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Copyright © 2008 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

Point of View : Enterprise Software

2008.1

Copyright © 2008 Accenture All Rights Reserved. 2

Agenda

• High Performance IT 2008

• Enterprise Software Dynamics

• Long Term Implications For Sector

• Implications For Vendors

• Enterprise Software Market


High Performance IT 2008 :There’s No Substitute for Substitution

For five years following the 2001 tech bust, IT investment in the major industrialized economies all but dried up. Spending was driven mostly by replacement activity.

•2007 was the first time in nearly a decade that IT investing was not simply about replacing broken boxes.

•The first half of 2008 might be dominated by uncertainty over global economic growth, and business leaders will reassess their current investment plans.

•Pure-play consumer Internet companies have raced forward and established a completely new set of expectations

•On a positive note, CIOs understand that most of the new technology is technically mature, cheaper than the technology it replaces and easier to install.

Respondents said enterprise systems were already fully depreciated.

Operation 64% Sales 63%

Customer Service

61% Finance 62%

R&D 48% HR 60%

IT teams spend nearly 40 percent of their time running & fixing existing systems, drip-feeding life support to legacy systems.


High Performance IT 2008 :New Substitutes

This time it is technology adoption and not technology innovation that is driving the change: Enterprises will not be creating new technology, but using ready-made (and tested) success stories from the consumer world.

•Virtualization: Saying goodbye to the box. Desktop, networks, servers, data centers—they’re all like electricity. However they have zero effect on differentiating your business. Infrastructure virtualization—the physical decoupling of business processes, software and hardware—has made IT-as-utility a reality.

•SOA: Making dynamic processes more dynamic with IT. After years of talking about process centric IT, organizations worldwide are now choosing service-oriented architecture initially to address technology integration challenges, but also to help them move toward business process integration.

•Software-as-a-Service: Owning is obsolete. Since the earliest days of hosted applications, CIOs have wondered whether they really need to keep developing and maintaining

•so many of their solutions and systems in-house. That discussion has intensified with the rising costs and difficulty of maintaining and upgrading legacy systems.


High Performance IT 2008 :IT investment, CIO’s Agenda

Focus IT Investments on your end customer.

•Customer facing systems are among the portfolio’s poorest performing applications in terms of technical and business adequacy

•Many organizations must take a look at their core front-office systems and associated processes : CRM, sales & marketing, billing.

•The test should not be about technical and business adequacy. Instead, a good way will be to base their reviews on expectations built up from consumer Internet experiences

•Two broad kinds of technologies - Rich Internet Applications and Real-time Insight—form the basis of what the consumer Internet offers other industries and government in improving their own customer experience:

Finance

OperationsHR

Customer Services

SalesR&D

Dis.


High Performance IT 2008 :IT investment, CIO’s Agenda

Let user-determined computing transform the way your employees work

•Many organizations try to increase productivity by supporting outdated ways of working through information technology.

•Their legacy systems usually don’t support to change the processes - only to standardize them.

•As a result, for all the investment over the past decade, relatively little has changed at work.

• In the early information age, the workplace was the arena for cutting edge technology.

•Now, employees are seeing more IT innovation outside of the workplace.

• “user-determined computing”: employees bringing technology into the enterprise, ranging from PDAs and instant messaging tools to Internet telephony, technical blogs and message boards.

•New collaboration platforms- The media-rich, natural, synchronous collaboration platform prototype for personality-oriented tasks, HP’s Halo- highly integrated, asynchronous platforms for process-oriented tasks. IBM’s Jazz

•Mobility for enterprise applications.- enterprises must take advantage of this ubiquity

•Web 2.0 enterprise applications. - InnoCentive post R&D problems or challenges for any of 90,000 registered “solvers” from 170 countries.- Solvers whose solutions are accepted receive rewards ranging from $25,000 to as high as $100,000; a small investment compared to the value delivered.


Agenda







1. What is happening?

• There is no next great wave for Enterprise Software

• Yet, just as the winners are trying to settle down into a stable

industry structure …

• … the elements of a powerful disruption of the market have been

building and are getting stronger: SOA, Open Standards and Utility

Computing

• The industrialization of the software value chain is a necessary

component of the march forward for software

• The next wars of software are the wars of the value chains—the

next innovations are production innovations


The First 40 Years Where Now?

Mini-Computer

Client Server

Net Centric

Host Mainframe

• Consolidation

• Software-as-a-service

• SOA

• Open Source

• Open standards

• SME, International, Vertical

• Mobility, Embedded systems

• Utility computing

• Grid

Where is the headed?


B

U

Type of User

Type of Business

B

U•Corporate

•Process•Departmental

•Consumer

•Large Info Intensive

•Large

•Small

Net Centric

B

U•Corporate



•Large

•Small

Client Server

B

U•Corporate

•Departmental


•Large

Mini-Computer

B

U•Corporate


Host Mainframe

Banks—payment processing

Engineering—CAD

CRM

Office applications

Customer Self Service

eCommerce

Platform shift = expansion of business hierarchy


B

U•Corporate


•Consumer


•Large

•Small

The Full Hierarchy

•Mobility

•International

•Small business

•……

Remaining Opportunities = Extensions

Implication: Platform Shift As Main Expansion Mechanism Is Dead. No Next Mega Wave for Business Software


Mean

1 Standard Deviation

Source: Company 10-Ks, Accenture Analysis

N= 78 N= 60 N= 12 N= 12 N= 5

Revenue

Operating Profit vs. Revenue

9%

16%12%

24%

-14%

-60%

-40%

-20%

0%

20%

40%

60%

$10 - $100M $100M - $500M $500M - $1B $1B-$2B $2B+

Revenue Segments

OperatingProfit (%)

Time to consolidate. Bigger is better. End of story?


B

U

Internet

•Open Standards•SOA

Good Enough Crisis

Create Configure Host Maintain

Industrialization of the Value Chain

Lowered Barriers to Entry

Full Hierarchy End of Wave Consolidation

the Internet seeded something else…



From Product-based Differentiation to TCO, Speed to Value, Customer Experience

SpeedEfficiencyCustomer Intimacy

Good enough crisis

Open standards50% to 90% of TCO

IT Complexity crisis

IT Doesn’t Matter crisis

Developing Value Shifts in the Software Value Chain

Creation Delivery1

2

1

From Proprietary Innovation to Speed, Efficiency, Customer Intimacy

2

Open Source

Industrialization of the Value Chain: why the old value chain must be re-invented.



Software as a ServiceFirst success for on-demand

Open SourceCollaborative, networked governed development model

LAMP (Linux, Apache, MySQL, Pearl)Over 100,000 projects on SourceForge

IBM, Microsoft, Google, Sun, BEA, SalesForce, all key contributors

The first successful shots at the old value chain: both of them disruptions.


• Interoperable parts system

• Standard measuring gauge

• Moving assembly chain

• Specialized labor

1914 Industrialization 2005-2015 Industrialization

• SOA Open standards (XML, etc.)

• Internet

• Global Web services factories

– Developing– Testing– Assembly

• Global developer pool

Gains from 1913 to 1914Assembly time improvement: 8x

Price of a car decrease: 12x

SOA: A blueprint for an industrialized software value chain. A production innovation.


Agenda







• As traditional market dynamics and internet-born disruption play out, the sector will metamorphose into a hybrid industry– Consolidated and fragmented—polarized

industry structure

– Horizontal layering and vertical integration

– Mix of on-premise and utility computing

2. Where is the sector headed?


B

U

Internet

•Open Standards•SOA



2. Internet Based Disruption

1. Internet Triggered Consolidation


Remember we have two sets of dynamics at play…


From To

The Big Get Bigger

The Rise of the Lilliputians

So, as anything shaped by multiple influences, the industry will be a hybrid: concentration and fragmentation …


OS

Database

Middleware

Applications

IT Services

Business Services

Horizontal layering and vertical integration


INDUSTRIAL STRENGTH

INDUSTRIAL STRENGTH

ON PREMISE

UTILITY

On-premise and utility based computing—both industrialized.


Agenda







• On-premise vendors must industrialize their value chain—the blueprint for the next value chain is already becoming evident—SOA is a key to it• Beyond this, different vendors will face this changing market differently

– Best of breeds face tough choices as their space mature: diversification, reinvention, complement position, exit—many will slowly disappear– Consolidators can create the next great software distribution companies—but consolidation cannot be the only strategy and is rife with challenges– Platform candidates must act quickly: the window of opportunity for creating the next proprietary platform is closing rapidly– Software-as-a-service disruptors still have a long way to go—to prosper, they must continue to perfect their innovation: the business model

3. What should vendors do?


End of Wave Dynamics Internet-based Disruption

Regular Wars Guerilla Wars




Disruptors

Vendor

Traditional Vendors

Two wars for software vendors.


End of Wave Dynamics Internet-based Disruption

Regular Wars Guerilla Wars

Disruptors

Vendor

Traditional Vendors

Platform Strategy

Mergers and Acquisitions

Industrialization of Value Chain

The weapons of choice.


Mega Vendor Challenge at the Top End

Disruptor Challenge at the Bottom

End

“IT Does Not Matter”

“Complexity”

“Good Enough” Incumbent Vendor (e.g., best of breed)

International Markets

SMB

Vertical Solutions

Consolidation Orchestration

Disruption and

OrchestrationDisruption

Market Challenge Market Opportunity

SaaS and Open Source

For best of breed vendors: avoiding the Perfect Storm.


• Adopt SOA• Open and distribute development• Orchestrate partner innovation network• Leverage Open Source—focus on differentiation opportunity only• Copy Open Source—create collaborative development model• Decouple new product development from maintenance• Bring the customer in process

• Adopt SOA• Orchestrate delivery partner

network• Decouple and distribute delivery

activities– Customization– Maintenance– Testing

• Bring the customer in process


Pre-emptive response for all on-premise vendors: Industrializing the Enterprise Software value chain.


• The industry is changing—the platform switch is no longer the key driver of growth—doing IT better is—this likely means slow growth ahead• The most powerful and immediate set of dynamics at this time are the end of the previous wave and the consolidation of the industry• The internet led, wave of change is starting to gather momentum

– It is more than Saas—although Saas is leading the transformation– It is a whole new approach for creating and delivering software (new architectures, new processes, new labor/participants, new delivery = a new value chain)– In time, it has the potential for true disruption

• Only the large vendors will prosper in the current end of the wave dynamics• Only the far thinking vendors will prosper in the next, global, industrial age of Enterprise Software—an industrialist’s mindset is required.

In summary…


Agenda







IT Market Worldwide


Enterprise Software Markets With CAGRs of More Than 10% Worldwide


Software Sub segments Growing With a CAGR Higher Than 10%, 2006-2011, (Total Software Revenue in Millions of Dollars) Worldwide


Software Sub segments Growing With a CAGR Higher Than 10%, 2006-2011, (Total Software Revenue in Millions of Dollars) Worldwide

Source: Gartner (October 2007)


IT MarketKorea


IT MarketKorea

2007

Source: 한국소프트웨어산업협회 ,2008.01

2006

SW, 컴퓨터관련서비스 매출액 (2006.01 ~ 2007.10)( 단위 , 억

원 )


Software MarketKorea

패키지 소프트웨어 매출액 (2005.01 ~ 2007.10)


( 단위 , 백억원 )

2006.122006.12

2007.01 ~ 10


Software MarketKorea

컴퓨터 관련 서비스 매출액 (2005.01 ~ 2007.10)


( 단위 , 백억원 )

283

186

227


감사합니다 !

Accenture 이세제 이사

[email protected]

011-9990-7752


Appendix

Acronym/Abbr. Definition

AD application development

AIMapplication integration and middleware

AIS application and integration suite

B2B business-to-business

BI business intelligence

BPMS business process management suite

CDI customer data integration

CPM corporate performance management

DCC digital content creation

DI data integration

EMEA Europe, the Middle East and Africa

ESB enterprise service bus

HSM hierarchical storage management

ITOM IT operations management

Acronym/Abbr. Definition

MDM master data management

MOM message-oriented middleware

OOA&D object-oriented analysis and design

OS operating system

OSS open-source software

PIM product information management

PPM project and portfolio management

PPMW portal, process and middleware

SCCM software change, configuration mgmt

SCM supply chain management

SIEM security information & event mgmt

SOA service-oriented architecture

TPM transaction processing monitor

Source: Gartner (October 2007)

Glossary

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