Impact of 2008 crisis on IT – Driving forward looking at rearview mirror…

I read a very interesting article in Mckinsey: Industry trends in the downturn: A snapshot http://www.mckinseyquarterly.com/Energy_Resources_Materials/Steel/Industry_trends_in_the_downturn_A_snapshot_2264

Quiet interesting for those of us in the High-technology industry to look at the trends…The IT spending as a trend has reduced 5 to 7 times that of GDP (With h/w 8-9 times and the IT S/w/Svs 3- 5 times)…The article sites the trend chart reasoning rather shallowly as contributed by high-spending in the Y2K and .Com boom…I completely disagree with this, having participated in both the Hardware, Software and IT services in my checkered Industry experience…Lets look at what has really been happening…..

H/w 2001 hence
In Hardware industry the prices has been falling the moment Industry revolutionized the Intel-based servers call it Titanium and/or multi-core technologies…I don’t see many proprietary server uptakes growing anywhere in the market…The commoditization of server has been doing extremely well to drive out the “Elephants who cant dance”
The processor is not he only driver to this trend…the trend is further supported by falling prices of Memory and memory access technologies…so you may use the additional terminology of “Economies of Scale”…Sorry Adam Smithsonians out there, I haven’t seen “diminishing rate of returns” yet…I attribute the reduction in cost driver to Innovation in Marketing first and technology next…

Storage:
In Storage industry too the price per MB/GB of storage has been constantly driven down…more than the commoditization of server it can be attributed to fine slicing of the storage segment for different application requirement of storage: archival, static, dynamic storage:
SATA/ATA disks vs the expensive SCSI disks
Falling prices of controllers
Falling prices of interface cards, and so on…
I attribute the reduction in cost driver in this segment to Innovation in Marketing and not so much the technology…

Network & Peripherals
There are 2 components that has been witnessing drop in prices one is the cost of communication equipments and the services associated with keeping these technologies up and running….some of the key developments contrivuting to these has been the following:
Falling prices of components to assemble network equipments
More efficient routing algorithms and efficient transmission of packets
Technology evolution both mobile and standard in transmissions (I may sound stupid rattling the technologies here without devoting a separate article on the topic backed by solid research: MPLS, ATM, FR, Ocnet, etc…)

Software
The greatest cost has been those of the reduction in license cost while increasing Product support and upgrade cost….

The license cost has been going south facilitated by the following:
Innovative subscription models and SaaS…written by me in other articles
Piracy forcing vendors to reduce cost lest it is completely free
GNU & freeware (spurious ware)

IT Services
No doubt the factors reducing the cost are not just India and China, but also the promise of the COTS packages and the industry specific features that are requiring less effort to manage on the lon term…(I’ll cover this more in detail later)…you can get more view to it on my article under “Outsourcing” category

Is there anything I’ve missed….share your comments and views on this…..

Does too much focus on core competence leads to slow decadence...

I came across a very interesting intreview od Richard Ruemelt (strategy's strategist - http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/Strategys_strategist_An_interview_with_Richard_Rumelt_2039_abstract) on how misconceived the strategy plans of organizations are. According to the interview they are nothing but a 3-5 year rolling plan focussing on market share, lobbying for resource allocations and financial projections. Seldom does on see a concrete actionable to handle a changed scenario in the environment, innovation or tapping into a unmet customer value in an industry that could lead to incremental revenue for an organization.

Interestingly he also beleives that organizations by focussing on their core competence discussion during strategy plan often miss innovation opportunities that would sustain the organization on the long run. The only thing that eventually sustains such large organization is their captive customers, and the strong networks in the business ecosystem preemting the entry of innovative/entrapreneurial company for a short-run, and eventually yielding to them. This is not new if one reads Clayton Christiansens "Innovators Dilemma". One can see this more prominently in the Telecom space. Imagine Telecom organizations leapfrogging to 4G without going through the arduous 3G journey....To do this one need to consider the followng challenges:

1. Will the regulators allow?
2. Will the Communication technology vendors right-price the 4G technologies foregoing their massive investments in 3G technologies (EDGE, UMTS...etc.) leading to its quicker adoption
3. Will the consumre electronics companies (read the handset providers) mass produce their handsets @ reasonable price to consumers to facilitate its adoption (ofcourse foregoing huge investments in the 3G network)?

All the above needs to be seen....Atleast, some of my neighbours in my apartment and my collegues at work do not think 4G really has any scope unless one passes through the drudgery/decadence of 3G...Blame it all on core competence....

What do you think?