IDC Canada calculates the IT costs of productivity

TORONTO — According to IDC Canada Ltd., 2005 is the first year of renewed growth for the technology industry, but customers will be looking to squeeze every last drop of productivity out of their IT investments.

Productivity was the keyword

at IDC’s Directions 05 conference held Wednesday. “Nobody’s spending money on technology anymore,” said director of research Denis Vance, “they’re buying the vision, they’re buying the productivity. We think that 2005 is finally the year when Canada has become serious about productivity.”

Technology will be one of the tools in service of that goal, and as such, it could be a turnaround year for companies that are able to effectively supply it. It is crucial that technology providers understand potential customers’ productivity needs and tailor their offerings accordingly, said Vance. They need to be able to speak the same language as those customers and avoid technical complexity. According to IDC customer data from November 2005, a chief concern from C-level executives was an IT department’s ability to adapt to circumstances in a timely manner. Those executives are looking to technology vendors to supply adequate training and know-how, said Vance, which would allow IT departments to make the best use of their time.

“Please ensure that your value propositions address the push for productivity,” said Vance, addressing his comments to the vendors in the audience.

Confirming predictions made earlier this year, IDC Canada expects 2005 to be a year of growth for ICT (information, communications and technology), with an IT spend of $37.2 billion in this country, an increase of almost four per cent over 2004. The telecommunications spend will be $36.1 billion said Vance, an increase of five per cent over 2005. Those two, combined with the business process outsourcing (BPO) market could add to a total spend of $78 billion for this year.

Hardware will see modest gains, said Vance, as some users are finally prepared to spend following Y2K preparations. Storage will help swell hardware sales, with a strong demand for volume servers and terabyte storage options.

Services will continue to be strong with an estimated $17 billion spend in Canada in 2005 (overall growth of 3.9 per cent.) Outsourcing is expected to grow seven per cent this year; applications management, eight per cent. IT training could grow two per cent with similar growth forecast for the next five years, but that could change, said Vance, if users require more training in order to meet their productivity requirements.

The majority of service dollars will be tied to ongoing maintenance and the push for productivity, said Vance, “which we really see dominating the market.” The BPO is tied to that, he added and will grow 11 per cent this year.

The telecommunications spend is expected to grow five per cent this year. “It’s pretty clear that the growth in the sector will from wireless, Internet and data management,” said Vance, with wireline services and long distance bringing up the rear. IP VPN alone should grow by 38 per cent this year.

The focus for users will be productivity, said Vance, but he cautioned that buyers will only implement the minimum required to achieve their productivity goals. “We didn’t get into this fix in a year,” he said. “We’re not going to get out of it in a year,” referring the tech bust and subsequent spending drought that is still being felt across the industry.


Public sector to build on technology investments in 2005

Government and health care in Canada are going through their own productivity transformations but slowly, and sometimes reluctantly, IDC said.

Health care is in the midst of a crisis and IT may be able to do something about it, but many professionals in the health industry are unable to make that connection, said Jamie Sharp, vice-president of research. In a number of provinces, including B.C. and Ontario, the cost of health care is escalating out of control and “things are only going to get markedly worse.”

The health-care sector has a total annual budget of about $130 billion, said Sharp, with only $1 billion of that devoted to IT. IDC data points to a shortage of technical staff working in health care, but most health-care organizations haven’t considered outsourcing technology to a third party, he said, even though there are numerous providers clamoring for the business.

“SMBs outsource more than hospitals do. That’s a problem,” said Sharp. “They don’t even want to. We absolutely need to convert this sentiment.”

A cash-strapped health-care system would benefit from outsourcing IT, he said, and should be able to take advantage of technologies such as voice-over IP and wireless LANs, which could also reduce costs in the long run. “They need plumbing and infrastructure,” said Sharp. “If you have plumbing and infrastructure, you have a tactical sales opportunity.”

VoIP and wireless are of keen interest to health-care providers, as are related hardware purchases like PDAs and laptops, said Sharp, but “these people are confused . . . they don’t know how to purchase, they don’t know how to acquire.” Decision-makers aren’t interested in horizontal markets, he added, and vendors must be keenly aware of health-care customer needs before approaching them with a potential sale.

“You’re not going to make a ton of revenue on this in the next year,” he said, “but you need to start sowing the seeds.”

Also of interest to hospitals is computerized physician order entry, which could help reduce the number of errors leading to patient death. Estimates for deaths due to medical errors in Canada range anywhere from 9,000 to 24,000 a year, mainly due to misheard orders and breakdowns in written communication leading to wrongly-prescribed or administered medication.

For municipal, provincial and federal government in Canada, a key issue has been meeting citizen service expectations through multiple channels – most prominently through the provision of online tools. The GOL (Government On-Line) program has met with some success, said senior government analyst Massimiliano Claps, but it’s just one layer, riding on top of a monolithic infrastructure. “They only looked at the proverbial tip of the iceberg.”

In order for government productivity to increase, he said, they must learn to tunnel deeper and integrate services. E-service delivery is beginning to fall of government radar, he said. In a 2003 IDC study, 42 per cent of government executives ranked e-services as a top priority. Last year that number fell to 25 per cent.

The government is focused on doing more with less, he said, echoing the private sector’s interest in productivity gains. It’s a problem for government because a substantial number of employees are close to retirement age. One way to combat this and dig below the surface is to reduce the amount of duplicated effort that occurs between departments. The Ontario government, for example, has reduced the number of e-mail and calendaring applications it uses from 130 to seven with the ultimate goal of using just one.


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Jim Love, Chief Content Officer, IT World Canada

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