IT infrastructure: Why are they not buying?
Many local firms are patching up their outdated information technology (IT) systems rather than investing in modern platforms. Experts say one reason is that companies are struggling to keep up with new technologies.
A number of IT firms have cited a difficult trading environment in SA owing to a lack of spending.
This lack of investment has hurt some large data management and software firms based in the country, and has also had the effect of limiting the innovation that can come with new infrastructure.
Jens Montanana, CEO of JSE-listed Datatec, says trading conditions have been tough for at least 18 months.
Telkom CEO Sipho Maseko says the group’s BCX unit struggled in the six months to September as corporates and government reduced IT spend.
"It’s more of a timing issue than a structural issue — it’s the deferral of spending by private and public sectors," Maseko says.
Jay Reddy, Dimension Data’s solutions executive for the Middle East and Africa, says: "The lack of spending is primarily due to indecision, rather than a weaker economy, in my opinion. The indecision is really about what direction to take — there’s a plethora of trends that are obviously disrupting businesses, and I think organisations are in a conundrum.
"To refresh an entire network a company has built up — let’s say over 30 years — overnight is a huge investment," Reddy says. As a result, organisations are choosing to rather sweat their existing assets while they watch the market and make up their minds, he says.
Claude Schuck, regional manager for Africa at Veeam, says spending on backup, disaster recovery and data management software remains healthy, though "generally in the marketplace spend is down". Not wanting to disrupt their operations with complete IT overhauls, organisations have adopted a "plaster mentality — they are patching their systems up to keep going and ensure they can operate on a day-to-day basis".
As a result, Schuck estimates that up to 70% of IT spend is merely directed at "keeping the lights on". He says this is frustrating companies, as they would prefer to focus on innovation.
"They are holding back on spend because no-one really knows where they want to go, and the pace of business is not letting them take a breather to say: ‘OK, this is what we need to do’."
Derek Bose, a senior director at Oracle for SA and the region, says budget constraints in corporate SA are prompting some firms to adopt cloud computing technologies.
"The requirement to do more with less has been a trend that we’ve seen in IT budgets for the past 10 years. It is driving some of the uptake and adoption of cloud," Bose says.
This signals a shift in the way organisations invest in IT, from a model of significant upfront investments to spending that is spread out over time. "It’s like a rental versus a purchase. In our own experience, the ‘refactoring’ of the cost base is definitely a driver towards evaluating and adopting cloud solutions," Bose says.
According to Bose, SA was a laggard in the cloud adoption arena two or three years ago, though that’s changing.
"I guess that being in a more mature economy [has made] people far more diligent in the evaluation process. And perhaps they have just [been taking] a longer time. I certainly feel that the momentum is there now."
But Reddy says there is still a lot of circumspection in the market: "Cloud is being seriously considered by most organisations, but I think more caution is being applied to the journey to cloud than there was initially, when the hype came about."
This is because there have been more failures than successes with cloud technology in SA, he says.
"The reason is that most of our companies do not have networks or security postures that are suitable for the cloud. Organisations try to migrate their existing network infrastructure, which they’ve built over 10 or 20 years, and connect it to the cloud. That’s not the way to do it, because the networks weren’t designed for cloud."
As a result, businesses are realising that they need to first ensure they have robust and secure networks in place.
Meanwhile, some in the industry are confident that companies will soon start to loosen the purse strings and lift expenditure on IT.
Adapt IT CEO Sbu Shabalala says periods of "tightened" corporate budgets do not usually last long. "You can defer spend on ICT and technology, but you cannot do without it for a long time without technology becoming obsolete, so we do expect an uptick in spend."
In the second half of 2017, manufacturing and financial services companies increased spend on Adapt IT’s products and services, Shabalala says. Spend in the education sector remained constrained, though.