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Managing Growth: A review of the global software & IT services industry

January 2012

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Contents
3 4 5 6 7 8 10 Introduction Executive Summary How Integrated is your Business? Real-Time Visibility The Shift to Cloud/SaaS Conclusion About

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Introduction
The global recession has affected the way all businesses operate, regardless of sector, but the underlying shift has seen a refocusing of priorities to reduce costs and improve operating efficiencies. The software and IT services sector is ideally placed to take advantage of this change through innovation in new technologies (such as Cloud/SaaS) and implementing new solutions (ERP & services automation) to help businesses focus on their core objective growth. This report investigates the opportunities for software and IT services companies in 2012 and beyond, and analyses how the United Kingdom, United States and Australia compare and contrast, to identify important trends that highlight the opportunities and threats to the sector over the next 12 months. All research has been conducted by Loudhouse Research an independent research company based in the United Kingdom, and sponsored by NetSuite the worlds number one Cloud ERP and Professional Services Automation vendor. Methodology 300 respondents responsible for finance allocation (50%) and resource planning (50%) in the IT sector completed an online survey during November 2011. 100 respondents participated in each of the UK, US and Australia, with respondents divided between software development (58%) and IT services or consulting firms (42%). The research was commissioned by NetSuite and managed by Loudhouse, an independent agency based in London.
Figure 1: Sample Breakdown

INDUSTRY

IT services/ consulting

42%

IT Software development

58%
COMPANY SIZE

5000+ employees

13%
1001 > 5000 employees

16% 20%
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501 > 1000 employees

50 > 250 employees

30%
251 > 500 employees

21%

Executive Summary 2012: A Year of Opportunity?


2011 was generally a year of optimism and good results for the software and IT services industries, despite the general economic malaise. According to Intellect, a trade body for the technology sector, the IT industry has remained a stable source of profits in recent years, despite the generally slow recovery from the economic shocks of 2008-2009. This research on the sector bears this out, with participants from all geographies reporting growth in profits and revenues during 2011. The main challenge for 2012 is therefore to maintain 2011s momentum and deliver continued growth and success. The purpose of this research is to examine what tools and strategies the IT industry can use to meet this challenge. The research finds clear links between the presence of real-time analytics and highly integrated back office functions and the overall profitability of the organisation. This second factor presents challenges, because while many companies report high levels of integration, it is clear from the data that this level of integration isnt always being experienced by finance and operations professionals on the ground. Integration and real-time information are the keys to meeting the demands of technology industry success in 2012, and IT companies need both of these in order to move forward, building on the successes of 2011. The following report summarises and interprets the findings from this IT industry research.
Figure 2: Financial Data Use and Profitability in 2011
% saying profitability increased in 2011 Full real-time access Partial or No full real-time access

70% 47%

Use and analysis of financial data

Technology companies strategy is motivated by the need to make cost reductions, keep up with competitors perceived saying profitability increased in 2011 success, and % manage the increasing complexity of todays Partial or No full real-time access Full real-time contracts and business arrangements. access Achieving growth and successfully managing company priorities is currently threatened by an inefficient use of resources, lack of reliable data, and a lack of integration between differing departments and processes.

Figure 3: Integration and Profitability in 2011


% saying profitability increased in 2011 Fully integrated Not fully integrated

70%

68% 43%

68% 47%

47%

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Use and analysis of financial data

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Degrees of integration between Finance and Operations functions

Degrees of integration between Sales and Non-sales functions

5
Figure 4: Degrees of Integration (Applications)

How Integrated is Your Business?


6% 5% 16% 3% 7% 8% 19% 2% 7% 5% 1% 16%
A clear majority 60% - of companies in the survey reported full integration between finance and operations within their organisations, while 55% reported full integration between sales and non-sales functions during 2011. The reported level of integration was highest in the UK, and software developers were more likely to report both types of integration than those working for IT services firms. The systems most likely to be integrated with other business processes were ERP/finance systems (39%), while ecommerce (28%) and CRM systems (27%) lagged behind. Clearly, however, there are some inconsistencies in what is actually experienced as full integration by end users though. 65% of respondents in the survey felt that accounting systems are usually too disconnected from the business, showing that finance integration still has some progress to make.
CRM

7% 2% 3% 14%

Degrees of Integration Between Finance and Operations Functions

35% 41%
Professional Services Management

36%

44%

60%

55%

39%
ERP/Financials

Already is 36 months+

12-18 months Not at all

Ecommerce

29%

28%

27%

18-36 months Dont know

Because of the strong link between integration and profitability observed in 2011, it behooves companies who want a position on the leading edge of the industry to pursue greater integration across both systems and functions in 2012 and beyond.
Fully integrated Partially integrated

Not integrated at all Dont know

Q18: Please estimate when, if at all, each of the following applications will be completely integrated with other business software processes? Base: Total (301), US (101), UK (100), Australia (100)

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Q8: To what extent are the finance and operations functions in your business integrated? Q9: To what extent are finance and operations and other non-sales functions in your business integrated with sales and product/service development functions? Base: Total (301), US (101), UK (100), Australia (100)

Degrees of Integration Between Sales and Non-Sales Functiuons

There was also a noticeable disconnect between accounting and finance professionals in the levels of integration that they reported. 70% of finance professionals reported full integration between their department and the operations function, while only 49% of operations professionals reported full integration with Finance! This may reflect the wider access to systems among finance professionals (who must use data from throughout the business to perform their jobs) as compared to operations functions, who may not have full access. CRM and ecommerce systems received the lowest integration ratings with results in the mid-20 percent range, indicating that integrating front office systems with back office operations and accounting processes were key areas for IT businesses to address in 2012.

Figure 5: Integration by Function

3%

4%

1%

37%

40%

6%

6
Figure 6: Use of Financial Data
Dont know

Real-Time Visibility
Management-reporting maturity was an area of weakness in 2011. While systems may have been integrated in their construction, it is clear that the full benefits of integration are not being felt across most businesses. Only 11% of respondents reported that they had real-time information and analytics access across the business, while 64% reported that their reporting was entirely or mostly manual. This prevalence of spreadsheet-based reporting is worrying, as information stranded in spreadsheets cannot move freely across a business. It is trapped within specific functions or even within specific teams. Accounting and financial data was more likely to be available across the business than management information, with 49% reporting such full access. This reinforces the perception that accountancy and finance have better access across the organisation than operational functions, and the impression that this uneven and potentially less-effective use of data is a problem to address in 2012. The problem of uneven access was felt particularly strongly in 2011 around issues of globalisation. Only 41% of participants reported that their business view is completely global in real time this suggests that businesses that operate across regions may be operating with data handicaps. Indeed, 70% of respondents desire a more comprehensive view, saying that having one view of the customer and business performance could help their business grow and be more effective. This greater access and use of data should be the priority for 2012. Underscoring the importance of getting real-time information right, organisation-wide real-time information access was linked to profitability increases in 2011, with 70% of those who report such access also reporting increased profits, while only 47% of those without it reported increased profits in that year. In 2012, the challenges of real-time access will be linked to continued success.

Real-time access to some of these data catagories from some parts of the business and non-real-time access from others

43%

Real-time access to information from throughout the business

49%

Figure 7: Management Reporting Maturity


Dont know

2%
We have access to all of these types of data, but not in real time

2%
Almost all spreadsheet based, highly manual spreadsheet reporting

6%

27%

Real-time business information and analytics across the business

11%

Real-time access to some of these data catagories from some parts of the business and non-real-time access from others

43%

Real-time access to information from throughout the business

49%

Some business information tools, but mostly manual spreadsheet reporting

Business information tools based on different departments, varying degrees of up-to-date

37%

23%

Q20: Which of the following best describes your organisations use and analysis of accounting/financial data? Base: Total (301), US (101), UK (100), Australia (100)

Q19: How mature are your management reporting processes? Choose the description that comes closest to your situation. Base: Total (301), US (101), Australia (100)

Dont know

2%
Almost all spreadsheet based, highly manual spreadsheet reporting

27%

Real-time business information and analytics across the business

11%

Some business information tools, but mostly manual spreadsheet reporting

Business information tools based on different departments, varying degrees of up-to-date

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37%

23%

The Shift to Cloud/SaaS


Cloud and SaaS were clearly on the rise in 2011, and are continuing to rise in 2012, providing a mechanism by which rapid integration and management reporting improvements can be achieved. Over one third (35%) of organisations in the study report that cloud / SaaS is in use across the organisation. A further third (31%) report partial adoption. Cloud technologies are no longer new innovations; they are now maturing technologies that can be put to serious use to benefit the business as a whole. Full adoption of cloud / SaaS was much more likely in the software development side of the industry than it was in the services side in 2011 (43% vs. 23%), suggesting that the IT services industry is in the most urgent need of system improvements. 2012 will be the year of the cloud in the IT industry: 64% of respondents expect these technologies to make up a larger part of their IT budgets in 2012. The drivers for this continued push toward cloud are directly related to the business challenges respondents saw in 2011, with IT performance improvements (48%), cost savings (46%) and competitive pressures (35%) the most commonly cited. Clearly, technology spending in 2012 will be led by the challenges identified in 2011: the need for better access and use of data across the business.
Figure 8:Adoption of Cloud/SaaS
No plans to adopt Cloud/SaaS Dont know

6%

2%

Plans to adopt Cloud/SaaS in the next 12+ months

Fully adopted across the entire company

35%

9%

Plans to adopt Cloud/SaaS in the next 6 months

17%

Partially adopted across the entire company

31%

Q14: To what extent has your company adopted/made plans to adopt Cloud/ Software as a Service (SaaS) solutions to manage core business functions? Base: Total (301), US (101), UK (100), Australia (100)

Figure 9: Planned Investment in Cloud/SaaS


Dont know

1%
Decrease

1%

Increase

64%

Stay the same

34%
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Q16: As an estimate, would you say that investment in Cloud/SaaS is set to increase, decrease or stay the same as a proportion of IT budget over the next 12 months? Base: Total (301), US (101), Australia (100)

Conclusion
In 2012, information and insight look set to become the most valuable assets businesses have. In order to meet the challenges of the coming year, businesses need to integrate data processing and their understanding of their information needs across the business. While it is clear that most companies are trying to innovate, the drivers of this innovation are still external: competitive pressures, contract complexity, and cost. Without internal motivation, it will be a challenge to make the business-wide changes that are needed, and to close integration gaps between functions. Use of real-time information will be a differentiating factor for successful IT businesses in 2012. While efficiency increases have carried integrated companies forward to success in 2011, continued profitability gains will depend on putting technologies such as cloud to use effectively to deliver quick measurable ROI to the business through better use of information. This means more than simply connecting systems it means full integration, allowing people in all business functions to access and use data relevant to them from across the company. It also means giving senior managers the ability to easily regulate access and keep company data secure.

2/3 BELIEVE THAT BETTER UTILISATION OF BILLABLE RESOURCES CAN DRIVE GROWTH IN PROFITABILITY

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Conclusion (continued)
Finally, it means using newly-widespread models such as cloud/SaaS and mobile devices to realise these goals. In order to build on the momentum of 2011s success, businesses need to: Replace externally-driven cost and competition motivations with internally-driven strategies for growth, planning technology investment over the long term with the goal of making business processes more seamless and real-time data more accessible from across the business Monitor integration and information access across the entire business, finding gaps in the real-time access to relevant data and looking for new ways for all parts of the business to work together more efficiently Use the move to cloud as an occasion to look at how information is used within the business, focused on the business benefits of investment in efficiency, rather than solely on cost reduction. 2012 can deliver on the promise of 2011, and realise the possibilities offered by new tools for continued profit gains. To realise 2012s potential, the leading organisations in the IT industry will need to become information-focused entities, and realign the tools and processes they use to this focus. A fully-integrated, global view is 2012s most important key to success.

THREATS TO GROWTH: 38% INEFFICIENT USE OF RESOURCES 36% LACK OF RELIABLE DATA 30% INTEGRATION OF SYSTEMS AND ADMINISTRATIVE PROCESSES

Only one in ten IT businesses has access to real-time information and analysis across the business

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About
About Loudhouse Research Loudhouse Research is an independent research consultancy based in London. Loudhouse works with companies of all shapes and sizes to deliver insight into what makes companies tick. Loudhouse works across a range of sectors and has particular expertise in business services, technology and people issues. For more information on Loudhouse, please visit www.loudhouse.co.uk Loudhouse Research 93 Great Suffolk Street London SE1 0BX T: 0845 5057770 About our Sponsor NetSuite is the worlds leading provider of cloud-based business management software. NetSuite helps companies manage core business processes with a single, fully integrated system covering ERP/financials, CRM, professional services automation, ecommerce, inventory and more. More than 10,000 high-growth and midsized companies and divisions of large enterprises use NetSuite to run more effectively without the high costs and inefficiency of on-premise systems. By using NetSuite to automate operations, streamline processes and access real-time business information anytime, anywhere, growing businesses realise breakthrough performance improvements. For more information, please visit www.netsuite.co.uk Founded in 1998, NetSuite (NYSE: N) is headquartered in Silicon Valley with more than 1,000 employees across nine offices throughout the U.S., Canada, Europe, Asia and Australia. Named by Gartner as the fastest-growing top 10 financial management solution, NetSuite has netted four prestigious CODiE Awards in 2010/2011 from the Software & Information Industry Association (SIIA): 2011 Best Financial Management Software: NetSuite 2010 Best Business Software System: NetSuite OneWorld 2010 Best Cloud Infrastructure Solution: NetSuite SuiteCloud 2010 Best Relationship Management System: NetSuite CRM+

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