Thursday, June 7, 2001

U.K. E-Commerce: Fix Skills Shortfall...Quickly

The unsettling economic climate, changing client attitudes and new technology demands will put UK eCommerce integrators (eCIs) in a suffocating market squeeze by the end of this year, according to a stream of new analysis from Forrester Research. UK eCIs that reinvent themselves for services networks and focus on profitable skills will survive, Forrester asserts.

"With the high-profile collapse of the US eCI market -- Xpedior shut its doors and marchFIRST and Viant cut staff -- UK eCIs must reinvent themselves to survive. To find the resources to keep services networks afloat, pivotal providers must concentrate their own direct revenue generation on high-demand cash skills for the next 18 months, increasing long-term investment skills like cohort analysis and device-dialogue capability after 2002," said Caroline Sceats, analyst at Forrester's UK Research Centre. "Pivotal providers with established commodity skills units will find they can't continue to support 20% of staff generating only 16% of revenues. As specialists seeking volume continue to put pressure on commodity skills margins, pivotal providers will spin off their Scenario Design and device specialization teams -- happy to take lower staffing costs in return for a temporary 1% decline in operating margins in 2001."

With clients focusing on achieving cost savings, the most lucrative market will remain inter-enterprise integration: this will generate 77% of revenues in 2002 and drive operating margins to 11%. As the eCI market stabilizes in 2003 -- with services networks expanding to include 11 specialists -- pivotal providers will start to see pay-out from investment skills like cohort analysis. Niche or vertical integrators that lack the scale to initiate services networks will specialize -- partnering with several services networks to deliver expertise to a wider market to ensure profitability by 2002.

Those integrators that continue to provide end-to-end services during 2001 will find that the softening market can't support them. Lucrative cash skills won't remedy the situation either -- although cash skills contribute 55% of revenues in 2001, they are expensive to deliver, demanding 56% of staff. By 2003, with an average of five services networks driving 30% of revenues, specialists will start to look beyond the tactical objectives of building commodity skills volume. But returns will be gradual, with investment skills contributing only 15% of total revenues in 2003.

"Getting through the next two years means pivotal providers will shed staff -- those employing around 1,500 staff in 2000 will lose 20% by 2003 as commodity skills units get spun off," Sceats added. "Specialists will reposition for efficiency, increasing commodity skills staff by 13% and cutting cash skills staff by 15%. Only eCIs with deep pockets can afford the £9.7 million needed to set up and run a services network between today and 2003. This will result in the pivotal provider space being dominated by traditional consultancies that understand the need to streamline their businesses by spinning out specialist groups. Deloitte Consulting and Accenture will lead while KPMG Consulting gets its demerger and IPO sorted. Many struggling, smaller eCIs will fold under the strain of another year of negative profits in 2001 and almost no growth in 2002."

For the Report "Fixing UK eCIs' Skills Deficit," Forrester began with an initial field of 177 UK eCIs, including startup Internet consultants, mobile and iDTV specialists, advertising and brand management agencies, IT solutions vendors and management consultancies before filtering to a detailed appraisal of 10 based on objective criteria. For the Report "Help For Multi-Device Projects," Forrester spoke with 42 senior executives responsible for eCommerce, IT or eBusiness strategy at online pure plays, offline retailers, banks and utilities companies.