Israel IT Market 2006 2008

Jimmy Schwarzkopf Research Fellow S T K I [email_address] What is new for Israeli CIO 2006

How IT decision makers tell us their “IT story”: Personal meetings (STKI analysts meet over 20 IT decision makers a day). STKI answers 2000 inquiries a year. Over 150 CIOs of the biggest Israeli companies (over 70% of IT market) open to us their budgets. Over 105 CEOs of vendors serving the Israeli market open to us their sale results. ISRAEL IT 2006

Agenda Disruptive technologies in Israel 2006: View from the top (Israeli CIOs speak) View from the Israeli IT Industry (2005 results)

Disruptive Technologies Office of the CIO SOA Enterprise Architecture Agile Software Project Management Real Time Analytics Text Mining Business Processes Business Rule Engines Open Source Movement Voice over Internet Protocol Supply Chain Management 64 bit x86 architecture WiMAX, WiFi, all wireless Microsoft VISTA Not a clever technology but one that makes life very difficult for the many businesses that depend on the existing way of doing things

Disruptive Technologies Most of the important “new” technologies today are not “products” but a “new way” of doing things. Product comparisons are second to new methodologies and business strategies. EXAMPLE: The best BPM in the world cannot make up for bad design of business process, viseversa not such a problem The best middleware software cannot makeup for not having good architecture , but good architecture can work with any middleware

I N N O V A T I O N “ if you keep doing what you have always done, you will get what you have always got” “ if you act on what you already know, you will do what you have always done and get what you have always got”

View from the top: CIO agenda (1) IT CIO Emerging Technologies *Which ones? *What skills needed? IT Strategy, sourcing and usage * what is driving the IT industry ? * what is available to me? CONSUMERIZATION * what are my clients deploying? * What is available in the public infrastructure ? BUSINESS IMPERATIVES: *what factors driving the business ? *how much does IT matter ?

View from the top: results of our Israeli CIO survey (1) How would you compare budget 2006 to the one you had in 2005 ? Who does the following report to: 74% of Israeli CIOs report to the CEO 54 % of IT departments have their own procurement team

How many enterprises in Israel?

Changes in percentages of total budget by industry % from total budget 100% 100% 100% 100% One of Every Three Dollars in IT Will be in the Financial market

MIX of products/services by client industry 100% 100% 100% 100% 100% 100% 100% 100%

View from the top: results of our Israeli CIO survey (2) How much do you have: 54 % have some type of outsourcing in IT 81 % have TEMPS ( 24% of the workforce is the average) 77 % have some type of “Office of the CIO” in place, most extremely simplistic 46 % have or will have some LINUX by end of 2006 Investments in BI, DW, Analytics, Balance Scorecard or by any other name will grow in 2006 by more than 60% as an average.

View from the top: results of our Israeli CIO survey (3) The following are summarized answers from my meetings: Need of asset visibility (asset management) Most important asset to manage: PC and PC software Few CIOs plan to consolidate suppliers Most outsourcing will continue to be restricted to specific projects: implementation/training, security upgrades, desktop help desk and maintenance and some development. Most CIOs lack metrics or targets with internal clients. Most CIO’s are confident about their security although very few have a CSO (5 to 6 % of budgets go to security projects and security software)

PEOPLEWARE Age Pre-past Present Past

View from the top: results of our Israeli CIO survey (4) Consolidation: Exploiting software & hardware resources & payment options to best serve a variable workload EII: Delivering meaningful information from many sources to many consumers SOA: Delivering IT functionality as reusable, interoperable business services Peopleware: portal convergence VoIP Internet2-Web2 OTC: giving users all the resources they need at the time they are needed, at a cost that is related to the business value delivered Service Oriented Architecture Hwre Sftwre Consolidation Enterprise Information Integration Peopleware Computing Office of the CIO: OTC enabling deployment of concurrent initiatives

View from the top: results of our Israeli CIO survey (4) IT MODEL Risk & Security Business Processes Sourcing Analytics Applications Content Collaboration Integration Cost Quality Time Infrastructures Compliance Architecture

ARCHITECTURE Process but how do I deliver the services?????

What is going on for CIOs ? (1) OFFICE OF THE CIO (OTC) Establish IT policies and procedures Optimizing the acquisition, deployment and support of new technologies Figure out how to know in real time who is doing what, how and when What does this mean for vendors? Software programs and implementation for asset management, project management, demand management, software usage management, etc. Implementation of internal BI and balance scorecard projects for IT

What is going on for CIOs ? (4) During the 2006-7 framework most ERP installations will enter “next level” : the improvement phase. What does this mean for vendors? analytics, business processes and industry specific applications

Why “office of the CIO” Really Matters? Time in project expenditure expenditures committed domain/technology knowledge Actual project costs

Office of the CIO Resources Management Delivery method Network Wireless Internet Internal Customers IT Asset Mng Budget Mng Talent Mng HR Mng Training Sourcing Mng Vendor Mng Innovation CTO Architecture Strategy Budget ($) Manpower (HR) Asset (SW/HW) Help Desk (Tier1) Operational Services Help Desk (Tier2+3) Business Analysts Delivery Mng Customer Relationship Mng Innovation Mng Architecture Mng Strategy Mng Performance Measurement Cost Timeliness Quality Q/A & Testing SLA Mng Infra. Mng Security Mng Performance Mng Project Mng IT BI Suppliers

Office of the CIO: IT Management Challenge Clients People & Process Performance

How do we produce CHANGE ? Only if we could…………………… Partnering Business with Technology (Innovation Cycle) Aligning Technology with Business Strategy (Alignment Cycle)

Old Approach Apps Data Manage Processes Drive Capabilities Assembled From Users Use Enact

New Approach BUSINESS MODEL TECHNOLOGY MODEL Users Apps Processes Use Drive Enact Capabilities Realize Data Manage Consume Services Orchestrate SERVICE MODEL

What is going on for CIOs ? (2) Business Process mapping Few Israeli firms can map their processes in ways that permit simulations, what- if analysis or even basic descriptive analysis of how the firm works. Most firms don’t “precisely” know how they make (or loose) money. Most firms do not profile their customers accurately or objectively. What does this mean for vendors? Implementation of firm-wide BPM introduction Industrial Engineering departments in IT vendor service menu IT vendors get top management visibility

A business process Requisition Approval Process Notify Approver

The Process Driven Organisation Process number one Process number two Process number three

Agile IT = Fundamental Change in Relationships Deliver Receive Service Business Processes IT Infrastructure Enterprise Applications

What is going on for CIOs ? (3) CIOs have to decide on SOA and “applistructure” Applistructure is the trend that combines ERP/CRM with enterprise infrastructure through use of middleware ecosystems. SOA architecture project are difficult to “start” What does this mean for vendors? Competition in the middleware ecosystem between the big four (IBM’s Webshere Blue Stack, Microsoft’s .net, SAP’s Netweaver and Oracle’s Fusion) against SUN/SeeBeyond, Tibco, BEA, MAGIC and others. SOA and architecture consulting projects

What is SOA ? Service Oriented Architecture is a state of mind

APPLISTRUCTURE and SOA SOA Application Platform SOA Information Platform SOA Infrastructure Platform

SOA reduces IT Complexity & Cost 2003 2008+ 1997 2000 2006 Infrastructure Costs Complexity + many vendors 1994 Client Server N - Tier SOA based Systems Support Management of IT ($) $$

Why do we need a software application platform model ? STANDARIZATION More capabilities being part of the infrastructure Not being coded separatly into each application CONSOLIDATION Using majority of applications on a single software platform Improves integration Reduces management costs Simplifies support Vendors building daily their platform MODULARIZATION Buying only what you need Allows composite applications

Encapsulated and web services applications E-Mail Web Services Data Warehousing Web Services Office Suites Web Services Other Applications Web Services Content Managers Web Services Packaged Applications Web Services Legacies Web Services Workflow Managers Web Services KM Applications Packaged & Personal Applications Portal/EAI/BPM Composite Applications Data Integrator

STKI Software Application Platform Model Enterprise Portal Web Server Identity Management Business Intelligence Collaboration Tools Operating System Development Tools Business Process Management Application Integration Information Integration Data Management Application Server STKI SOFTWARE APPLICATION PLATFORM MODEL

STKI model : the main vendors Open Source B E A S A P S U N ORACLE Microsoft I B M STKI SOFTWARE APPLICATION PLATFORM MODEL VENDORS Other BOB like Tibco, etc….

Composite Applications Composite Applications Drop-and-configure Optimize Rate Plan Get Customer Process Order Get Value Get Churn

Heterogeneous Applications & Information Data Content Actionable Relationships Processes People Tools & Applications Information as THE NEW “CENTER OF GRAVITY” Information as the CENTER OF GRAVITY Integrate, Accelerate, Optimize, Virtualized

Information Architecture also….

Integration architecture XML Enterprise Integration Bus Process Manager EII eBusiness System Legacy System Front- & Backoffice System CRM System Financial System SCM System Workflow Management System Portal as assembly engine Enterprise Portal

What is going on for CIOs ? (3) Enterprises are realizing that the WEB is going through changes: WEB v 0: marketing and branding (up to 2002) WEB v 1: self service and cost cutting instrument (2002-5) WEB v 2: revenue growth and new markets (2006….) What does this mean for vendors? new products, infrastructures and projects Strategic visibility in the enterprise Beware Internet 2 is also coming

What is new in WEB technology? 1960 1995 2015 Organizational Learning Computer- centric Era (mainframes) Network- Centric Era (the Internet) Networks-of- Networks- Centric Era (Internet2) 2006 1990 35 years 10 years 15 years WEB v2

Comparison of: ARPANet, Internet1 and Internet2

Internet2 Implications Research and Development Commercialization Partnerships Privatization Internet1 Internet2 1. Need to learn opportunities of WEB version 2 2. Need to understand opportunities and threats of Internet2 3. Need to realize that the window for action is NOW In Israel 4Q2006

What is going on for CIOs ? (5)

IT INDUSTRY over 13% GR0WTH Awareness Interest Consideration Trial Purchase

What is going on in our industry? (1) The IT industry in Israel is consolidating by buying competitors but especially smaller niche companies Commodization of more and more infrastructure products and services. Differentiation in this space is tough and tougher to generate profits Companies require scale in order to make profits (not only by becoming larger but by selling out of Israel) What does this mean for CIOs ? Fewer choices (less competition, vendor power, monopolies) Fewer “bells and whistles” in project management Higher prices or less negotiating room

MIT data on IT work needed ads

What is going on in our industry? (2) Higher cost for “HUMAN CAPITAL” in Israel Less students graduating from IT related fields Boom in IT related startups Salary freeze or reductions since 2000 The market is scarce on the following professions: Experienced DBAs, storage management, security and other complex infrastructure professions. Experienced ERP, CRM, BI professionals Experienced IT project managers What does this mean for CIOs ? Salaries as an average will grow in 2006 by 15% (with professions like DBA, ERP and CRM in the 25%-30% range)

LAST YEAR Researched “real” 2005 market IT Market in 2005

Finding the right DATA for “real” sales VENDOR.CO.IL

Sometimes you compare and realize it is not FAIR but…… All numbers on MILLIONS of US Dollars

RISC and Proprietary Servers Mainframes are here to stay Other proprietary OS(AS/400 and openVMS) have migrated to other hardware architectures Factors affecting RISC 64 bit X86 Linux and Microsoft Itanium RISC Servers PROPRIETARY

Servers - Industry Standard Consolidation will drive this market Several “WINTEL” architectures out there and confusion with users 64 bit X86 will become the standard architecture with either or both Windows and Linux installed other OS: HP-UX and Solaris 10 Virtualization software and dynamic partitioning will be the standard Multicore and multithreading will be mainstream

PC Clients Notebooks will have a slowdown in growth in 2006, but with new more powerful models that can handle VISTA it will boom again in 2007 There will be a comeback to desktop computers because of the security risks of notebooks DESKTOP LAPTOPS

Storage (disks, tapes and software) Storage is growing by over 30% a year (capacity) Software is becoming a major ingredient and differentiator The mix will change having companies buy more and more of cheaper storage All storage is becoming cheaper : 30-40% a year Integration and Mgmt major part of investment

Printers and “ink & drums” Printer consolidation and technology changes will be the issues in 2006-7 Consolidation will save huge amounts of money Color lasers are still a luxury

Data Networking “dealers” plus suppliers Equipment supplier CISCO is still number one but Nortel has become second while all the rest are far behind. Wireless, VoIP and other issues will be important in 2006-7

Software Cycles Many models of software pricing and software deployment available Area that can bring much needed relieve if taken seriously by users

Software: system and tools With new middleware suites and SOA architectures the software market will maintain its growth Many open source companies are being “bought” by vendors. Will this change things?

Software: applications (local & imported) We will see more banking, retail, insurance and credit card packages enter the market. Competition in the SMB market will heat up, with the planned change of most FIRST generation applications

Total for Value Added Services (VAS) Types of services: Types of projects

Consulting Projects FINALLY consulting has been differentiated from other service products. Clients understand that consultants do not integrate or are part of integration teams Consultants help clients define needs and technologies (ie : RFPs and project supervision). Consultants cannot work for vendors (analysts are not consultants), need to demonstrate no conflict of interest.

Application / Integration Projects Project management skills in integration and in development projects are not the same. More and more enterprises are basing their new applications in packages.

Infrastructure / Integration Projects Service oriented infrastructures, new 64 bit standard servers, new networking and storage technologies require intense infrastructure integration projects.

Computer room and other “environment” integration projects STKI has not “tiered” companies in this area for 2006 The market is heating up and new players are coming in New technologies require rooms similar to those of the 1980s because of: very heavy need of cooling, electricity and weight requirements of new servers and storage equipment

Risk / Integration Projects RISK integration projects (including products) are getting to about 5%-7% of IT budgets. Companies that thought they can “cut” their security costs are licking their wounds. Costs are problematic because they show no ROI

Testing / QA Projects Testing of all forms should be about 15%-18% of project costs. In Israel we are far behind and this shows in project/integration quality. Most testing should include methodologies and experts from this companies NOT organic departments

IT education and Implementation Training Training of employees in project management (AGILE), SOA and other new technologies will boom. On average an employee should get ONE week advanced training a year. Implementation of new application involves training users of applications and new ones as they are hired or transferred (years). Also yearly refresh courses should be mandatory.

Total OUTSOURCING services OUTSOURCING is a win-win proposition for both the user and the vendor if done properly

DRP and Specialized Hosting Services Business continuity needs and the need for expensive “ environmental support ” is pushing clients to this vendors

ASP/ software based hosting MICROSOFT is allowing ASPs to sell server software as a service Salesforce.com allows Hebrew and its AppXchage will allow connection to others ERP vendors will try to implement on 2006 www.numsum.com

Hardware Maintenance Contracts

Outsourcing (SLA) and BPO Business Process Outsourcing like salaries have become standard. New BPOs are entering the market. The most common outsourced functions are: Help desk Infrastructure/ Operations Security is starting Full installation outsourcing

Temps / contracted experts Most common service bought Very different models: from companies that support their employees with technology centers for knowledge, extensive training of employees to those that are “shoot and forget”

Thank you and I hope this study helps you

Israel IT Market 2006 2008

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