1168RA 2013 – Year of Transition

What is Happening? As we ramp into the New Year, it is clear that 2013 will be a watershed transition year from a business growth perspective. Many experts believe that the global economy is poised for a rebound – led by continued strong growth in the developing economies, and bolstered by a healing US economy (especially in the second half of 2013). What this means for the IT economy is an environment of growing capital investment spending – which will fuel continued investment to both lower costs and to innovate for the future.

Why is it Happening? On the surface, the economy still seems stuck in a rut. A recent survey by the Business Roundtable (BRT) – an association of leading US CEOs (whose companies represent more than $7.3 Trillion in revenue and 16 million employees) – indicates continuing weak sales and capital spending in the US over the next six months, with only a slight rise in new employment. As Figure 1 highlights, the continued softness in the BRT’s quarterly CEO Economic Outlook Index “reflects deep uncertainty about the future overall climate, realities of a slow-growth economy and frustration over Washington’s inability to revolve looming ‘fiscal cliff’ issues,” according to Jim McNerney, Chairman of the Business Roundtable, and Chairman and CEO of The Boeing Company. An index reading above 50 suggests a growing economy.

Figure 1: Business Roundtable CEO Economic Outlook Survey Index – 2009-2012

Source: Business Roundtable – Q4 2012 CEO Economic Outlook Survey

Most of these sentiments are shared by leading economists. Drivers include continued weakness in domestic demand (driven in part by the continued US fiscal crisis), combined with the ongoing challenges associated with the European sovereign debt crisis. However, these same economists believe that things may start to turn around in the second half of 2013 – especially in the US (once a fiscal compromise is achieved) – combined with strong continuing growth in the developing economies, which will be supported by aggressive fiscal and monetary policy.

As Figure 2 illustrates, Economy.com (owned by Moody’s) is forecasting that the global economy will grow 2.4% in 2013 (up from 2.2% in 2012), before accelerating to 3.6% in 2014, and to 3.7% in 2015. While there are many hazards along the way, including major political and fiscal risks, as well as a possible breakup of the Euro Zone currency, the global economy is clearly on the mend – with China and India forecast to achieve strong growth through the planning period.

Figure 2: Global Economic Growth On the Rebound

Source: Economy.com / Moody’s Analytics Global Outlook – 1/15/2013

The good news is that the US economy seems to be poised for growth – assuming a reasonable resolution to the debt ceiling crisis and resolution of the fiscal spending issues being debated in Washington. While US GDP growth will average a little better than 2% in 2013, similar to what it will end up doing in 2012, a rebounding housing market combined with stronger business investment growth suggests accelerating growth in the 2^nd half of 2013, and that 2014 and 2015 could be breakout years (3.9% and 4.2% growth respectively).

Market Impact  A rebounding global economy is clearly good news for IT spending – which appears likewise poised for a rebound. According to a recent update to Gartner’s Worldwide IT Spending Forecast, it has revised upward its 2013 growth rate to 4.2% from 3.8%, with 2012 growth coming in at only 1.2%. As Figure 3 highlights, Enterprise Software leads the way with 6.4% project growth in 2013 and 6.8% in 2014.

Figure 3: Worldwide IT Spending Forecast (Billions of US $)

Source: Gartner, Jan 3, 2013 “Gartner Worldwide IT Spending Forecast, 4Q12 Update”

While Saugatuck does not look at markets the same way that Gartner does, we believe that a significant portion of the new spending will be driven by the shift to the Cloud, and toward Boundary-free computing. This includes not only Cloud infrastructure and solution spending, but likewise the very strong shift toward tablets and mobile-driven computing in all of its forms. The emergence of the new Master Architecture – that includes Cloud, social, mobile and advanced analytic technologies – will clearly dominate IT growth through the balance of the decade.  

At our recent 2012 Cloud Business Summit, the focus was squarely on innovation – with Cloud front and central in these regards (see 1143RA Cloud Business Summit: What to do About Innovation as a “Triple Threat" - 16Nov2012 – You can also check out our YouTube channel for video highlights from the conference). Among the leading large-enterprise organizations that attended, the benefits of the emerging Master Architecture are well understood at the executive level, and are progressing rapidly across all levels of the organization.

Importantly, this new architecture and spending is increasingly being led by line of business (LOB) executives, who are focused not only on driving down costs – but rethinking key business processes, innovating around partner and ecosystem relationships, and creating new Cloud-enabled products and services that allow them to engage with customers in altogether new and exciting ways.

Saugatuck Strategic Planning Position:

• Through 2016, 75 percent or more of NEW enterprise IT spend will be Cloud-based or Hybrid.

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