European DNA / Roland Berger IT Industrie Studie


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European DNA / Roland Berger IT Industrie Studie

  1. 1. The European Way – A new Generation of IT Providers Carsten Rossbach, Dr. Markus Puttlitz, Dr. Julia Daecke Study
  2. 2. The European Way – A new Generation of IT Providers Carsten Rossbach, Dr. Markus Puttlitz, Dr. Julia Daecke Study
  3. 3. 2 | Study Management Summary Looking at the performance of the world's 3,000 largest companies over the past ten years, it's clear that European firms have done extremely well. Contrary to expectations, they have done better than non-European com- panies both in sales and EBITDA growth as well as in terms of business sus- tainability. The European IT providers among this group have also performed amazingly well and often even better than their non-European competitors – a result which might contradict the conventional market view. In order to better understand these empirical findings we spoke to IT deci- sion makers at clients and senior management at IT providers. We highlight the strengths of the European management philosophy that underpins the success and show which factors are essential for successful business in the European market: > Successful IT providers in the European market are rooted in Continental Europe's strong industrial base They focus on their core business, occupy small and large niches and are thus distinct from unfocused all-round IT providers They have detailed expert knowledge and ensure continuity for their customers through long-term personnel development They enter into long-term partnerships and review new technologies in detail, thus achieving a high degree of stability They view the CIO as the first point of contact, but also professionally contact customers at CEO/CFO level and apply value selling They make up for wage differences compared to other countries through a high degree of automation and standardization They are well accepted by employees' representatives, for example through socially responsible personnel policies on outsourcing and earnings-enhancement actions
  4. 4. 3 | The European Way – A new Generation of IT Providers The European management model is a success There is not simply good and bad management but a recognizable continental European management style. European managers grow up surrounded by diverse languages, cultures and mindsets; they are accustomed to including all stakeholders in their decisions and, above all, they think in a long-term way. Jürgen Hambrecht, Chairman of the Board of Executive Directors, BASF SE The financial and economic crisis made it abundantly clear: The days when Euro- pean companies considered exclusively the American management style to be a role model are over. An analysis of the 3,000 largest companies worldwide shows that European companies did better financially in the period 1998-2008 than North American or Japanese companies, for example. Although their sales growth is only around one percentage point higher than North American companies, they are well ahead on profitability and sustainability. We think this is due in part to the following features unique to the European management model: European managers make plans and decisions on a long-term basis They value social aspects and staff development more than their colleagues outside Europe do European managers have broader intercultural experience than non-European managers They view corporate social responsibility as an important and strategic competitive advantage Comparatively speaking, European companies invest more abroad than companies outside Europe They view the state's role in initiating business in a positive light – in contrast to the much more skeptical US managers, for example This model for success can also be applied to the performance of European IT providers. Although the public views the IT industry as dominated by American firms, European IT providers grew more profitably and sustainably on average bet- ween 1998 and 2007 than their US or Japanese competitors. Despite globalization, customers apparently perceive differences in behavioral patterns among providers.
  5. 5. 4 | Study
  6. 6. 5 | The European Way – A new Generation of IT Providers Own strengths still largely unexploited However, European IT providers often try to copy their US or Indian counterparts rather than recognizing and building on their own strengths. This study therefore attempted to find out what distinguishes European from non-European IT providers – to decode their DNA in a way – to highlight success factors for the European market and thus work out the strengths and weaknesses of European IT providers. Our findings can help European IT providers focus on their strengths. But they will also show non-European IT providers how to successfully operate in the European market, particularly those who have been trying to enter the European market for years but have not managed to become major suppliers to European corporations. The findings of this study can also provide valuable tips to user companies on choosing IT providers beyond a purely empirical analysis in the form of spreadsheets with lots of data. We use the terms European DNA and European IT provider to mean companies originating in Europe. We know that many companies of non-European origin have a strong local base in Europe and a European management team. But we still believe that there is a kind of basic mindset determined by the country in which the company has its headquarters – even if it is a real global player.
  7. 7. 6 | Study Classifying corporate DNA based on 4 elements To decode the DNA of European IT providers and compare it to that of global non-European IT providers, we developed a structure based on four elements: SHAPE: How do companies' strategies differ in terms of new markets and customers, portfolio expansion, personnel develop- ment and industrial links? SEEK: How do the companies generate new business or pursue business development? SELL: How do they successfully sell their products or services? SAVE: What do the companies focus on to efficiently add value?
  8. 8. 7 | The European Way – A new Generation of IT Providers We discussed the individual components of these four elements in over 25 intensive expert interviews with IT decision makers at clients and among the senior management of IT providers, and added our own experience from our project work. The results are summarized below and illustrated with quotes from the interviewees. This study is not about determining what approach was right or wrong. The aim is to tease out the differences that can result in varying degrees of value added (as outlined above) for European and non-European IT providers and their corporate customers. SHAPE – European IT providers see reliability and trust as the key to success and growth; non-European IT providers take a more aggressive approach European IT providers often pursue different growth strategies than their non-European competitors. The latter often aggressively push growth with more short-term goals – many customers mention focusing on quarterly results – or through deal-driven market development. In doing so the focus is absolutely on growth: Growth is absolutely necessary; we sell our products and solutions to everybody who wants them. Survival is in growth and the fittest will grow. John Wargin, Hewlett-Packard Customers also see non-European providers as being more willing to experiment: In extreme cases, innovative concepts are first sold and only then developed, according to the customers – but in most times successfully. Europeans, by contrast, are more interested in long-term customer relation- ships. They first develop innovations until they are market-ready before starting with intensive market development. The key to success, as they see it, is gaining customer trust through reliability and continuity. From their perspective, business with customers – especially in IT outsourcing – be- comes profitable only after several years, so they are keen to offer customers long-term prospects. This continuity is especially important for SME custom- ers, who account for a large proportion of GDP in Europe. These customers value a stable workforce with strong industry expertise, with whom they can build up a trusting relationship.
  9. 9. 8 | Study People often tell us that compared to American IT companies, we respond more flexibly to customer wishes, make decisions faster, escalate issues more quickly and take a long-term approach to difficult situations and projects, rather than focusing on short-term optimizations at the expense of the long- term partnership. Together with our strong 'industrial DNA', in my view these factors are leading to a renaissance among European IT companies – even with American customers! Rainer Koppitz, CEO Sales, Siemens IT Solutions and Services Technical skills are still fairly highly valued in Europe, even when putting together a management team: The European market wants subject matter experts in management positions. Outside Europe, salesman types are in demand, while European providers prefer experts for this type of position. But, according to customers, European managers could still learn a lot from their American counterparts about self-promotion and charisma. When it comes to conquering geographical markets, non-Europeans tend to assume there is a global standard to meet or to set. As a result, they try to apply this standard to new markets in their portfolio. Europeans adapt more flexibly to each particular market, showing a willingness to consider the relevant local standard and refine it or even provide tailor-made solutions. They use their detailed knowledge of the European markets to address the unique cultural and regulatory requirements better than the competition – one of their strengths which could be better leveraged. European companies are able to accept diversity, different cultures and rules and to create value from these. Companies of non-European origin cannot do this in the same way. Winfried Holz, CEO Germany and CEMA (Central Europe, Mediterranean Countries and Africa), Atos Origin The European market presents providers with a few cultural challenges, as some Indian providers experienced to their dismay: We were stupid (…) We didn't seriously think we needed a German work- force in Germany. The cultural and linguistic barriers could not be overcome by our Indian staff. We probably came to Germany too early. There was not as much cost-saving pressure at companies to outsource their IT. Azim Premji, CEO, Wipro (Source: Handelsblatt, August 23, 2010) European companies are keen to retain their workforce over the long term, to develop them and ideally instill in them high levels of motivation and identification with the company.
  10. 10. 9 | The European Way – A new Generation of IT Providers Non-European providers see these values as leading to inflexibility and problems in the age structure and skill set of the workforce. But customers in Europe often appreciate this long-term staff development; it guarantees the desired continuity in the supplier relationship, detailed knowledge of specific requirements/processes and avoiding new young staff needing to re-learn processes. Users and providers should bear in mind: It is a challenge to establish industry expertise in an IT team, so it is important both for providers and customers to have long-term stability in the core of the team. Dr. Ulf Dunker, Managing Director, 24/7 IT-Services, IT service provider to MVV Group Finally, it is worth mentioning that European IT service providers are firmly anchored in the continent's strong industrial base – quite a few large IT providers in Europe started out as corporations' in-house service providers. They therefore know the opportunities and risks of IT. Moreover the virtuali- zation of operations technology (OT), meaning the vertical and production orientated IT, asks for such capabilities. We realize e.g. through virus attacks in the automation area of OT the necessity of IT capabilities and industrial competences, which are typically not in the domain of the CIO or traditio- nal IT providers. Given the increasing convergence of these technologies, the anchor in the continent's industrial base is a major asset and will offer European IT providers attractive opportunities in the future.
  11. 11. 10 | Study SEEK – Beyond Europe, speed is what counts in business development. European IT providers focus on long-term strategic partnerships For some IT providers beyond Europe, aggressive pricing strategies are a proven means of rapidly increasing their market share. European IT pro- viders are more cautious, instead trying to fill existing gaps with long-term strategic partnerships. In developing new business, global players of non-European origin with large RD budgets aim for innovation leadership. European IT providers, by contrast, do not see this as an end in itself. Although they also deem innova- tions very important, they do not drive them but evaluate them and squeeze out the customer-specific benefits. Interviewees saw their US counterparts as more innovative: Internationally aligned companies, such as American ones, are very open to top innovation technology and enjoy trying them out as early adopters. Dr. Alexander Arnold, Managing Director, Steeb The habit non-European providers have of modifying existing technical concepts slightly, renaming them and marketing them as innovations is met with skepticism in Europe and does not lead to the desired sales success. One example of this is cloud computing: Scattered, virtual architectures were not invented by the cloud, but have existed under various names for some time, just like the related security and data protection concerns in Europe.
  12. 12. 11 | The European Way – A new Generation of IT Providers SELL – IT providers of non-European origin focus on closing deals, while European IT providers concentrate on technical details In sales, it is obvious that European providers think long-term. As described in the SHAPE section, relationship management plays a major role: because the European market is one of the main sources of sales, they invest in long-term customer contacts, while providers of non-European origin do not manage to establish these contacts. As a result, Indian IT providers, for example, find it hard to make inroads. Many non-European IT providers have not managed to build up long-term contacts on the sales side. In a similar way to US companies in the early 1990s, they started up with expats, who often only stayed in the location for two or three years. Recently some Indian firms have been using German managing directors – but they have to prove continuity here, too. Peter Kreutter, Otto Beisheim School of Management (WHU) Because European providers have often built up contacts with very senior staff over the long term, they can conclude contracts fairly easily. European CIOs are among the most important customers of European providers, which is why these providers normally have technically focused sales cycles and go into more detail. The CIOs receive special treatment from them, whereas they are often treated like second-class customers by large global players (B customer status). Of course this is also due to the absolute size of global players. As a customer, you notice when negotiating with a global IT service pro- vider of non-European origin that they are managed centrally and nothing can be decided without speaking to the headquarters first. At European providers you speak directly to the decision makers. Michael Schmelmer, CIO, Infineon In their purchasing behavior, European CIOs are often risk-averse. They want providers to have an excellent reputation and be long-term partners. To meet these expectations, European providers tend to avoid unrealistic promises. Instead, they concentrate on not just delivering on their promises, but exceeding them if possible. IT providers headquartered outside Europe are much more deal-driven and sometimes sell an immature product as the latest innovation. Europeans are more cautious in this respect. This may be due to cultural reasons or different rules about liability. Michael Schmelmer, CIO, Infineon
  13. 13. 12 | Study This strategy has some downsides – European sales cycles are often much lengthier than those of non-European players because of their technical focus, and speaking directly to the CEO/CFO as a customer (rather than the CIO) is still a hurdle for many. Non-European IT providers tend to be more aggressive and show great flexibility, even in pricing, in order to make a quick sale. Only the CIO has the necessary perspective to choose the IT solution that meets all the technical requirements and simultaneously fits best into the overall IT concept. Selling to technicians without involving the CIO is to be avoided. Prof. Matthias Mehrtens, CIO, Stadtwerke Düsseldorf European CIOs in particular like to be the first point of contact, and do not always see it as helpful when IT providers approach IT specialists directly. For this reason, in Europe at least the overall strategy should involve a sales approach that is slower, more thorough and more technical. For large con- tracts, the provider should certainly aim for closer contact with the CEO/ CFO, but should under no circumstances fail to involve the CIO.
  14. 14. 13 | The European Way – A new Generation of IT Providers SAVE – European IT providers value sustainability and favor nearshoring Besides focusing on core competencies, economies of scale are an important reason for companies to work with IT providers. I expect from IT providers mainly efficiency. Skilled workers who can give my company a competitive edge are hired for my internal team. Michael Schmelmer, CIO, Infineon That is why both European and non-European IT providers need to improve their cost effectiveness. However, they go about achieving this goal in different ways. Regarding new technologies and offshoring approaches, non-European pro- viders are comparatively open and their solutions focus primarily on costs. By contrast, a European provider will often not be the first to introduce new technologies, but will wait to learn from others' experience and clarify security concerns, which in Europe are relatively important. One example is the role of the German Data Protection Act regarding cloud computing. Even for outsourcing, costs are not the top criterion in Europe. Both IT providers and customers in Europe value cultural affinity, resulting in a preference for nearshoring to such locations as Eastern Europe, versus offshoring to India or China. Offshoring solutions in the Far East are seldom feasible if the IT solution requires close coordination on the technical end. Both the geographical and cultural distances are vast. Dr. Ulf Dunker, Managing Director, 24/7 IT-Services (IT service provider to MVV Group) In addition, European providers have other levers for increasing cost advan- tages. For example, they often play a leading role in standardization processes. ITIL and CMMI have not been fully implemented, in the US for example. The culture there is dominated by flexibility. European providers have driven the industrialization of IT services, much farther in some cases. Detlef Exner, Managing Director, DB Systel Over the long term, actively driving industrialization and automation will lessen the differences in wage costs. In this respect, companies in India, for example, will lose their competitive advantage.
  15. 15. 14 | Study A further key criterion in Europe is the acceptance among employees' representatives, e.g. the social acceptability of implementing outsourcing decisions and layoffs (including training programs or generous severance packages). European providers are more likely to take this approach than their non-European competitors. Finally there is administrative efficiency. Viewed from the outside, European IT providers often give the impression that they have overly generous over- head resources. Yet in our experience, observers often overlook a key point: for European providers, headquarters and holding functions are frequently included in this view, whereas these function rarely exist in Europe at non- European providers. The latter usually have just a sales organization and if necessary lean on-site resources for delivery here. Completed and ongoing corporate efficiency programs at certain providers, such as T-Systems, SIS or Atos, show that SGA costs have improved over the past few years, or are already at benchmark levels in certain functions. We have made great strides regarding our costs in the past few years and plan to do much more by 2011. This also affects cost items in the proverbial comfort zone, such as travel costs or productivity per unit area. Dr. Jürgen Kohr, Head of Corporate Strategy, T-Systems
  16. 16. 15 | The European Way – A new Generation of IT Providers Summary: Success factors for IT providers in the European market European providers deserve to feel proud of their performance over the past decade in comparison with their international peers. In recent years, they have continued to go from strength to strength. The time for simply copying the successful strategies of global IT players is over. European IT service providers are quickly becoming more confident in bringing their strengths to the market: technical thoroughness, reliability in sales and strong delivery, all of which combine to give them an excellent reputation. Particularly in Europe, cultural affinity plays an important role. Potential customers are more likely to decide in favor of IT outsourcing when em- ployees are handled in a socially responsible way and European cultural, legal and regulatory characteristics are known to the provider. But European providers can still learn much from their non-European counterparts: how to focus on growth, communicate directly with senior management and business departments, increase flexibility, act pragmati- cally and aim for innovation leadership.
  17. 17. 16 | Study The authors Carsten Rossbach Partner Roland Berger Strategy Consultants, Frankfurt Phone: +49 69 29924-6318 E-mail: Dr. Markus Puttlitz Senior Project Manager Roland Berger Strategy Consultants, Hamburg Phone: +49 40 37631-4336 E-mail: Dr. Julia Daecke Project Manager Roland Berger Strategy Consultants, Düsseldorf Phone: +49 211 4389-2364 E-mail:
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