The effects of increasing digitisation are leading to dramatic shifts in business models globally and in the ICT industry’s provider structure.
Telecommunications, IT, hardware and technology companies, along with IT service-providers, are competing with software and Internet groups for market share and to maintain their business models in frequently overlapping service areas. In the merciless drive to eradicate the competition, sectoral boundaries are becoming increasingly blurred.
These are some of the key findings from the “Global ICT 50” study published today by Booz & Company. For the study, the global management consultancy investigated key trends, capabilities critical for success and the performance of the 50 biggest providers in the global ICT market.
The report found that a limited number of ICT business models are achieving good growth rates and profits in this environment. It is only software providers such as Microsoft, Oracle and SAP, along with internet companies like Google – combining an innovative technology core with ICT services – who are realising annual turnover growth of over 10% per annum, with comfortable earnings margins of over 25%.
The only other companies achieving comparable growth and sales are offshore IT service-providers such as TCS, Infosys and Wipro, along with a few global hardware and infrastructure providers like HP and Cisco, the study reported.
The flip-side is that classical, more regionally-oriented IT service-providers and telcos are competing for market share and are frequently mired in a structural growth, innovation and revenue crisis. Growth and earnings have been stagnating in both sectors for five years.
Given this changing landscape of the ICT industry and its potential for growth, many software and hardware players are aggressively entering new markets, such as those in the Middle East. This is being achieved through local subsidiaries that are linked to global heavy hitters such as HP and Huawei. While there is great promise there are also challenges specific to the Middle East. In contrast to western markets, the Middle East region often faces strict regulation, limited Internet penetration, and bandwidth issues, which must be overcome by technology players who are striving to provide global delivery out of their clouds. On the other hand, such hurdles may create opportunities for more local islands of growth through local delivery especially where governments invest locally, according to Olaf Acker, partner and ICT expert at Booz & Company.
When it comes to innovation strategy and the associated investments in integrated or digitised sectoral or functional ICT solutions, the divide between the provider groups is extremely wide. While the top 10 globally-leading software and hardware companies investigated for the study are collectively investing over EUR 50 billion per annum in R&D. By comparison, the Top 20 classical IT service-providers looked at for the study have only a seventh of this sum available in their R&D budgets in total.
The consequence is that they are becoming dependent and are not in a position to actively drive forward developments. “If regional IT service-providers and telcos don’t want to be dependent on the innovation trickling down from hardware and software providers in the digital future, they now need to develop the critical capabilities within a short period to expand their offerings into eco-systems and to participate in this via partnerships or acquisitions. In turn, that requires expanding their capabilities for strategic partner or merger and acquisition (M&A) management, and a clear inorganic innovation and growth strategy, for example for combined Cloud and internet solutions, security management or end-device management,” said Danny Karam, principal with Booz & Company.
