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Resource Regions: Western Europe

Ways to Make IT Seen As a Customer Focused, High Quality Face of the Organization

Organizations regularly complain about the cost level of their IT department. This is by no means a new phenomenon. At IDC, we continuously assist IT managers dealing with challenging cost reduction targets. I find that these cost reduction targets are often determined bluntly, and IT departments have trouble in demonstrating their true value to the organization.

Run and Change: Commodity and Adding Value

The first step to take is making a well-considered distinction between the ‘run’ and ‘change’ parts of the IT budget. In other words, appreciate the difference between keeping the automation of the organization running and enabling the organization to innovate.

  • The running of the automation should be the subject of continuous cost saving projects and optimization. Regular benchmarks and a fitting sourcing strategy are important tools to optimize this part of your IT.
  • On the other hand, we have ‘change’, the innovation. This is where the strategic added value of IT lives. The added value is often found in software development, allowing for digitization of certain process to save cost in the primary functions of the business or to innovate in other ways, such as bringing new products to market faster.

What Are Other Ways for IT to Shine Within the Organization?

User Satisfaction

Another way to present IT as an adder of value instead of a cost center is through user satisfaction. In nearly every IT procurement project guided by IDC, user experience is a major theme. Key steps to take in improving user satisfaction is through simplifying technology and improving user IT practices. These practices like self-service portals, instructional videos, FAQs, and user training improve user self-sufficiency through automation and education. Our benchmark data teaches us that successful implementation of these practices can have spectacular results on both the service desk workload and user satisfaction rating.

Consider the Employee Instead of the User

After implementing these practices, which many organizations have successfully done, an IT organization has the opportunity to engage the employee to add more value during their time with the organization. Yes, we have now transitioned from user satisfaction to employee satisfaction. After all, a user is more than a workplace account. Cooperation with other supporting functions of the organization, such as human resources, becomes an opportunity.

Employees are motivated by more than salary and vacation time. The feeling of purpose and corporate social responsibility are crucial factors for many employees to really connect with their employer and experience satisfaction in their careers. In the work from home climate that we have experienced since early 2020, this connection is at risk.

“In nearly every IT procurement project guided by IDC, user experience is a major theme.”

The logistical processes of the IT organization can play a cost-efficient role in engaging the remote worker. To supply offices with the right hardware and services, IT knows logistical services such as ‘on-site support’ and ‘IMACD’ (install, move, add, change, dispose). During the pandemic, these services have modified somewhat for some organizations as many workers changed their work location. Especially now, these logistical processes allow the organization to engage their remote workers. Take, for example, the onboarding of new employees. When IT delivers the required hardware, why not integrate with HR and include a handwritten note from the manager and overviews of the company culture and mission. With some real attention and coordination with other departments, IT can deliver a warm and welcoming experience at no additional cost.

In summary, if the cards are played right, IT can be seen as a value adding function instead of a cost center. The logistical processes are already in place to position IT as the customer focused, high quality face of the organization towards the employee. If a transparent dialogue between IT and the rest of the organization about the cost level is also in place, the relationship is bound to become value based instead of cost based.

German Chancellor, Olaf Scholz said in January that the government had successfully fended off the economic crisis, while the country’s minister of economy also addressed the extreme adaptability of German firms making it possible to avoid the worst scenarios. These statements strike a much more positive tone than those in October when negative growth was forecast for the German economy for 2023.

The panic over energy supplies has eased – at least for now – and the general outlook has significantly improved in the Germany, Austria, and Switzerland region (DACH) over the past 4 months. However, it remains clouded by some serious risks as the storms of disruption continues to rage above Europe. Organizations must remain cautious and stay focused on data to evaluate evolving risks and opportunities.

Business Risks are Hiding Behind Short-Term Improvements

The Russia-Ukraine War marks a critical economic and geopolitical turning point for Europe and the rest of the world – and the functioning of ICT markets has not escaped the impacts of the conflict.

Relying heavily on Russian gas, the DACH region has become particularly vulnerable to the increasing energy prices. Although the governments of Austria, Germany, and Switzerland reacted quickly to ensure energy supply for the winter months, the complete independence from Russian energy products is yet to come. Governments will have to consider that rapid escape from reliance on Russian gas may contravene with climate ambitions on the short term​, therefore reducing energy demand and increasing energy efficiency will need to be in focus.

Although forecasts have been revised upwards during the past months, the latest data still indicate a major economic slowdown for the DACH region in 2023. Germany is expected to grow just 0.2%, while the economies of Austria and Switzerland are projected to see 0.5% growth. These numbers can easily go negative if geopolitical conflicts escalate or there is another major outbreak of COVID-19 in China, for example. Indeed, our Future Enterprise Resilience Survey found that more than 90% of German organizations expect recession this year.

DACH experienced the highest inflation in decades in 2022, and price increases are expected to weigh on households and businesses in 2023 and beyond. Switzerland is the only country in DACH, and one of only two countries in Europe, expected to keep inflation under 2% this year.

Labour shortage will be another major factor impacting IT budgets, while the lack of digital skills within the organization may hinder the completion of digital initiatives. Easing supply chain bottlenecks and declining transportation costs reduced pressures on some of the previously constrained sectors, such as automotive manufacturing, but the possibility of further supply chain disruptions cannot be ruled out.

How is the ICT market impacted by these headwinds and how should businesses approach weathering Europe’s storms of disruption?

Shifting Focus on Tech Investments

Despite volatile market conditions, ICT spending in the DACH region is expected to rise 4.9% this year and 6.4% over the 2021–2026 period, exceeding the European average. However, IT plans have been impacted. Organizations are reshuffling their investments, focusing on technologies that can sustain the growth in uncertain times, reduce costs, improve performance, optimize processes, enhance customer experience, and nurture talent.​

Our identified the following key areas to drive ICT spending in the DACH region:

  • Artificial Intelligence: AI’s tremendous potential to improve customer experience, enable new employee experiences, mitigate skills shortages, and transform the workplace is driving rapid adoption. Augmented human resources, image processing, fleet and freight management will be among the top 10 use cases related to AI. According to IDC’s Worldwide ICT Spending Guide: Enterprise and SMB by Industry, spending on AI platforms will grow an outstanding 46.6% in the DACH region during 2021–2026.
  • Security: The rising frequency and sophistication of cyberattacks are keeping security a top investment priority. Annual spending on security in DACH is growing faster than the European average and is expected to exceed $18.5 billion in 2026.
  • Cloud: Investments are expected to more than double between 2022 and 2026 as organizations continue migrating workloads and data to the cloud to boost cost efficiency, flexibility, and customer satisfaction.
  • Internet of Things: IoT is a critical element of cost reduction, process optimization, and improved performance. Steady, double-digit growth in IoT spending is expected into 2026, with investments related to electric vehicle charging, advanced payments and shopping growing fastest.

Apart from these, enterprise infrastructure, managed services and project/professional services are additional areas where DACH organizations indicated they would continue their investment pace.​

IDC’s Recommendations

Planning the IT budgets and identifying technologies to support growth in these uncertain times is extremely difficult, especially without having the right skills and partners to complete digital initiatives. In response to the current era of uncertainty, industries are embracing transformative new trends and technologies. Adapting to these transformations, being use case-centric, and placing the right bets for growth will be essential to keep afloat and continue delivering value.

 

IDC can help technology vendors stay resilient, competitive, and generate revenue during turbulent times. We offer the following assets to support organizations’ needs for precision planning:

  • IDC Trackers enable organizations to assess their competition and their position by analyzing technology markets, vendor shares, and forecasts.
  • IDC Black Books provide extensive market overviews to help organizations position their products and services for the appropriate audiences.
  • IDC Spending Guides enable organizations to find strategic opportunities according to industry, company size, use case, and geography.

Contact us for more information about how IDC data products can help business leaders target, plan, and execute their most important strategic initiatives. We provide analysis of 100+ countries, 120+ technology markets, 20 industries, and 400+ use cases.

The IMF has warned that half of the European Union and a third of the world face recession in 2023. This means that economic headwinds such as energy costs and currency fluctuations are forcing organisations to reassess budget decisions.

In our recent Future Enterprise Resilience and Spending Survey (December 2022), IT leaders said they expect inflation to impact spending decisions. IT cost price increases stemming from inflation and currency changes is expected to have the greatest impact on IT spending plans in 2023.

C-suite concerns are related to IT and technology challenges. In our Worldwide C-Suite Tech Survey (August 2022), 60% of European C-suite concerns about the impact on their IT and digital spending was related to challenges coming into sharper focus as macroeconomic conditions worsen. This includes IT price increases stemming from inflation.

So how can tech vendors navigate these issues and thrive?

Planning Is the Foundation for Success

According to research by the Harvard Business Review, companies that not only survived recessions but thrived afterwards were those that were prepared and agile — those that didn’t just slash costs but invested strategically.

Strategy is essential to know where to plan resources, to determine which projects you are going to prioritise and which you are not, and to know how you are going to identify and target the opportunities that will give you the best return.

Download eBook: Essential Building Blocks for an Effective Growth Strategy

A good strategy should help you align with business conditions, so that you can be agile enough to deliver short-term savings without impacting long-term growth.

Informed Decisions

Data becomes more important in volatile and uncertain economic situations. Economic conditions can impact regions and industries differently. Knowing the factors that might impact the market(s) you are selling into is crucial.

Those who are buying tech is changing, with European tech spending moving from the IT department to the C-suite. In Europe, 47% of IT spending is now C-suite funded (source: IDC Worldwide IT Spending Guide: Line-of-Business Forecast, January 2023, European forecast).

Download eBook: Speaking the Language of the C-Suite: Selling Beyond the IT Department

This is an example of how data can give you insight into your customers and how they are buying. Knowing who is buying, where they are spending and what is impacting spending decisions will help you build an effective strategy.

Data-supported decisions are key to effective resource management both internally and externally.

This means you need to know who is buying in your market. Which markets or industries are more resilient? What are their drivers and challenges?

Adapt and Invest

Times of economic uncertainty can also be a time of possibility. Microsoft, Instagram and Airbnb, for example, were all formed during or just after a recession.

Technology is an area where businesses tend to continue or increase spend. 66% of European C-suites believe that IT budgets will increase, even during an economic downturn (source: IDC Worldwide C-Suite Tech Survey, August 2022).

According to our Digital Executive Sentiment Survey (October 2022), European organisations now expect more than 50% of their revenues to come from digital business models on average in the next three years.

Technology is often seen as a critical business differentiator to better deliver business outcomes, increase resilience and accelerate revenue growth. So while caution may continue while the economic outlook is uncertain, investments in projects that improve efficiencies are continuing. According to the Harvard Business Review, prioritising digital transformation and digital technology can help cut costs and improve efficiencies.

In an economic downturn it can be harder to achieve growth, as you have to do more with less. It can also be harder to get customers to spend, so you must ensure that you are targeting the opportunities with the best chance of success.

But there are opportunities. So what you do and where you allocate resources becomes increasingly important.

You need results. To be proactive rather reactive, but still agile enough to pivot to changing market conditions. An effective strategy is essential to that.

Visit our website for more information on how we can help you build for growth.

Not Going Back to the Office Full Time

If you bring together a group of senior managers and ask them what the most pressing concern is in their workplace strategy, the most likely answer will be, “How can we get our workforce back into the office?” Nostalgia about the “good old days” reassures them that work is better done in the office. A buzzing office at full capacity is often taken as a sign of high performance.

Our data shows that 68% of European employers are determined to have employees back full time in the office (IDC FoW Survey, 2022). Meanwhile, workers are demanding greater flexibility and a choice of where and how to work.

Some employees want to be in the office, while many want to “balance their lives” and family obligations. Our data shows that compared with hybrid staff, employees working onsite five days a week are 10% less likely to recommend their employer, meaning they are less loyal and more likely to switch jobs.

About 73% of office workers in Future Forum’s future-of-work study say they are open to new jobs if they are dissatisfied with the level of flexibility they are offered.

In the wake of a recession in Europe, however, many businesses are reluctant to invest in the technologies needed to transform their organisation into a digital-first workplace for the long term.

Our survey data from December 2022 shows that concerns around geopolitical tensions and labour shortages remain high in Europe, with inflation having the biggest impact on spending plans for 2023. 70% of organisations are planning to significantly reduce their IT spend in 2023 (IDC FERS Survey, Wave 11, 2022).

Many managers need to seriously consider whether a return to a traditional work policy will enable their business to survive in today’s world. A typical organisation has two generations of digital natives in their workforce (Millennials and Gen Z). Employees are key stakeholders in the evolution of their workplace, and their interests and preferences must be considered. Organisational culture needs to evolve and keep pace with social changes. The alternative, in form of a non-negotiable “everyone return to the office” strategy, would cause more harm than good in terms of business outcomes such as talent attrition, quiet quitters and lower productivity.

The Digital HQ and Why It’s a Must-Have

So, what is the way forward? A digital HQ that is accessible to all — those in the office and those working away from the office — can be the foundation for a more flexible work environment that drives performance, loyalty and other positive business outcomes.

Platform vendor Slack defines the digital HQ as “a single, virtual space to connect people, tools, customers and partners for faster and more flexible work”. Contrary to most assumptions, a digital HQ does not imply that people never meet in person.

Yes, the workplace is digital by default, but people will still get together in their office. However, they do so for team building and collaboration, social connection and networking, or training.

The understanding is that going to the office to replicate an at-home work pattern that focuses on productivity would be a waste of time. As a result, the office — or “physical headquarters” — is being reimagined less as a place of routine and obligation and more of a centre for driving company culture and values.

These new offices emphasise free-form flexibility, offering hot desks, huddle rooms and smart meeting rooms. However, too few companies have given thought to the workings and architecture of digital headquarters. And given that so many workflows and team collaboration efforts now happen in the digital space, that seems like a serious lack of imagination and an invitation to failure.

To ride the wave in a challenging labour market, companies must prioritise attracting talent and keeping existing employees motivated. By enabling employees to connect and collaborate from anywhere, a digital HQ helps companies to provide the flexibility that today’s workforce demands.

All workers can feel included and productive in a digital HQ, no matter where they live or what their daily schedules might look like. Flexible work practices are also essential to building inclusive workplaces, which is top of mind for many employers as diversity, equity and inclusion have become a priority in recent years.

A digital HQ can break down silos, unite teams in an asynchronous work model and boost security. Employee and customer experience will benefit from that increased agility and create a stronger culture as a result. The fact that 56% of European companies feel they are not ready to meet current and future work transformation requirements should be a wake-up call for those trying to survive the coming storms of disruption.

Meike Escherich - Associate Research Director, European Future of Work - IDC

Analyst Profile
Meike Escherich is an associate research director with IDC's European Future of Work practice, based in the UK. In this role, she provides coverage of key technology trends across the Future of Work, specializing in how to enable and foster teamwork in a flexible work environment. Her research looks at how technologies influence workers' skills and behaviors, organizational culture, worker experience and how the workspace itself is enabling the future enterprise.

The Future of Work is going through a tumultuous time. In a response to tough market conditions, business leaders across industries, including high profile CEOs, are mandating a return to the office. The reason is no more than a desire among managers to boost employee performance by having tighter control over their reports.

Moreover, recent mass layoffs, which are essentially no more than a sugar rush for shareholders, can also be interpreted as a shift in power from employees back to employers. The latter are now in charge, dictating how work gets done for the sake of financial performance.

Will this last? Can we assume that the past few years of progress in the Future of Work have been erased from history?

Are You Ready for the “Era of Disruption”

Returning to a pre-pandemic workplace is not viable. A company with top-down decision making will find it difficult to adapt to a fast-changing environment.

Employees will not give the best of themselves if their voice is not heard, or if they feel disrespected or undervalued. Many will retire early, quiet quitting or even joining the large contingent of gig workers, simply because they feel “they don’t belong”.

The pandemic taught us something profound that goes beyond “where” work happens. It is the realisation that work is a projection of ourselves, our life goals and aspirations, and a means of fulfilment.

Meaningful Work

Brad Bird, the movie director, once said, “Money is just fuel for the rocket. What I really want to do is go somewhere.” This sentence, which reflects the mindset of many people at work today, can be summarised in one single word: Purpose.

With Millennials and Gen Z making up roughly half of the current workforce, and soon becoming our future leaders and CEOs, it is reasonable to expect “corporate purpose” to change business as we know it today. Younger generations want to work for companies with impact, beyond shareholder value.

Purpose is the secret sauce for high performance

Therefore, it’s not “where” work happens but “why” work happens — i.e., the purpose of work that unlocks employee energy. In an era of disruption, when work has direction and is transformed into purpose it is powerful and energising.

Let’s think about a sailing racing yacht, and the teamwork involved to pursue a common goal, a North Star. In a racing yacht, the following applies:

  • The interest of the team is always above individual interest
  • There is just “one collective head” — they must think and act together
  • Every crew member has a critical role to play for the victory, from the leading role of a helmsman to the agile role of trimmers, tuning the sails to ensure maximum thrust.

 

How does the above apply to your firm? Are your people “energised” to collectively pursue your North Star? Do they feel their roles and responsibilities make an impact?

This is the secret sauce of high-performance organisations: by nurturing their core, business leaders can drive employee performance and team cohesion.

Sustainable companies do business and make profit by placing the welfare of their people, society and the environment as their core purpose. As such, unfair pay, work inequalities, “command and control” management styles and the social disconnect affecting many organisations today is foreign to them.

Companies with a sustainable purpose enjoy a more mature social contract between employer and employees. Thus, the choice of hybrid or full time in the office is actually irrelevant. What matters is that decisions are not top down but in partnership with employees.

Technology Is the Enabler

In a digital world, pursuing the North Star is far more effective (and enjoyable) when employees are given the right technology. Here are some suggestions:

  • Devices that are sustainable by design and appropriate for different workstyles
  • Digital Workspace solutions for productivity, inclusive collaboration and connection to purpose.
  • Workflow automation to free up employee time for more human work
  • Online training platforms to continuously elevate employee skills throughout their careers
  • Intelligent IT support for employee experience and productivity
  • Identity management for digital trust
  • Zero Trust security solutions for a perimeter-less workplace

In summary, placing purpose at the core of your business is most effective for employee performance and social cohesion. Numerous third-party studies show that purpose-led organisations outperform their peers.

If you would like to learn more about this and how technology enables a purpose-led organisation, join us at our IDC Future of Work Conference.

Mar 13, 2023

Инвестиции в цифровую инфраструктуру обсудят 30 марта на форуме IDC Future of Digital Infrastructure в Алматы

30 марта 2023 г. в Алматы международная аналитическая компания IDС проведет форум IDC Future of Digital Infrastructure «Инвестиции в цифровую инфраструктуру, ориентированную на бизнес-результаты» и...

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Digital technology is reshaping business models, revenue streams and operations management. At the same time, the rising number of start-ups, scale-ups and unicorns in Europe — the digital-native businesses — is helping to boost digital transformation (DX) initiatives in traditional organisations.

What Is a Digital-Native Business?

Digital-native businesses (DNBs) are highly dependent on a digital infrastructure and are built from the start around modern technologies, from cloud-native applications to artificial intelligence, with data across all aspects, from operations to business models and customer engagement. By adopting new and emerging technologies, and using platform services and marketplaces, DNBs can quickly grow and scale up their business, creating new markets and disrupting traditional business models across industries.

DNBs are also defined by their market valuation — start-ups are valued at less than $250 million, scale-ups are valued from $250 million to $999 million and mature digital natives are valued at $1 billion or more. They can also be either technology-orientated companies (e.g., innovative ISVs/SaaS providers, selling technology products, software or IT services to other businesses) or technology-driven B2B or B2C companies (offering tech-enabled products or services respectively to business or consumers).

What Impact do DNBs have on Traditional Enterprises?

DNBs are disrupting some industries more than others. Fintech companies such as Revolut in the UK and digital banks such as N26 in Germany have pushed digital innovation in the past few years into a very traditional sector, whereas Sweden-based Spotify has completely reshaped the music industry at a global level.

DNBs’ influence also extends to the way traditional companies adopt and use technology. DNBs’ tech operations are often cloud native and data driven, with a customer-centric focus, employing tech-savvy developers and data scientist teams in agile environments to grow and scale the business quickly.

Market disruption and the growing interaction with DNBs are driving traditional European organisations to adopt some of the DNBs’ distinguishing digital features, such as shifting towards a digital-first organisational approach across the enterprise. According to IDC’s What Is the Impact of Digital-Native Businesses on Traditional Enterprises? — based on IDC’s 2022 European Industry Acceleration Survey — these impacts include:

  • Increased innovation: 35% of businesses with more than 1,000 employees cited this. Healthcare (37%), government/education (34%) and transport (34%) are the most impacted industries. Healthtech, edtech and the shared economy are the fastest-growing segments in the DNB arena.
  • Adoption of new working models: The implementation of agile, remote and hybrid ways of working pushed by the interaction with DNBs is most common in very large enterprises, government, education, and retail and wholesale industries. These extensively adopted remote working during the pandemic, and are now taking inspiration from DNBs to permanently adopt new and flexible working models.
  • Higher proportion of digital personnel: Finance respondents have increased the share of employees with digital skills (38%), and have a greater focus on customers and CX (31%), a trend influenced by the interrelationship with the fintech ecosystem. On a broader level, medium, large and very large organisations also say DNBs have had a major impact on organisational changes at the C-suite level.

Why Is it Important to Monitor the Relationship Between Digital Natives and Traditional Businesses?

IDC’s European Industry Acceleration Survey highlights growing coopetition between DNBs and traditional organisations. This is leading to a more innovative and digital-first organisational approach for the latter, such as a tighter focus on digital revenues, across all size categories, and greater competitive pressure in their respective markets, which may enable them to enter M&As or investment activities with DNBs.

This last trend is more prominent for utilities and oil/gas respondents, an industry where customer-orientated digital natives have pushed traditional companies towards improving their CX, also by acquiring entirely digital organisations in the process and with new market segments (such as renewables) being led by digital-native businesses.

Tech providers should target European DNBs, as this is a competitive, fast-growing segment populated by lean, agile and tech-enabled organisations. DNBs are built around modern technologies and digital infrastructure, and need to enter strategic partnerships with external stakeholders to meet their need for innovation. Tech providers are the first option for European DNBs, according to preliminary results from IDC’s Global Digital-Native Business Study.

Tech providers should also look to DNBs as precursors of the changes and trends that will affect traditional industries. Changes range from greater adoption of cloud services (cited especially by telecommunications and media, finance, and professional services respondents) to the adoption of a data-driven approach to business outcomes (cited by 19% of very large enterprises and 25% of retail/wholesale respondents). What DNBs need today will be what traditional businesses need tomorrow.

The relationship between DNBs and traditional organisations could span from tech supplier to potential acquisition target. This could change based on their business model, giving birth to interconnected ecosystems. For these reasons, in cultivating a long-term relationship with digital natives, tech vendors can also improve their positioning in traditional enterprises as trusted partners in their DX journeys.

To find out more about digital-native businesses in Europe, please contact Martina Longo.

Martina Longo - Research Manager, Digital Business - IDC

Analyst Profile
Martina Longo is a research manager in the IDC Digital Business Research Group. In her role she advises ICT players on how European organizations create business value using digital technologies. She also leads IDC European Digital Native Business research, focused on those enterprises born in a modern technological world in a mix of start-ups, scaleups, and more mature digital natives. Within the European Digital Business Research, the European Digital Native Business, Start-ups and Scale-ups theme advises technology suppliers on the market dynamics and segmentation, business priorities, tech buying patterns and go to market approaches (sell to/sell with) needed to engage digital native organizations in Europe.