On Monday, Gartner announced that worldwide IT spending is on pace to a level of $3.7 trillion in 2014, a 2.1 percent increase over 2013.  However, that number is a full percentage point lower than Gartner’s 3.2 percentage growth forecast in April. According to the Gartner news release: “The slower outlook for 2014 is attributed to a reduction in growth expectations for devices, data center systems and to some extent IT services.” A Gartner vice president further indicates: “Price pressure based on increased competition, lack of product differentiation and the increased availability of viable alternative solutions has had a dampening effect on the short term IT spending outlook.”

We call Supply Chain Matters reader attention to the Gartner revised forecast for a couple of reasons. Keep in mind that a downward adjustment of a full percentage point in just a couple of months alone is a rather significant indication that IT market dynamics are changing rather quickly. First, it is an obvious indication that despite a healthy IT investment climate, competition among vendors and services providers is driving down pricing, especially when it relates to cloud based offerings.

Second is the profound impact that cloud-based computing options are having on current IT spending.  This is reflected in data center systems spend where Gartner points to: ”lower-cost alternative architectures and cloud-based storage” as driving constrained spending.  In the Enterprise Software segment, despite a rather hefty 6.9 percent expected growth rate for 2014 for this segment, Gartner points to slighter lower growth expected for applications software and rapid move to cloud-based offerings by many organizations.  These market realities have manifest themselves in recent revenue and financial performance from both SAP and Oracle, both of which have been obviously impacted from the quicker movement toward cloud-based enterprise software alternatives in the market. By contrast, cloud ERP providers have seen dramatic growth rates.  Workday, a cloud-based HR and Financial Applications software provider announced that its total revenues increased 74 percent in its first fiscal quarter. Subscription revenues increased 80 percent from same period last year. As another example, Salesforce.com’s fiscal first quarter total revenues grew 37 percent while subscription revenues grew by 34 percent.

Third is the clear indication, now acknowledged by Gartner, that individual lines of businesses have garnered more influence on technology selection while the role of IT is shifting from “purchaser to coordinator”. That is a profound statement coming from the research firm that has catered primarily to CIO and IT audiences. The shift of technology buyer is clear and is being reflected in market forecasts.

In May, Gartner reported that the worldwide supply chain management and procurement software market grew 7.3 percent in 2013. All indications from the Gartner Executive Supply Chain conference held in May were that such growth will continue this year. With the shift of buyer influence toward lines of business, and with the increased attractiveness of cloud computing alternatives, we expect best-of-breed cloud providers catering to supply chain, B2B business network and supply chain business process intelligence needs to also demonstrate market success.

For technology selection and approval teams, be aware that heightened competition and more attractive and less disruptive IT software and infrastructure options are turning in your favor.  There is little need to tolerate the past arrogance of your friendly ERP sales person who peddles the notion that cloud-based solutions will come to market in the coming months.  (Perhaps longer)  The market has come to the realization that there is no need to wait for unfulfilled promises.

Bob Ferrari

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