I read an interesting article at ComputerWorld today that got me thinking. The title: "IT centralization is back in fashion."
It is useful to think about what this means for IT organizations and the vendors that support them.
With technology assets centralized in one place, it's easier to take advantage of opportunities for efficiency and streamlining such as virtualization, storage de-duplication, cloud computing and outsourcing, all of which promise to lower costs.
Centralization also makes it easier to create an effective disaster recovery strategy, minimize labor redundancies (ie, reduce expensive IT staff), get volume discounts on technology purchases, and lower maintenance and training costs through standardization.
Is the trend real?
There's some statistical evidence of a tilt toward IT centralization. In Computerworld's recent Forecast survey, 37% of 312 respondents said it's likely that their IT units will become more centralized in the next 12 months. And in a 2009 IBM (NYSE:IBM) survey of 2,500 CIO worldwide, 76% of respondents said they anticipated having a strongly centralized infrastructure in five years.
IBM itself last year completed a shift to centralized IT management, reducing the number of data centers it operates from 155 to five and trimming its portfolio of applications from 15,000 to 4,500.
Which vendors will qualify?
The move to centralization will see CIOs looking to vendors who can offer several of the following major benefits:
- Products should efficiently scale up to handle greater numbers of user and transactions.
- Vendors must offer greater out-of-the box integration of wide-ranging functionality
- Vendors should also offer IT services either for system implementation or longer-term outsourcing
- Vendors who can offer quantity discounts or concessions on corporate-wide site-license pricing will have an advantage
The largest IT vendors are the companies that most easily meet all the requirements listed above. This means companies like Cisco Systems (NASDAQ:CSCO), IBM (IBM), Oracle (NYSE:ORCL), Hewlett-Packard (NYSE:HPQ), EMC (EMC), VMWare (NYSE:VMW), SAP (NYSE:SAP), Computer Associates, Teradata (NYSE:TDC), Microsoft (NASDAQ:MSFT), Dell (NASDAQ:DELL), NetApp (NASDAQ:NTAP), Juniper Networks (NYSE:JNPR), Fiserv (NASDAQ:FISV), BMC Software (NASDAQ:BMC) and Compuware (NASDAQ:CPWR).
The folks at IBM think we have a 5-year cycle during which the centralization trend will maintain its popularity before the pendulum begins to swing in the opposite direction. During that time, large-cap tech stocks can be expected to out-perform.