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

 
 

The Global ICT 50: The Supply Side of Digitization

By contrast, most of the IT service providers do not have the margins needed to invest in R&D at high rates, and (with the notable exception of IBM) their innovation takes a more modest form. They see themselves as integrators, continually researching ways to link the products and services produced by other companies. As for the telecom operators, they continue to spend much of their funds on recurring infrastructure and network upgrade commitments, limiting the amount of capital available to innovate in more value-added services.

The growth potential score also reflects each company’s ability to enter new markets — both within established geographies (such as selling to small and midsized enterprises or governments) and in new regions. Notwithstanding their current importance to the go-to-market footprint score, the five most highly developed ICT markets grew just 1 percent on average over the past three years, and their long-term growth prospects are not particularly strong. The BRICs (Brazil, Russia, India, and China), on the other hand, currently account for only $186 billion in ICT sales, but they grew 13 percent on average per year from 2009 to 2011. By 2020, the BRICs will be markets in which every ICT player must operate.

Predictions and Prescriptions

For companies buying ICT services, the convergence of the ICT 50 promises to be very exciting. As the ICT 50 companies compete across boundaries, winners will emerge that are more innovative, more responsive to customers, and able to deliver more at lower costs. But how should the different sectors position themselves?

In general, the hardware and infrastructure companies have demonstrated relatively strong financial performance, with a well-developed go-to-market footprint and robust growth potential. Their greatest priorities should be finding a business model that works for them and increasing their portfolio strength. Much will depend on how well these players capitalize on the next generation of on-demand services. They will be the providers of the underlying infrastructure that enables real-time computing, in-memory processing, and more; they will also need to forge differentiated, profitable offerings by acquiring or partnering with connectivity and network providers. Apple is currently developing a closely guarded closed-service ecosystem, but other, more open system approaches may also be viable. New types of challengers, such as Amazon, will probably enter the ICT 50 soon; Amazon’s Web services business is built on a highly flexible, scalable data center and computing infrastructure.

The telecom operators boast consistently high financial performance and a strong portfolio of critical communications products and services, but their core business is maturing and faces commoditization. To sidestep this, they must expand their go-to-market footprint through acquisitions or strategic partnerships, push for operational excellence and efficiency within the constraints imposed by physical network assets and local regulation, and develop a truly differentiating portfolio of services that will take them beyond their traditional telecom offerings. Some companies, notably Verizon and NTT, with their strong cloud offerings, are beginning to make these moves. But after paying for the next generation of network infrastructure, they have limited funds for further innovation, and their growth potential is constrained. They may seek additional partnerships or mergers as a vehicle for growth.

The strength of the IT service providers varies, depending on their size, financial performance, and go-to-market footprint. In the short term, consolidation within this sector will continue — as demonstrated by CGI’s recent acquisition of Logica. Market share and scale alone, however, will not differentiate these companies or guarantee profitability; the firms will need to bolster their growth potential through innovation and stand their ground in competition against the other ICT 50 sectors. The changing nature of system integration will keenly affect them; as custom-integrated enterprise software solutions lose ground to prepackaged cloud-based solutions and as software players absorb some of the traditional system integration business, IT service providers will need to build portfolio strength by developing their integration capabilities.

 
 
 
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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.