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Five Key Technology Trends for 2008

In the coming year mounting pressure will force companies to think "green" and a weakening economy will require new value strategies, says a report by Booz Allen Hamilton.

By Diann Daniel

December 14, 2007 — CIO — Declining U.S. home values, nervousness surrounding the credit market, a dollar that has lost 25 percent against the euro since 2000, and ever-increasing oil prices are likely to dampen the overall U.S. economy. In turn, most companies will adopt a more cautious approach to major technology investments and will need to find new ways to maximize value in this more challenging environment, says a new report by Booz Allen Hamilton. Here are the five major trends the report outlines:

Trend one: A weak economy and dollar will put a focus on cost-containment, non-U.S. markets, and customers.

Not good for U.S. technology: The economy is softening and the dollar is weakening. In response companies will be forced to create new strategies to manage costs and run cash-positive businesses. The weakened dollar will be especially negative for companies that import products into the United States. On the other hand, U.S. companies that export products can use top-notch inventory and balance sheet strategies to reap the benefits of attractive export opportunities. Tech companies that have built a stronger reliance on non-U.S. markets have proven more profitable, as demonstrated by Hewlett-Packard's success courtesy of 65 percent of sales from non-U.S. markets, compared with 40 percent overseas sales of the average tech firm.

Maximizing returns on R&D spend will continue to be a challenge. A Booz Allen survey found that there is no significant relationship between higher R&D spending levels and superior market performance. Using customer needs to guide innovation will become particularly critical for high-tech companies. Companies that focus on integrating customer needs here and abroad into the R&D process perform significantly better.

Trend two: Software industry consolidation will ramp up.

Augmenting this year's M&A frenzy in the business intelligence space, larger software companies such as IBM, SAP, Oracle and Microsoft will continue to snap up smaller companies with high growth potential as a way to combat lagging growth. Also fueling acquisition will be the margin pressure that low-cost competitors are exerting on hardware and software companies. In addition, the ongoing commoditization of both electronic components and software are forcing vendors to find selling points beyond product characteristics. M&A activity will also be ramped up to meet customers' demands for end-to-end solutions.

Trend three: Common industry standards, openness and collaboration with outside companies are becoming crucial to innovation.

A few decades ago, VHS defeated Betamax. Why? Because VHS's widely available standard was more important to consumers and product manufacturers than was Betamax's superior picture quality. The VHS standard fostered the growth of a broad ecosystem of products and services and faster innovation and customer adoption. Blu-ray Disc's and HD DVD's war echoes that battle of yesteryear, and that struggle is thus far stalling innovation in this sector; customers and product manufacturers are holding off until there is a clear winner. But if history is any predictor, an explosion of innovation will follow once one side dominates.

 

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