from in-store) and food & grocery (11%) expect to see a larger change over the same period.

Strategies to drive greater personalization of the customer experience and to move towards a model

of building long-term customer engagement with a brand (rather than campaigns based around more

traditional offers and discounts) will see strong growth both in marketing and CRM projects and in

projects related to customer data analytics. At a global level, just under 61% of merchants are

increasing their investment in this area in 2017, with 28% growing spending by 6% or more. At the

same time, 24% of merchants will grow their budgets for customer analytics projects by more than

6%. Mobile and online are particularly important here, both as the source of customer data used for

segmentation and personalization and as a key customer touchpoint.

Merchants are open to looking outside their current providers for supportFigure 3: Merchant preferences on partners to deliver new payment services in 2017


In line with the investment focus around driving digital sales and the acceptance of new payment

tools, there is a diversity in the partners that merchants would prefer to work with to deliver growth in

their customer reach, experience, and sales conversions. At a global level, 56% of merchants would

prefer to work with their current provider or acquirer for new payment services, with 39% looking to

existing partners as their top-priority option. Clearly the value placed on minimizing the commercial

complexity here, as well as the integration implications of working with new providers is a high one.

Interestingly, the proportion seeing their current lead provider as their top-priority option for preferred

partner has increased from 33% in Ovum’s 2015 ICT Enterprise Insights survey.



At the same time, a significant proportion of merchants would be prepared to work with payment

networks directly (58% citing this group as a top-three preferred option) and with online payment

providers (57%). The development of open API interfaces by the card schemes is an important

development here, but this appetite for scheme-branded services will also open opportunities for

acquirers. The growth and strength of the consumer-facing offerings of payment providers such as

PayPal, and the wider business services (such as small business credit), continue to be an important

factor in their appeal. Indeed, 13% of merchants view this group of players as their first-choice partner

for new payment services.

The role that online payment gateways play both in improving the payment experience in digital

commerce and in opening up new international markets or segments to consumers makes them an

important partner for merchants looking to invest in their payment services in 2017. Just over 18% of

merchants would look to online gateways as their first-choice partner, with transport (26%) and hotels

(20%) providing particularly strong opportunities for this group.

Despite relatively little traction in the market to date, there is interest among merchants in partnering

with telecoms players, technology companies, and social media providers for payment services.

Mass-market technology companies, such as Apple and Google, have the biggest traction, with 24%

of merchants interested in working with these firms (or brands at least) as a top-three partner of

choice, followed by telcos (21%) and social media brands (8%). While this remains relatively small-

scale, it is a significant minority of the market place and one which should drive partner and innovation

strategies among payment providers, particularly for those with roadmaps for creating APIs for use by

third parties.

Ovum's ICT Enterprise Insights program

IT and communications insight by line of businessTechnology is playing an increasingly integral business role in enterprises worldwide. However, ICT

strategies, adoption, and priorities vary considerably by industry, country, size, and business type.

Understanding these differences is critical for ICT providers, with successful vendors being those

whose go-to-market approach is aligned to the business objectives of specific client segments.

Ovum’s ICT Enterprise Insights program has been developed specifically to meet this requirement.



Figure 4: The scope of Ovum's ICT Enterprise Insights mega-survey

Source: Ovum

ICT Enterprise Insights is the most effective way for vendors to discover, understand, and act on

evolving ICT technology investment strategies and priorities.

Based on surveys with 7,000 senior IT executives across more than 60 countries, it examines ICT

investment strategy from an industry perspective, providing line-of-business depth across the financial

services, telecoms and media, public services, and energy sectors. The program provides executive

perspectives on a range of topics including business/IT drivers, ICT spend allocation, and investment

priorities and approach by technology and industry function. Facilitating client-led decision-making

within a vendor, ICT Enterprise Insights is designed to support vendors right across their

organizations, importantly aligning with data requirements for strategy, product, marketing, and sales

functions.

To find out more about how this program can help your business, contact us at [email protected],

or visit our website: https://www.ovum.com/data-tool/ict-enterprise-insights.

Appendix

MethodologyICT Enterprise Insights presents the data from more than 7,000 interviews of CIOs and other senior IT

decision-makers conducted between July and October 2016. The survey covered more than 60

countries worldwide, looking at industry technology trends across the financial services, telecoms and

media, public services, utilities, and retail sectors.

The data was subject to industry-leading levels of rigor. Respondents were drawn from panels of pre-

qualified CIOs/senior IT decision-makers who then had to clear a series of screener questions set by

Ovum. Interviews were conducted in the respondent's native language where English was not

commonly spoken and administered online or via telephone. The resulting data was reviewed by


mailto:[email protected]


Ovum's primary research analysts as well as our sector experts, using quality assurance tools

developed by Ovum.

AuthorKieran Hines, Head of Industries

[email protected]

Ovum ConsultingWe hope that this analysis will help you make informed and imaginative business decisions. If you

have further requirements, Ovum’s consulting team may be able to help you. For more information

about Ovum’s consulting capabilities, please contact us directly at [email protected].

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2017 ICT Enterprise Insights in the Financial Markets Industry



Daniel Mayo


Summary





executives, answers the key questions. This brief focuses on the top findings from this program for the

financial markets industry.

Ovum viewICT investment in the financial markets has always been closely tied to business strategies and the

economic environment, with technology underpinning most products and services offered across both

the buy side and sell side of this industry. Both sides have experienced high volatility and immense

regulatory pressure since the financial crisis, which has resulted in rapidly shifting IT imperatives and

evolving investment portfolios. Ovum's ICT Enterprise Insights program reveals some key trends in

priorities for 2017.

With many institutions midway through major structural transformation programs in response to the

return on equity implications of regulatory changes, IT priorities have become increasingly driven by

the need to enhance IT capability and modernize legacy systems, particularly to deal with the

demands of the digital world. Institutions are looking to improve efficiency and remove costs, but also

increase resources allocated to client- and market-facing systems and processes to strengthen client

relationships and sales and service capabilities. The need to manage conduct risk remains ongoing,

with buy side in particular expecting continued growth on the risk and compliance side as it catches

up with the strong investment seen on the sell side in recent years.

Key messages The need for digital capacity has catalyzed the requirement for legacy modernization.

Transformation is driving ICT expenditure growth, particularly for buy-side institutions.

The drive for digital is prioritizing investment in client servicing, although risk and performance

management remain key.

Recommendations

Recommendations for enterprisesThe extent of the structural response required to the financial and regulatory realities of the post-

financial crisis world means that ICT budgets cannot be isolated from cost reduction and efficiency

pressures. It is conversely true that effective ICT is now a necessity to be able to balance the

conflicting pressures of risk, regulation, capital, changing client requirements, and the need to improve

financial performance. This means that IT functions need to ensure that investment to meet short-term

requirements around cost reduction and mandatory demands is not managed tactically, but rather

© Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 2


either leveraged in the case of mandatory investment or part of structural changes in the case of cost

reduction. On a practical level, institutions should consider the following:

Institutions should not underinvest in the "IT engine." A rebalancing of IT spend from "run the

business" to "change the business" is important, particularly with a more positive outlook for

ICT budget growth in 2017. However, IT infrastructure investment is required to benefit from

structural technology shifts (such as being able to leverage private and public cloud) and

ensure that security and resilience are not compromised.

Institutions should direct investment toward client-facing functions. While efficiency initiatives

such as back-office processing automation should remain important, continued restrictions

from the regulatory side and evolving client demands mean that the composition of revenue is

likely to see an ongoing shift between product lines. Maintaining close customer relationships

will be a critical capability for long-term success.

Institutions need to view ICT less as efficient transaction processing engines and more as

information systems for clients. Clients will be increasingly interested in the ability to access

and analyze information produced by financial activity rather than the transactions behind

these, and institutions need to provide tools to help clients effectively manage and use

information.

Alongside this, "digital" is likely to be a key watchword for most institutions in 2017. Dealing

with digital will be particularly critical for client- or intermediary-facing systems; however,

institutions need to realize that operating digitally is about more than having strong

online/mobile portals and apps. Digital requires institutions to shift to a real-time, 24x7 model,

where processes and information are automated, available, and current across the

organization. This impacts back-office systems as much as front-office ones.

Recommendations for vendorsThe ICT Enterprise Insights program has found a number of areas of opportunity for vendors servicing

the financial markets sector in 2017, but key points to note include the following:

Reducing operating expenditure ranks alongside increasing revenue growth as a core

business imperative for financial markets institutions (in contrast to the financial services

sector as a whole, where revenue growth is the dominant driver). Vendors should look to

provide evidence of hard return on investment as well as softer business capabilities/benefits

to avoid project de-prioritization.

Legacy modernization has become a top priority for 2017, which should benefit industry

platform vendors. However, firms will be seeking a myriad of migration and deployment

routes, and vendors will need to support this. SaaS-based approaches will become important,

and vendors will need to offer these, although this can be achieved both directly and through

partnerships.



The impact of digital is driving spend for legacy modernization and client servicing

The need for digital capacity has catalyzed the requirement for legacy modernizationOvum's 2016/17 ICT Enterprise Insights program involved interviews with 279 sell-side and buy-side

financial markets institutions across the globe (conducted over 3Q16). Exploring senior ICT executive

investment priorities and drivers for 2017, one of the key developments compared with previous years

is that managing security is no longer deemed the top IT issue affecting the sector. As shown in

Figure 1 (with respondents asked to rank the IT trends shown), security is still a critical area. It is

ranked as a top-three trend for 58% of institutions, but it is surpassed as the number-one priority by

the need to modernize legacy systems and create digital capability.

Figure 1: Key technology trends impacting financial markets institutions in 2017


The key shift here compared with previous years is the high relative prominence of legacy

modernization (which historically has tended to be a mid-ranking issue), with the growing importance

of driving greater IT/digital capability also evident last year. This is not a reflection of the lower

importance of security (which remains critical) but a response to two key drivers: firstly, a major

structural shift in the financial markets industry, and secondly, the growing importance of digital as the

primary client channel.

On the structural side, 2016 has seen a continuation of the external pressures seen in recent years,

with higher capital and regulatory requirements combined with low-return markets reducing the

sector's return on equity (RoE) levels. This has forced institutions to undertake major transformation

programs to restore financial performance, typically involving institutions shifting their business mix to

concentrate on their core, profitable sectors/product areas, together with large-scale cost-reduction

and capability modernization programs. While these programs are business-wide, technology is a

core component of these initiatives, both as an area of focus in its own right and as a source for



improving capabilities and reducing costs in the wider business. Legacy modernization is a key

component within this, with a need to standardize, consolidate, and then modernize the key platforms

used to support the business.

The impact of the digital world has become particularly pertinent to the buy side (with the sell side

having already shifted to electronic channels), with client and intermediary expectations driving the

need to employ digital channels for origination servicing/reporting processes (rather than print and

mail). Clients are increasingly dissatisfied with quarterly/yearly reporting approaches, where

information is provided in a static, transaction-oriented manner, and are demanding ongoing, up-to-

date, interactive access to their portfolios and fund performance. This has increased the prominence

of creating stronger digital capability; however, there has been the increasing realization that digital

capability is not only about the digital channel, but also dependent on the overall IT platform of an

institution. This has, in turn, also catalyzed the high importance of legacy modernization, driving its

relative position as a top IT trend for 2016/17.

Transformation is driving ICT expenditure growth, particularly for buy-side institutionsAt a technology expenditure level, the impact of these trends on ICT budget growth expectations is

broadly positive. While revenue performance for financial markets institutions has generally been

stronger so far in 2016 than in previous years (albeit with high variation by institution), 2016 ICT

spend growth has been relatively conservative for most institutions. As shown in Figure 2, for the

majority of institutions, both buy side and sell side, budget growth is expected to remain flat or

increase by 1–5%. In contrast, only a small proportion of institutions are reducing spend; however, as

these tend to be the higher-tier institutions, the impact on overall market ICT expenditure will be

greater than is apparent here.

Figure 2: Financial markets ICT budget growth expectations by line of business, 2015–17


Moving into 2017, ICT growth expectations are more positive, with the need to drive digital capability

particularly driving investment growth for buy-side institutions. Legacy modernization will have some

impact on overall spend, but such projects generally aim to achieve cost efficiencies in the medium

term, as well as increase capabilities. Key areas of focus here include IT infrastructure, particularly

around the creation of private/hybrid PaaS for key technology stacks; workforce mobility, with

employee tablet-based apps of note; and application rationalization and modernization programs to

both enhance business capability and tackle the cost of maintaining the legacy "long tail" of

applications.



The drive for digital is prioritizing investment in client servicing, although risk and performance management remain keyThe importance of digital is being clearly seen in ICT investment prioritization at the business function

level, driving investment in client servicing and marketing/asset-gathering systems, as shown by their

positioning in the top-right quadrant in Figure 3. This shows analysis from Ovum's ICT Enterprise

Insights program, combining two questions asked to buy-side participants. The first asked institutions

to identify the location of their top three ICT projects for 2017 (in terms of investment value across

business function/system areas), with the results shown on the x-axis as a proportion of the total

survey base. The second asked institutions about their ICT spend growth plans for each area, using

the same scale as in Figure 2 – this was converted into a growth score based on the net percentage

planning to increase or decrease spend, which is shown on the y-axis. The size of the bubble shows

the respective relative investment priority for each area based of magnitude and growth of spend in

each area.

Figure 3: Buy-side IT investment priorities in 2017


For 2017, the top overall investment priorities are concentrated in two main areas. The first is client-

related systems, with client servicing and marketing/asset gathering being top investment projects and

investment growth areas. This is being driven by the shift to digital-oriented communication and

interaction for both origination processes, such as supporting marketing/asset-gathering systems to

support intermediary and sales processes, and client servicing to support ongoing client information



and reporting needs post-investment. The second area is the core business management systems,

which heavily drive underlying investment performance (i.e. risk management, performance

management, and asset/portfolio management). While clients are demanding greater transparency

and access, at the end of the day overall investment performance remains the key success criterion

for retail and institutional investors, and firms need to optimize both short- and long-term risk and

return performance.

Ovum's ICT Enterprise Insights Program





Ovum’s ICT Enterprise Insights program has been developed specifically to meet this requirement.


Source: Ovum










functions.



To find out more how this program can help your business, contact us at [email protected], or

visit our website: https://www.ovum.com/data-tool/ict-enterprise-insights.

Appendix










developed by Ovum.

AuthorDaniel Mayo, Chief Analyst, Financial Services Technology

[email protected]





















https://www.ovum.com/data-tool/ict-enterprise-insights

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2017 ICT Enterprise Insights in the Healthcare Industry



Chris Pennell


Summary






healthcare industry.

Ovum viewThe results from this year's ICT Enterprise Insights (ICTEI) survey demonstrate CIOs' expectations for

continued budget growth, though there will be variation between regions. Healthcare providers will

continue to focus on digitizing patient information. For some, this will mean continued investment into

electronic patient record (EPR) systems, while for others that have completed their EPR rollouts,

attention will shift to developing patient relationship management (PRM) tools. The next 12–36

months look set to be dominated by attempts to join up the pockets of data to satisfy the growing

demand by patients to be more involved in their care. This is leading to additional investment into

adjacent areas such health information exchanges (HIEs) and digital services.

Ovum's ICTEI survey also shows that while many healthcare providers understand the benefits of

digital technologies, they are concerned about the level of disruption to their organization. Healthcare

CIOs are having to meet an increasingly complicated set of objectives, many of which are being

driven by regulator changes in response to digital technologies. Meeting these challenges requires a

new approach to IT. While hospitals take a conservative approach to patient data, they are

increasingly embracing cloud services, especially for back-office services, which tend to move first to

the cloud along with e-prescribing and pharmacy software. These investments are not without their

risks, and the sector has been subject to an increased number of cyber-attacks on hospital systems.

In 2017, security will become a larger part of the CIO strategy and focus.

Key messages Healthcare budgets reflect providers' investment to address citizen demands.

Electronic health record adoption reaches maturity, but raises challenges of securing patient

data.

Attempts to join up patient data move beyond just clinical data sources.

Interest in hospital information exchanges expands in the population healthcare space.

Recommendations

Recommendations for enterprisesHealthcare providers strongly considering PRM strategies should first consider the needs of patients

rather than the requirements of clinicians. Providers should seek to understand what a PRM approach



should look like from the patient's point of view and how their current capabilities match. They should

then assess the gaps in terms of their current systems' abilities and the challenges of adopting new

solutions. To ensure that their strategies are having the desired effect, they should consider

developing strong metrics and KPIs in terms of what is required in real time to shape outcomes for

patients and what is required from a retrospective position to shape the future direction of the strategy.

As providers start to build deeper and richer information stores, they will find this becomes

increasingly attractive to nefarious types. Cybersecurity technology is likely to be an area of

investment over the next 12–24 months. Providers must ensure that any security strategy covers

emerging areas such as PRM and HIE tools, and they should consider their current provisions for

cyber-attacks and recovery procedures. Failure to have a strong strategy and response in place will

lead to increasingly tougher fines, because regulators take a dim view of poor security measures.

Recommendations for vendorsThe market for PRM solutions is set to become crowded, and it is attracting the attention of vendors

from adjacent areas. Some are choosing to enter directly while others are looking to work within an

ecosystem of vendors. Healthcare providers will be looking for vendors that can demonstrate ease of

interoperability with existing systems, because healthcare providers and governments have sunk

significant amounts into EPR systems, and most are not prepared to write this off.

Healthcare providers are naturally conservative when it comes to patient data. Vendors will need to

take this into account. Given the focus on security, vendors will need to be able to demonstrate

compliance with the appropriate security and compliance rules handed down by national oversight

bodies. However, healthcare providers are likely to want to see evidence that vendors can go further.

Not all providers will have the same budget expectations, presenting opportunities for vendors to

develop propositions that are suited to budgets, skills, and experience.

Healthcare providers move to put patient engagement tools front and center

Informed patients demand more from healthcareThe healthcare sector as a whole continues to be challenged with balancing fiscal constraints and

rising demands with the desire to make healthcare more personal yet standardized in terms of

delivery. This is being driven by both patients and governments. Patients are becoming more savvy

when it comes to monitoring their physical condition with wearable devices. They are also able to

access more information on care, such as comparative figures of performance and outcomes, than

ever before. Better informed patients lead to greater demand for choice over when and where to have

consultations and treatment.

Governments for their part are looking at how they can encourage healthcare providers to focus on

outcomes rather than volumes and the removal of barriers between the different parts of healthcare

through the adoption of technology. This also allows for new models of funding and care delivery to be

tested.



The combination of greater consumer engagement and participation coupled with the adoption of

technologies that support the development of new business models is driving healthcare providers to

invest more into areas that support better insight, engagement, and choice.

Growth in healthcare technology expenditure reflects market pressures

Budget expectations have increased significantly since the last survey in 2015. In 2015, 10% of

respondents expected to see budgets grow by 6% or more; in 2016, this has increased to 26%.

Another 46% expect budgets to grow by 1–5%, as shown in Figure 1. In 2015, just over half of all

respondents, 55%, expected budgets to grow by 1% or more. While the headline results mark a

departure from the pattern of previous years, there is considerable difference between the regions

and service provider type.

The challenges facing developing regions differ significantly from those of more mature economies.

Developing economies are being pushed to provide universal access, though not necessarily access

that is free at the point of use. For mature economies, the pressures are different as they look to

provide patients with new ways to consume healthcare that will in turn reduce the overall cost of

providing services.

Figure 1: IT spending plans


Healthcare providers in Latin America show the biggest increase in budgets overall, with 86% of

respondents expecting to see budget increases of 1% or more over the next 18 months. Growth in the

region is being driven by an increase in the average age of the population: the United Nations

estimates that the percentage of Latin America's population aged 65 or over will more than triple

between 2005 and 2050. At the same time, many Latin American countries are seeing a decline in

birth rates and a rise in infectious diseases. There is also an increasing shift toward providing greater



access to healthcare through home healthcare. Expenditure in Latin America is growing faster than

that of its wealthier neighbors in North America, where 29% of respondents expect to see budgets

increase by 6% or more, while another 50% expect to see budgets increase by 1–5% over the next 18

months.

In comparison, respondents in Australasia were more pessimistic, with only 55% expecting budgets to

grow by 1% or more over the next 18 months. Overall spending on healthcare services across the

region has remained low in comparison with other regions, but as a proportion of economic activity it

has actually grown faster than many others. The rise in investment has been linked to the overall rise

in prosperity of the region over the last decade. Now that growth is slowing, so too is healthcare

expenditure, which is particularly true at the state level. The rest of Asia shows no signs of slowing

expenditure.

Budgets in European markets, which have been sluggish in comparison to other regions, are starting

to recover. There is little to choose between Eastern and Western Europe in terms of growth.

However, this hides what are very different growth rates within individual countries. Surprisingly,

respondents from countries most severely hit by public sector spending problems over the last decade

are the most bullish in terms of budget growth – a sign perhaps that the period of underinvestment is

now starting to be reversed.

Attempts to join up patient data move beyond just clinical data sourcesThe push to adopt solutions that support the joining up of healthcare information continues this year.

However, rather than focus on implementing electronic medical records, two other functional areas

have emerged as key priorities for investment in 2017: patient relationship management tools and

care-coordination systems, as shown in Figure 2.

To some extent, electronic health records have helped to improve the quality and flow of information,

despite ongoing issues with usability and interoperability. The challenge of coordinating care across

various providers and ensuring that statutory service levels are achieved to avoid financial penalties

means care providers have to consider joining up a wider set of data than that captured in the course

of examiniations, diagnosis, and treatments. Patient relationship management (PRM) tools are being

examined as a means to address these challenges. PRM represents a healthcare vision of CRM,

facilitating the interaction beween existing and future patients of the healthcare provider, helping to

organize and automate the activities that support the patient experience.



Figure 2: IT spending plans by domain, next 18 months


Interest in PRM is strong across all regions, but it is particularly strong in Europe, especially in

Eastern European and Russian Federation countries, which are expecting to see significant

increases. The one area where growth appears constrained is Australasia, where less than 50% of

respondents indicate any growth in expenditure in this area. The fact that 19% thought spending

would decrease by 1–5% in the next 18 months is of concern. The one area where Australasia was

not the worst-performing region was investment into financial/revenue cycle management tools. Given

the points earlier about the financial pressures on this region, this does make sense.

Interest in hospital information exchanges expands in the population healthcare space

If care management platforms such as PRM are fast becoming a necessity for providers, then the

interchange of patient data between providers becomes paramount. Health information exchanges

(HIEs) are being developed as the bridge between different providers to access the same information.

HIE platforms can help to support a relationship-driven, real-time, high-touch approach through

evidence-based care plans, which can be driven by real-time data.

Of course, HIEs are not without their challenges. Healthcare providers are having to invest in HIEs for

fear of being excluded from having access to patients' information, and therefore excluded from

providing services. Exclusion is an issue for all providers, irrelevant of size. The push to join up data is

not likely to recede. Healthcare providers will need to find some way of joining up patient pathways,

information sources, and communication channels that can communicate with other HIEs but does not

act as a barrier to patient choice by excluding providers outside the HIE.

Electronic health record adoption reaches maturity, but raises challenges of securing patient data

Programs aimed at driving the uptake of EPR solutions, such as the Health Information Technology

for Economic and Clinical Health (HITECH) Act's Meaningful Use program in the US and the National

Program for IT (NPfIT) in the UK, have had the desired effect. More healthcare providers have at least

some form of EPR deployment now than those that do not. The number of respondents reporting no

deployment but with plans to deploy in the next 18 months and those with no plans continues to



decline, dropping from 17% percent in 2015 to 15% this year. The number of those reporting the first

installment of EPR in the last 18 months has also declined; last year, 32% or respondents had

reported a relatively recent deployment of EHR/EPR solutions, and this has decreased to 27% this

year, as shown in Figure 3. The high adoption rates mean that we should expect to see a burgeoning

market for second-generation solutions developing as those early contracts start to mature.

Figure 3: Current/planned state of EHR/EPR deployment


Investment into EPR and HIE systems brings many benefits to those implementing them, ranging

from simple cost savings through to increasing medical accuracy. However, they also present an

inviting target for ID thieves and hackers.

In 2015, the US Government Accountability Office (GAO) reported 56 breaches involving systems

storing and transmitting health information in electronic form, up from the 31 it reported in 2014. In

total, these breaches involved 113 million individual records. The US government is moving to counter

this through bills such as the new Cybersecurity Information Sharing Act, requiring the US Department

of Health & Human Services to provide healthcare providers with better information on how to secure

information and who is responsible for dealing with cyber-attacks against the healthcare provider.

Information governance, information security, and cybersecurity need to be managed carefully as part

of a wider IT strategy.

A conservative approach to patient data is holding back digital activities

Last year we highlighted that the continuing push in healthcare to digitize services was occurring

across multiple fronts, yet providers were struggling to digitize paper-based systems or transition from

legacy systems to new technologies. It should come as no surprise to anybody that the biggest

challenge to the adoption of digital is security, as shown in Figure 4. We have already highlighted the

damage a relatively small number of successful attacks can cause. Increasing the penetration of

network or internet-enabled services will only add to the risk.

While hospitals take a conservative approach to shifting patient data into the cloud, they are accepting

that in some cases it is OK, especially for back-office services, which tend to move first to the cloud

along with e-prescribing and pharmacy software. Yet many still struggle to contend with industry-

specific barriers.

As in any industry, healthcare organizations need to ensure that they have or are implementing a

robust security strategy that considers the implementation of cloud services and HIEs. These should

include strong security credentials that allow for data to move between private cloud implementations

to hybrid and public clouds as the organization's use matures. Much of this will be dependent on the



capabilities of internal resources, which are in short supply. Healthcare organizations will continue to

look to vendors for help with cloud management, implementation, and governance for the immediate

future.

Figure 4: Top three digital challenges







Ovum's ICT Enterprise Insights program has been developed specifically to meet this requirement.




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functions.



Appendix














developed by Ovum.

AuthorChris Pennell, Practice Leader, Public Sector

[email protected]























CONTACT US

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2017 ICT Enterprise Insights in the Higher Education Industry



Navneet Johal


Summary






higher education industry.

Ovum viewWith institutions facing pressures to increase operational efficiency, improve student satisfaction, and

increase focus on student success, IT plays a pivotal role in delivering key services to provide

competitive advantage to each institution. The findings of Ovum's 2016/17 ICT Enterprise Insights

survey reveal that colleges and universities are becoming increasingly strategic about leveraging IT

as an enabler of innovation and differentiation. However, in order to improve the capacity for

innovation, agility, and efficiency over the long term, business and IT leadership must unify their

agendas in fundamental ways. Institutions with the ability to do this will be better positioned to

navigate industry disruption and meet their strategic goals.

Key messages Institutions will increase investments in solutions that fuel differentiation.

Improving student outcomes starts with data analytics.

Despite slow adoption, the benefits of cloud-based delivery are increasingly compelling.

Recommendations

Recommendations for institutions Leveraging IT as an enabler of innovation and differentiation is an important step in navigating

industry disruption and meeting institutional goals. However, unifying the agendas of business and IT

leadership is the key to making efforts more sustainable over the long term. Ovum makes the

following recommendations in line with the key findings of the 2016/17 ICT Enterprise Insights survey:

Hold your vendors accountable.Not only should institutions seek to partner with technology

providers with a track record of success in the higher education industry, but they should also

ensure that they deliver on products and services. In particular, as the student information

system (SIS) modernization trend is underway, institutions should review vendor roadmaps to

see how they plan to enhance their offerings with modern functionality. Furthermore, with the

progressive move to "as-a-service" offerings become standard, institutions should check the

vendor's ability to support institutions as they transition from on-premise to hybrid or full cloud

deployments.



Support student success strategies with robust student success solutions. Following

the development of a sustainable strategy, institutions will need to leverage more data to

inform student success efforts, and look toward a student success solution to analyze that

data and initiate interventions to help keep students on track. It is important to note that while

technology can help to improve student success, the institutional strategy and the ways in

which the tools are used contribute more to improvement than do the technologies

themselves.

Take incremental steps rather than a "big bang" approach to cloud. A hybrid cloud

environment enables institutions to migrate elements of their IT landscape in a measured and

ordered way without sacrificing the efficiency and scale of a cloud deployment. Consequently,

migrating mission-critical solutions to the cloud can be done in an order that aligns with an

institution's business cycle.

Recommendations for vendors Speed up time to value from solutions.Given that a number of institutions currently have

heavily customized implementations of SIS, as well as other applications, it is undoubtedly a

difficult and time-consuming task to help institutions modernize their solutions and realize

greater value. However, vendors can speed up this process by identifying the "low-hanging

fruit" where institutions can obtain quick wins and realign value.

Move beyond analytics and toward student success solutions. Multichannel, interactional

capabilities help to distinguish between an analytics tool and a true student success solution.

It is not just about the collection and analysis of data, but also whether that data and analysis

prompt the end user to do something to help students, and whether there are a range of

channels through which support can be provided. Vendors that have focused their solutions

not only on a large number of data collections and analytics but also on interventions will be

more valuable for institutions.

Strengthen relationships with cloud partners. Cloud technology is essential to delivering a

modern student experience and for institutions to deliver on student success. If vendors wish

to deliver a top-quality user experience to their customers, then they must strengthen the

relationships that power their cloud offerings. For example, if vendors combine their product

portfolio with the agility, flexibility, and scale of the cloud mega-vendors such as Amazon Web

Services (AWS) and Microsoft Azure, then institutions will receive a better experience.



IT will become an enabler of innovation and differentiation in higher education

Institutions will increase investments in solutions that fuel differentiation Figure 1: Higher education institutions' IT spending plans by solution area


The findings of Ovum's 2016/17 ICT Enterprise Insights survey show that many institutions will

increase investments in core enterprise applications during the next 18 months (Figure 1). Spending

on SIS will increase more than that on any other application, with 62% of respondents looking to

increase spend – 27% by 6% or more, and 35% by 1% to 5%. This is unsurprising for two important

reasons. First, for most institutions, which have been running on the same SIS solutions for the past

15 years, their solutions have become cumbersome and lacking in many built-in features such as

mobility and workflow. Furthermore, the cost of maintaining these solutions has skyrocketed. The

advances in technology mean that SIS solutions should no longer be passive, transactional systems

of record. Rather, they have the potential to be systems of engagement, which institutions can use to

differentiate themselves in the market – this leads to the second reason for institutions increasing their

investments.

The previously stagnant on-premise SIS market is now transitioning to the cloud. In the 2016/17 ICT

Enterprise Insights survey, Ovum identified that four major enterprise application vendors, Ellucian,

Oracle, SAP, and Workday, would deliver their multitenant software-as-a-service (SaaS) SIS solutions

incrementally by 2017. Workday, in particular, was the first to announce its plans to develop a student

system in the cloud, prompting its competitors to move forward with their own cloud solutions.

Surpassing these vendors, Unit4 delivered its cloud-native Student Management solution to the

market in 2016, and Campus Management and Jenzabar are also addressing the need for innovation

in student systems by offering a variety of cloud-hosted delivery options and enhanced functionality.

Undoubtedly, institutions should hold vendors accountable, but even if these vendors do not fulfill time

expectations on these solutions, they are accelerating the SIS modernization trend, which is

encouraging institutions to increase investments. Thus, the time is ripe for institutions to consider what

they want from their SIS solutions and how that should be provided.



Improving student outcomes starts with data analyticsFigure 2: Higher education institutions' analytics deployment areas


The findings of Ovum's 2016/17 ICT Enterprise Insights survey show that institutions have fully

deployed or are trialing analytics across major institutional areas (Figure 2). While some areas were

unsurprising – institutions have been using analytics for finance and budgeting and enrollment

management for some time – institutions are now starting to use analytics to track student learning

and progress (88% of institutions have fully deployed, are trialing, or planning) to improve student

outcomes and success.

Improving retention and ensuring student success are two of the most important business challenges

for institutions globally. The dropout rate from UK higher education institutions has increased for the

first time in four years. According to data from the Higher Education Statistics Agency (HESA), 6% of

first-degree entrants aged under 21 who enrolled in 2013–14 did not continue their studies beyond

their first year. This is an increase on the previous year's non-continuation rate of 5.7%. In the US, the

issues of retention and timely degree completion are much worse. The National Center for Education

Statistics (NCES) reports that only 59% of students complete a bachelor's degree within six years.

Historically, the onus for performance outcomes and retention rested primarily with the student rather

than the institution. If a student left a program for academic or personal reasons, it did not reflect

poorly on the college or university. However, as costs have risen and the link between an educated

workforce and economic development has tightened, many stakeholder groups, including

governments and associations, are holding institutions directly accountable. For example, government

agencies are increasingly tying funding – both direct and indirect through financial aid – to

performance outcomes and retention.

As institutions are increasingly required to report on student outcomes, such as retention, graduation,

and even gainful employment rates, they are building increasingly sophisticated reporting capabilities.

Reporting to state, provincial, and national agencies is no longer an administrative function, but has



become an executive imperative. However, complying with regulatory statutes for reporting is only a

first step with analytics, and is unlikely to yield the institutional transformation required to thrive in the

coming decades. Creating innovative new programs, finding new revenue streams, and moving with

more agility in the industry will require institutions to embrace a data-driven culture where data is an

integral part of the decision-making process rather than simply the outcome of it.

Further, data and analytics are valuable only when they provide knowledge that can be acted on by

the right people, at the right time, to deliver results. Consequently, student success efforts must move

beyond analytics and toward the initiation of interventions, so that students can achieve their desired

outcomes.

Despite slow adoption, the benefits of cloud-based delivery are increasingly compellingFigure 3: Higher education institutions' choice of delivery models


The findings of Ovum's 2016/17 ICT Enterprise Insights survey show that while a number of

institutions have either outsourced the delivery of their systems or are using a cloud-based delivery

model for most solution areas (Figure 3), there are still a significant number of institutions that have

deployed these applications on-premise. Historically, the reasons why institutions have been slow to

adopt cloud-hosted services have included security, access to information by third parties, and large,

existing investments in on-premise solutions. However, it is, for the most part, understood that cloud

computing is the paradigm that will enable agility and drive innovation; hence, an increasing number

of institutions are progressing from contemplating cloud services to committing to the move.

While cloud services allow institutions to create long-term, predictable budgets to better invest funds

and plan for the future, it could be argued that increased agility and innovation are more compelling

reasons to migrate to the cloud. Server demands are rarely consistent in any industry. Institutions

experience surges during enrollment periods, which settles down during the breaks. Delivering the

computing capacity to handle those surges is often a balancing act for institutions. When applications

are on-premise, institutions must provision for peak utilization rates with resources wasted during

periods of lower demand. As institutional and student needs shift, and new market opportunities arise,

the cloud provides resources that can scale up or down as demands vary, thus delivering agility for

modern institutions.



The cloud can also allow internal IT resources to provide greater service to faculty, staff, and students.

IT teams are freed up from routine hardware and software support, which means more time can be

spent on innovative tasks that contribute directly to the core mission – teaching and learning. With the

need for institutions to build innovation capacity to navigate the disruption facing higher education,

cloud computing gives IT the breathing space to support institutional differentiation.






Ovum's ICT Enterprise Insights program has been developed specifically to meet this requirement.


Source: Ovum










functions.





Appendix










developed by Ovum.

AuthorNavneet Johal, Research Analyst, Education Technology

[email protected]






















CONTACT US

www.ovum.com

[email protected]


Beijing

Dubai

Hong Kong

Hyderabad

Johannesburg

London

Melbourne

New York

San Francisco

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