Technology Matters Again as IT Budgets Shift from Core to Edge Technologies

Business application demand is moving from the core to the edges of the enterprise. Interest in solutions that aid communications with partners and improve supply-and-demand management is mounting (order management portals, EDI, PLM, CPFR, SRM, collaborative logistics, etc.).

These collaborative edge-of-the-enterprise technologies can reduce value-chain costs by as much as 50 percent. Given this large opportunity and the diminishing prospects for further internal cost cutting, enterprises are beginning to invest in externally focused technologies to improve their competitive capabilities.

The demand shift from the core to the edges of the enterprise will have a profound effect on organizations' business-application infrastructure requirements and spending plans.

Trend Impact

The technology budget shift has significant implications for application vendors, systems integrators, and telecommunications providers. Application vendors will face more questions about interoperability and compliance with standards such as J2EE and XML, as well as Web services. Systems integrators will need to manage distributed projects that involve not only their primary client but also the constellation of business partners with whom the client interacts. Telecommunications networks will become increasingly important to enterprise business strategies that involve extended supply-chain management.

Enterprises are increasing their budgets for edge-related technologies by 100 to 150 percent. Early findings from Yankee Group research show that the ratio of internal-facing or core technologies to overall IT budget is declining, while the ratio of external-facing or edge technologies is rising. The typical core-to-edge ratio has been 90:10 or 80:20. In 2003, the ratio is moving to between 75:25 and 60:40. This shift presents significant challenges and opportunities in an economic environment where IT budgets are flat or declining.