Broadgate 2013 Predictions – how did we do?

Posted on : 30-12-2013 | By : richard.gale | In : Innovation

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In December 2012 we identified some themes we thought would be important for the coming year. Let’s see how we got on…

1. Infrastructure Services continue to commoditise – for many organisations, Infrastructure as a Service (IaaS) is now mainstream. Technology advancement will continue to move the underlying infrastructure more towards a utility model and reduce costs in terms of software, hardware and resource.

This has happened and is continuing to grow, most organisations have the infrastructure in place to support IaaS with private clouds and virtualised environments. However, the flexibility and agility benefits have not always been realised as large organisation IaaS have sometimes been weighed down with the legacy change and build processes of the previous model. To circumvent this, many businesses are looking at public cloud for more flexible capacity. This will be the big growth area of 2014 especially with financial services organisations that, previously, have been hesitant in adopting public cloud solutions.

2. Application/Platform rationalisation – for many large firms there is still a large amount of legacy cost in terms of both disparate platforms, often aligned by business unit, and their sheer size/complexity. The next year will see an increase in rationalisation of application platforms to drive operational efficiency.

In 2013 the understanding and scale of the problem became more apparent but, with limited change/transformation budgets (in financial services mainly due to the burden of regulatory compliance requirements) not much action. Now these complex webs of legacy applications are starting to fail and seriously constrained business growth. 2014 will be a ‘crunch’ year when these expensive problems have to be tackled head on either through wholesale re-architecting or giving someone else the problem of running them whilst new solutions are built.

3. Big Data/ Data Science grows and market starts to consolidate – 2012 was the year that Big Data technologies went mainstream…2013 will see an increased focus on Data Science resource and technology to maximise the analytical value. There will also be some consolidation at the infrastructure product level.

In financial services we saw a fair amount of discussion, some large proof of concept projects focusing on consolidation (many seem to be targeting the risk and finance areas), but not the levels of take up we expected. MasterCard have come in with a big data restaurant review concept. We may have been slightly premature with this one. We think the understanding of Data Science is starting to go mainstream and, as with Cloud, the demand will come more from the business rather than IT architects in 2014.

4. Data Centre/Hosting providers continue growth – fewer and fewer companies are talking about building their own data centres now, even the very large ones. With the focus on core business value, infrastructure will continue to be hosted externally driving up the need for provider compute power.

 Many organisations either use external more flexible hosting solutions or have an excess of capacity in their existing data centres. This will continue and grow in pace in 2014.

5. More rationalisation of IT organisations – 2012 saw large reductions in operational workforce, particularly in financial services. With revenues under more pressure this year (and in line with point 1) we will see further reductions in resource capacity and relocation to low cost locations, both nearshore and within the UK.

In the financial services sector this may be at an end. There will be growth in demand for IT skills in 2014 but there will be some reductions particularly in the infrastructure/BAU space due to the continued commoditisation of technology and move to XaaS services.

6. Crowd-funding services continue to gain market share – there have been many new entrants to this space over recent years with companies such as Funding Circle, Thin-Cats, Bank-to-the-Future and Kickstarter all doing well. We see this continuing to grow as access to funds from traditional lenders is still hard. The question is at what point will they step in.

This one was an easy prediction as a low starting point combined with the banks reluctance to lend, low interest rates and increasing interest in the tech sector inevitably led to high levels of growth. 2014 will continue this trend but with a higher degree of regulation after the first high profile failure of a lending exchange…

7. ‘Instant’ Returns on investment required – growth of SaaS & BYOD is changing the perception of technology. People as consumers are now accustomed to an instant solution to a problem (by downloading an app or purchasing a service with a credit card). This, combined with historic patchy project successes, means that long lead-time projects are becoming harder to justify; IT departments are having to find near instant solutions to business problems.

Business users are leading IT departments on the adoption of SaaS in particular. IT is playing catch-up and the race will continue. We are not sure what 2014 will bring on this. It could be that IT departments regain control or, alternatively, are bypassed on a more frequent basis by impatient, IT savvy business users.

8. Technology Talent Wars – with start-ups disrupting traditional players in areas such as data analytics, social media and mobile payment apps, barriers to entry eroding and salaries on the rise we see a shift from talent wanting to join industries such as financial services and choosing new technology companies.

Relatively low demand from financial services firms (except for a few specific skills such as security) has deferred this. This is more likely to impact 2014 change and innovation programmes now.

9. Samsung/Android gain more ground over Apple – we already have seen the Apple dominance, specifically in relation to the Appstore, being eroded and this will continue as the potential of a more open platform becomes apparent to both developers and users of technology.

This has happened and will continue unless Apple can come up with some new magic. Phones/tablets are the new battleground, other operating systems such as Windows and potentially Jolla could disrupt the trend in 2014.

10. The death knell sounds for RIM/Blackberry – not much more to say. Most likely they will be acquired by one of the big new technology companies to gain access to the remaining smart phone users.

The only thing to add to this is that there may be a ‘dead-cat’ bounce for Blackberry in 2014.

 

Once again we hope you have enjoyed our monthly articles and have had a successful 2013. We wish you all the same for 2014!

 

What Tech companies can learn from Banks – There’s no such thing as a free lunch.

Posted on : 23-12-2013 | By : richard.gale | In : Finance, Innovation

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Rewind to the 1990’s 

In the early ’90s I moved from a Californian software start-up to a venerable merchant bank in the City. There were a number of changes in culture, which included being admonished for not wearing a jacket when walking through reception, but most thrilling was the staff restaurant…. It was free and you could eat as much as you like. I couldn’t believe my luck! Older hands complained that they could no longer have a glass or two of wine with lunch (also free) and that the breakfasts ‘weren’t like they used to be’. I was amazed that the bank could afford to give away so much and munched my way through most of the decade there.

Banking Innovation

Apart from the impact on my waistline it was an exciting time. Historically, banking had been a straightforward affair, but now there was ever increasing demand for new, innovative financial services and the profitability of these could be immense. I worked with the derivatives team for a while and they made huge amounts of money creating & selling bonds to allow exposure to emerging stock markets. These securities were complex and an increasing number of mathematical wizards and PhD’s came into the department attracted by the dual carrots that banking was becoming fun & fashionable (again) and vast quantities of money delivered in bonuses.

Complexity

As more rivals joined the market the products became more complex and I, for one, soon lost the ability to work out what the underlying securities & risks were. I’m sure the clients had a better understanding than me but was not always convinced.

The drive for new and more exotic products accelerated and the intake of post-doctorates rose further. There were a number on the team that really were ‘rocket scientists’… The bank was increasing sales and profitability through the creation and trading of these products and everything was good.

Financial services firms moved into new sectors they may not have had the same level of expertise in which resulted in varying degrees of success.

Concentration

As the demand for products grew and the supply of brain power was limited the inevitable happened and the price of skilled product innovators and traders went up. Also there were a significant number of acquisitions where global banks bought companies or teams with the lure of huge bonuses. This led to the concentration of skills within a small number of large organisations.

Costs

In addition to the high price of the Rainmakers, the cost of settling, accounting and monitoring the trades was rising. Small departments that could rely on shared knowledge (and a degree of shouting) became too large and compliance forced separation of roles (particularly after the Baring’s affair). This resulted in a much increased level of fixed people costs for the banks which was fine when business was growing but a heavy burden if the growth slowed as it was difficult to reduce the number of people without the processes failing.

Over-stretched

It is probably fair to say that a number of financial services firms over-stretched themselves financially and some of them both legally & morally too in pursuit of continued profitability & growth.

The now global complex web of front/back office interactions, teams of people trading and ensuring successful completion of trades, needed to be fed with even more new types of products. Some of these (such as sliced & diced packages of mortgage backed security derivatives) contributed to the banking crisis of 2008. Over ambitious expansion plans through acquisition & merger increased unwise leverage further.

Lessons learnt

Financial Services are now one of the most highly regulated and controlled industries in the world. The cost of doing business is extremely high as reflected in the large amounts of money being spent of regulatory and compliance projects. This is resulting in a smaller number of larger organisations running most of the global banking sector with reduced opportunities and, perhaps, less  inclination to be innovative.

 

Fast-forward to now

 

Tech companies are massively innovative with new and exciting products emerging all the time

Technology products are the most exciting and most accessible they have ever been.

Tech companies can be immensely valuable and command huge stock market valuations

Too many to mention here… Google, Facebook, Twitter, Amazon, anything new etc.

Tech companies have virtually unlimited amounts of money available to them.

Tech companies attract the top talent

Tech companies are fashionable, can pay well and have the additional attraction of huge bonuses in the form of share options.

 How these applications work is  a mystery to the average consumer

We use, buy and promote products often without understanding or even caring about where our data is going because they make our lives easier or more fun.

 There are a small number of large companies dominating the market

Any small innovative company is snapped up by one of the global giants, they have very deep  pockets and price is almost irrelevant to them over market share.

Costs are increasing

The older more established firms (Microsoft, Oracle etc) have large cost bases which is impacting their ability to innovate and also results in a lot of hungry mouths to feed which can eat into money potentially better used elsewhere such as R&D. ‘Newer’ Tech firms may not have reached that but will sometime soon (Google employees have increased from 20,000 in 2010 to 50,000+ in 2013). Not all of those can be working on front-line product innovation.

Tech companies provide free lunch

Most technology companies are desperate to retain their valuable staff so provide many mechanisms to do this; free massages, childcare & lunches. I have been reliably informed that Google provide an unlimited buffet in their London campus including lobster…

 

When will technology companies stop serving free lunches?

The Technology sector is part way through a sustained boom. How long it will last for is anyone’s guess but it would be good to think that the leaders of these companies can learn from the past and the mistakes made by some of the banks. If they think about how they are growing, what areas they are getting into, how well do they understand the products and risks, what impact does it have on the agility and complexity of their business and how can they prevent a drift towards complacency? How to stay aligned to the interests of your customers whilst continuing to remain profitable for the interests of your shareholders – it’s a difficult challenge when high levels of growth have been the norm.

If Tech companies do not recognise this and change then living up to those company slogans may get harder as employee numbers swell and profits get squeezed.

 

“Software Defined Everything” powering next generation data centres

Posted on : 23-12-2013 | By : john.vincent | In : Data

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In October we wrote about how technology is outpacing IT departments and how organisations are reacting to catch up (or trying to). We won’t go back over the reasons for this, but one topic that is interesting to explore further, particularly as it relates to this speed of change, is the shift to “Software Defined” technology.

The concepts have been around for a few years now and the pieces of the puzzle are maturing into what some are labelling the Software Defined Data Centre (SDDC). We’ll look at these pieces a little more, but below is the Forrester definition of SDDC:

…an abstracted and pooled set of shared resources. But the secret sauce is in the automation that slices up and allocates those shared resources on-demand, without manual tinkering.”

I like this simple statement, although I’m sure on the technology side many will reject the word “tinkering” ;-).

The SDDC market is being driven predominantly through innovations in processing power and memory, increased demand for resource pooling and underpinning networking configuration. There has also been a shift in the pricing models from hardware based to software based pricing and an increased acceptance of the requirement for multi-tenancy support and erosion of vendor lock in. Companies providing software defined solutions and virtualisation are positioning for growth and competitive advantage in this market, creating new solutions and intelligent/integrated management platforms.

In 2013 the global SDDC market has been estimated at $396 million and is expected to grow to $5.41 billion in 2018. Pretty impressive if the forecasts are correct!

So, what are the components that form the SDDC?

  1. Software Defined Compute – virtualisation is arguably the biggest game changer in how technology services are delivered for the last decade. Companies like VMWare have provided a solution for IT organisations to break down the physical barriers of compute resources and also provide a much more agile infrastructure. Developments in the Software Defined Server will continue with servers optimised for data centre/cloud workloads, such as the HP Moonshot which use 89 percent less power and 80 percent less space than traditional server systems and claim to reduce complexity by 97 percent.
  2. Software Defined Storage – puts the emphasis on storage services instead of storage hardware, in functional areas such as replication, de-duplication and policy based management. The abstraction between the software and hardware allows for greater flexibility without having to consider the infrastructure attributes, allowing for storage to become a logical shared pool on commodity hardware. There are numerous vendors that claim to be in this space, with the number reaching “epidemic levels”, so expect to see a further tightening of the definition and consolidation over the coming years.
  3. Software Defined Network – we wrote about SDN at the beginning of this year as the last piece in the “virtualisation puzzle”. Essentially, SDN decouples the network services from the underlying infrastructure (i.e. the network interface level and associate networking software/protocols). By doing this a greater degree of flexibility can be achieved – it essentially eliminates the need for applications to understand the internal workings of the technical network components, such as routers, bridges and switches.

The roadmap to SDDC

Just looking at the projected growth numbers, you can see that we have some way to go on the SDDC journey. Indeed, the reality of piecing these solutions together into a complete, dynamic, automated and efficient SDDC solution right now just isn’t there yet.

However, what organisations can do is build the overall roadmap and associated architecture to get them SDDC now. Whilst the full benefit will take some time, the good thing is that for each step there will be a positive benefit which can be immediately realised.

Some of the considerations/directional pointers in the roadmap:

  • Keep it Open – build a software defined environment based on a with a virtualised data center that includes compute, storage, and networking resources built on open interfaces and an integrated framework (such as OpenStack).
  • Think about security – SDDC will change significantly the way that organisations have to think about security, with solutions being further abstracted into software and cyber-attacks on the increase, it is important that the security risks are addressed.
  • Change the Operating Model – as the roadmap evolves so the organisation needs to change with it. Technology skills in areas such as automation and provisioning will become more important, as will the softer skills in areas such as the ability to manage business demand pipeline and vendors.

We’re not producing a “Broadgate Predicts” this year, but safe to say, 2014 will be interesting to watch in terms of Software Defined Everything.

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If you would like to find out more, we are pleased to recommend the next IT in Business event on Tuesday 28th January where this topic will be discussed with peer organisations – click here to register.