Firm predicts double-digit PLM spending growth

Worldwide spending on product lifecycle management (PLM) technology – which helps manufacturers make improvements in product innovation and quality and speed up time-to-market – is expected to increase from $3.38 billion in 2001 to $5.12 billion by 2005, according to a report released in December by Boston-based market analysis firm Aberdeen Group.

In a statement released by Aberdeen, Jack Maynard, the firm’s research director and author of the report Worldwide PLM Spending: Forecast and Analysis 2001-2005, described PLM as “the first business strategy to affect the core value proposition of the manufacturing enterprise – the products they build and sell.

“Since it was introduced, PLM has enabled executives to drill down into the more granular, multi-faceted dimensions of the product lifecycle process and yielded significant benefits to companies in terms of resource utilization, project timeliness, financial management and risk management.

“Our historical observation is that when the economy is down, manufacturers have frequently taken the opportunity to re-think, rebuild and re-tool their operational resources,” he continued in the Aberdeen-released statement. “This situation is primarily driven by the fact that with reduced customer orders, resources can be diverted to improvement projects instead of meeting customer demand. This redirection will help the PLM market and ready those savvy manufacturers for the next market upturn with a powerful, efficient and reactive productive development and delivery process.”

Aberdeen research indicates that PLM’s total spending growth is at a compound annual growth rate of 10.9 per cent through 2005. The general growth of PLM is predicted to be motivated by continued adoption of PLM as a business philosophy, and buttressed by mid-market usage that will be driven as solutions become more “packaged.”

Despite this promising overall trend of increased levels of IT spending, the report also notes that the PLM industry has several challenges to meet. These include the dampening of near-term growth prospects through 2002 by reductions in capital expenditures. Nevertheless, the report indicates that the majority of these issues will be addressed, resulting in a favourable outlook for the PLM market.

As part of a series on IT spending, Aberdeen in January announced its top predictions for trends that will influence the technology industry in 2003 and over the long term. The company expects IT spending worldwide will grow about four per cent in 2003, up from less than one per cent growth in 2002.

More EBI initiatives

In the arena of Enterprise Business Integration (EBI), Aberdeen predicts business integration in all forms will continue to command a large portion of corporate budgets, resulting in a moderate increase in spending over 2002. The firm notes that the IT spending slowdown resulted in a 13 per cent spending decline on EBI products and services in 2002, including companies delaying or scaling down expensive integration projects. However, the business benefits of a better-integrated extended enterprise remain a highly valued objective for the Global 2000.

Corporations, and their value chain of partners and suppliers, are realizing significant cost and time savings by sharing critical information and events more rapidly, Aberdeen reveals. Web services-enabled and process-driven integration are key growth areas, especially for high velocity industries that experience dynamic market conditions, rapidly changing customer requirements, and short product life cycles. Aberdeen suggests integration infrastructure suppliers will offer vertical industry solutions that decrease the time-to-deployment and cost-of-integration of such projects.

The rapid development of customer-focused business processes or composite applications is another trend Aberdeen predicts for 2003. These include order-to-cash, for example, unifying discrete applications from CRM, SCM, and ERP. Advances in application connectivity, process integration and industry-standard common object models have given companies the ability to deliver just-in-time business process functions based on client requirements, according to Aberdeen. Integration and application suppliers will build software components as service offerings to enable the rapid assembly of composite applications. Web services will continue to evolve in the support of building composite applications.

Storage no longer peripheral

“Information utility,” a model championed by suppliers such as IBM with its On Demand initiative and Sun Microsystems with its N1 initiative, will become increasingly popular this year, says Aberdeen. As the functions of storage, servers and communications disaggregate to create a more efficient data centre, storage will no longer be considered a peripheral function.

Aberdeen notes that while storage, servers, and communications presently form the hardware-infrastructure triad of the data centre, their functions are separating. Reconnecting this triad through standard interfaces enabling the three technologies to be interoperably linked will dramatically change the data centre economics for the better, over a period of years. Viewed as the repository of a competitive and operationally vital asset – an organization’s unique data -storage now has an equal role with servers and communications, Aberdeen reports.

Outsourcing gains ground

Due to corporations’ focus on enterprise IT cost reduction, Aberdeen predicts that outsourcing in all forms, including IT and business process outsourcing, will command a greater portion of corporate budgets in the coming year.

The firm sees more and more corporations realizing significant cost savings by outsourcing their IT infrastructure and application lifecycle functions. In particular, business process outsourcing is a key growth area, especially for suppliers that bring a strong value proposition to the table, not only around the issue of cost reduction but also around process transformation.

Aberdeen also sees a trend to the globalization of outsourcing. Communication technologies enable companies to deliver IT and business process functions based on client interaction requirements, availability of appropriate skills, and labour costs. Suppliers will formulate service offerings in ways that balance these factors, blurring the lines between on-site and offshore, the firm suggests.

Shared supply chain infrastructures

In the supply chain applications space this year, Aberdeen expects an increasing number of enterprises will create a common infrastructure to run, integrate, and interoperate business processes that can be shared internally across divisions and externally with suppliers. Secondly, they predict many enterprises will deploy internal teams to find and leverage unused technology investments and develop the process flows and templates to better leverage this existing technology. Thirdly, “hybrid” supply chain vendors will emerge and grow by going beyond applications to offer systems integration and consulting services to help develop the process flows, Aberdeen reports. These vendors will weather the storm better than those that are solely focused on applications.

Other Aberdeen predictions include the growth of identity theft to multiply three-fold in 2003 with total economic losses to consumers, business, merchants, credit issuers, and the financial industry rising to $24 billion. As well, wireless data services in the form of WiFi are expected to be the telecom bright spot this year.