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Published: August 28, 2012
 / Autumn 2012 / Issue 68

 
 

The Global ICT 50: The Supply Side of Digitization

Each of these sectors has its own combination of qualities, with different competitive strengths and weaknesses. (See Exhibit 1.) Despite their differences, however, all the members of the ICT 50 have one thing in common: They share a context that has shifted markedly during the past few years, and not just because of the global economic downturn. Earlier waves of information and communications technology, during which businesses fulfilled their basic needs for connectivity and computing power, have effectively run their course. The two critical infrastructure elements required for digital media — computer power and Internet access — were established in the 1990s, were rolled out across the world in the 2000s, and are now commodities throughout most industries.

The most recent wave of digitization began around the time the iPhone was introduced (in 2007), and has picked up speed since 2010. With the basic infrastructure in place, both businesses and consumers are demanding more from software and services. The mobile handheld device has become an all-purpose digital gateway; employees increasingly demand to use their own devices for work, which gives them the flexibility to mix their personal and working lives, and the continued expansion of their personal and social networks. As digitization takes hold, the boundaries between departments — and between companies — become looser and more permeable than they have ever been before. Supply chains integrate using cloud-based applications; marketers aggregate data from online sources, including social media. In all these ways, and more, sophisticated new services have rapidly and offhandedly moved into the business world, where they are disrupting the ICT market.

The changing nature of the demand for ICT products and services helps explain why the supply side of digitization is in flux — with more volatility than at any time since the collapse of the dot-com bubble in 2000. The Global ICT 50 study was designed to provide an analytical portrait of that volatility. To our knowledge, it is the first study to examine enterprise relevance for all four sectors together. If some of the rankings seem counterintuitive, that’s because the business-to-business emphasis leads to assessments very different from those of the typical technology press. For example, Apple, with its notable success and high market capitalization, is ranked below HP and Cisco Systems. Google is not even included in the top 10. (See Exhibit 2.) Apple and Google are both remarkable, extraordinarily capable companies, but their impact on corporate ICT purchasing remains relatively low, no matter how many iPads or search engine advertisements are sold. If you are a CIO or an ICT decision maker designing your organization’s approach to digitization, the companies at the top of each category are the ones that are likely to be most relevant to you. (See Exhibit 3.)

Financial Performance

Where financial performance is concerned, the ICT 50 analysis confirms that one prevailing assumption of the past decade — “service rules” — no longer holds true. None of the top five financial performers were IT service providers or telecom operators. The software and Internet companies Microsoft, Google, and Oracle had the greatest overall financial health, followed by the hardware and infrastructure companies Apple and Cisco Systems. (The score combines several published measures: profitability, revenue growth, and investment capability.)

The hardware and infrastructure sector experienced a slump during the economic downturn, but it has recovered since 2010, with three-year revenue growth of more than 11 percent. Margins, however, are comparatively low, at just 12 percent on average, and these companies face tremendous pressure as digitization expands. This pressure was highlighted in May 2012 when Hewlett-Packard announced it would cut more than 7 percent of its workforce and reinvest the savings in cloud-based businesses.

 
 
 
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Resources

  1. Roman Friedrich, Florian Gröne, Alex Koster, and Matthew Le Merle, “Measuring Industry Digitization: Leaders and Laggards in the Digital Economy,” Booz & Company white paper, 2011: A background report describing more dimensions of digitization.
  2. Roman Friedrich, Alex Koster, Matthew Le Merle, and Michael Peterson, “The Next Wave of Digitization: Setting Your Direction, Building Your Capabilities,” Booz & Company white paper, 2011: Trends in changing technology and how they will affect business.
  3. Andrew Grove, Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company and Career (Currency Doubleday, 1996): Grove’s concept of strategic inflection points, and the vigilant creative execution they require, is apt for the current moment of digitization.
  4. For more thought leadership on this topic, see the s+b website at: strategy-business.com/technology.
 
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