IT enters defining phase of maturity

Richard Holway, Director

The IT industry has now entered a mature phase bringing it into line with many other established technology and engineering sectors of the UK economy.

This was my message to an audience at the Prince's Trust Technology Leadership Group last night.

The IT industry's share of the UK economy will stay at around four percent, which means that growth for the next 40 years will be quite closely aligned to GDP growth. Ovum Holway forecasts growth to be mainly in the 0-5% per annum range. Only in rare and exceptional years will we see growth closer to 10 percent.

For an industry used to double-digit growth rates year in, year out, this may come as something of a shock. Indeed, I suspect it will require quite a different set of management skills to take full advantage (or even survive) in such an environment.

Ovum Holway looked at every other engineering or technology-oriented sector of the UK economy over the last 100 years and couldn't find one that managed to exceed five percent of the economy.

The UK economy has grown on average by 2.5 percent per annum in the last 40 years. It has only exceeded five percent in one year and has been negative on a number of occasions.

In 1964, IT was less than one percent of the UK economy. After that it grew rapidly to the point where it was equal to four percent in 1999. Specifically, software and IT services have grown three times faster than the UK economy since 1964 and four times faster in the 1990s. If they continue to grow at that rate they would equal 100 percent of the economy by 2050!

The one thing that can be guaranteed during a maturity phase is consolidation. At the moment the top three suppliers to the IT sector worldwide have around 15 percent of the market. This will rise to more than 50 percent within 20 years.

Recent consolidations, such as HP and Compaq or IBM and PwC Consulting, will look trifling compared with the couplings in years to come. To survive in a mature market, companies will have to be either big or niche.

And users will harshly punish vendors who fail to deliver. The IT industry has profited massively from its own unreliability and these days will end. IT companies will need a much more capable management team with experience in the market share game. In our view, the current IT sector has few managers with such capability.

The days when fee rates, contractor rates and wages are several times the national norm will come to an end. The first sign of this is the decline of average wages in IT by seven percent in the last six months.

But maturity will not put an end to innovation. Ovum Holway expects innovation to continue apace and the IT of 10 or 20 years' time will show major advancements.

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