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ICT budget and staffing trends in South Africa

Enterprise ICT investment plans to 2013


February 2013

TABLE OF CONTENTS 1 Trends in ICT budgets ......................................................................................... 4


1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction .................................................................................................................. 4 Survey demographics .................................................................................................. 4 ICT budget changes ..................................................................................................... 7 ICT budget allocation by core technology area ............................................................. 8 ICT budget allocation by function ................................................................................11 ICT spending by entity.................................................................................................13 IT staff distribution .......................................................................................................16 Introduction .................................................................................................................18 Hardware budget breakdown ......................................................................................18 Software budget breakdowns ......................................................................................20 Third party IT Services expenditure .............................................................................24 Telecommunications budget........................................................................................28 SMEs are leading the South African ICT sector on a growth trajectory in 2013 ...........30 Definitions ...................................................................................................................31 Further reading ...........................................................................................................34 Contact the authors .....................................................................................................34

Detailed ICT budget allocations ....................................................................... 18


2.1 2.2 2.3 2.4 2.5

3 4

Summary ............................................................................................................ 30
3.1 4.1 4.2 4.3

Appendix ............................................................................................................ 31

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List of Figures
Figure 1: South African enterprise ICT survey industry breakdown...........................................................4 Figure 2: South African enterprise ICT survey breakdown by size band (number of employees) ..............5 Figure 3: Recent and expected ICT budget changes among South African enterprises ............................7 Figure 4: South African enterprises (external) ICT budget allocation in 2012 ...........................................8 Figure 5: South African enterprises (external) ICT budget allocation in 2013 .........................................10 Figure 6: South African enterprises ICT budget allocation by function, 2012 and 2013 ..........................11 Figure 7: South African enterprises ICT budget allocation by entity in 2012...........................................13 Figure 8: South African enterprises ICT budget allocation by entity in 2013 ...........................................14 Figure 9: Average allocation of full-time IT staff members in South African enterprises ..........................16 Figure 10: South African enterprises average hardware budget allocation.............................................18 Figure 11: Average allocation of software budgets in the South African enterprise market .....................20 Figure 12: South African enterprises average software budget allocation by technology .......................22 Figure 13: South African enterprises average IT services budget allocation ..........................................24 Figure 14: South African enterprises average IT consulting services budget allocation .........................26 Figure 15: South African enterprises average telecommunications budget allocation ............................28

List of Tables
Table 1: South African enterprise ICT survey industry breakdown ............................................................5 Table 2: South African enterprise ICT survey breakdown by size band (number of employees) ...............6 Table 3: Recent and expected ICT budget changes among South African enterprises .............................7 Table 4: South African enterprises (external) ICT budget allocation in 2012 ............................................9 Table 5: South African enterprises (external) ICT budget allocation in 2013 ..........................................10 Table 6: South African enterprises ICT budget allocation by function, 2012 and 2013 ...........................12 Table 7: South African enterprises ICT budget allocation by entity in 2012 ............................................13 Table 8: South African enterprises ICT budget allocation by entity in 2013 ............................................15 Table 9: Average allocation of full-time IT staff members in South African enterprises ...........................16 Table 10: South African enterprises average hardware budget allocation ..............................................19 Table 11: Average allocation of software budgets in the South African enterprise market ......................20 Table 12: South African enterprises average software budget allocation by technology ........................22 Table 13: South African enterprises average IT services budget allocation ...........................................24 Table 14: South African enterprises average IT consulting services budget allocation...........................26 Table 15: South African enterprises average telecommunications budget allocation .............................28

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1
1.1

Trends in ICT budgets


Introduction

This report presents the findings from a survey of 65 South African enterprises regarding their Information & Communication Technology (ICT) budgets and staff allocation. The survey investigates how South African enterprises currently allocate their ICT budgets across the core areas of enterprise ICT spend, namely hardware, software, IT services, communications and consulting. The report also illustrates with whom South African enterprises prefer to invest their ICT Rands, thereby providing visibility into the opportunities for ICT vendors and services providers. Trends in ICT spending are identified through to the end of 2013 following feedback from respondents on their forthcoming investment plans. The survey was conducted in September 2012 via an online methodology, with respondents all having ICT decision maker responsibility (typically CIOs and IT Managers). Kable plans to repeat the survey in the second half of 2013, in order to monitor ICT budget changes on an ongoing basis.

1.2

Survey demographics

Figure 1: South African enterprise ICT survey industry breakdown

Source: Kable

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Table 1: South African enterprise ICT survey industry breakdown Industry Manufacturing Financial markets Insurance Media Government Healthcare Retail Education Retail banking Energy Utilities Pharmaceuticals Total
Source: Kable

Count 13 7 7 7 6 5 5 4 4 3 2 2 65

Percentage of respondents 20% 11% 11% 11% 9% 8% 8% 6% 6% 4% 3% 3% 100%

Figure 2: South African enterprise ICT survey breakdown by size band (number of employees)

Source: Kable

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Table 2: South African enterprise ICT survey breakdown by size band (number of employees) Employee size band Over 10000 5000-9999 2000-4999 1000-1999 500-999 100-499 50-99 Total
Source: Kable

Count 9 9 5 11 9 12 10 65

Percentage of respondents 14% 14% 8% 17% 14% 18% 15% 100%

Kables survey has been focused across a broad spread of vertical markets and size bands, with the goal of providing a balanced view of the South African enterprise ICT opportunity. A breakdown of the enterprises that have been interviewed in each vertical market and size band is provided in the figures above.

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1.3

ICT budget changes

South African enterprises are optimistic about their ICT spending in 2013
Figure 3: Recent and expected ICT budget changes among South African enterprises

Source: Kable

Table 3: Recent and expected ICT budget changes among South African enterprises Trend Decrease 6% or more Decrease slightly (1%5%) Flat (0%) Increase slightly (1-5%) Increase significantly (6%+) Total
Source: Kable

2011-12 (Count) 5 5 6 36 13 65

2011-12 (%) 8% 8% 9% 55% 20% 100%

2012-13 expectation (Count) 5 1 5 33 21 65

2012-13 expectation (%) 8% 2% 8% 51% 32% 100%

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Kables survey indicates that the South African enterprise ICT market is expected to witness an upward trend and a significant increase in enterprise ICT budgets in 2013 in comparison to 2012. 32% of the CIOs and other ICT decision makers interviewed in South Africa expect their ICT budgets to rise significantly in 2013 - an increase of 12% compared to 2012, while 51% of respondents will operate with a slight increase in their ICT budgets in 2013 compared to last year. The optimism in the enterprise ICT market is also apparent from the fact that the proportion of respondents who intend to keep their budget flat in 2013 has decreased to 8% (from 9% in 2012). It is also noteworthy that in 2013 there will be a 6% decrease in the proportion of respondents who intend to decrease their ICT budgets slightly. In the case of South Africa, the most economically developed African country, small and medium-sized enterprises (SMEs) play a vital role in economic growth. Closer analysis of the survey data indicates that the proportion of SMEs who expect a significant increase (more than 6%) in their ICT spending will increase from 21% in 2012 to 32% in 2013. Meanwhile, for large enterprises, the statistics remain largely similar to SMEs, with 33% of the respondents in this category indicating hikes in their ICT budgets in 2013 (as compared to only 17% in 2012).

1.4

ICT budget allocation by core technology area

Investments in maintaining the core ICT infrastructure form the crux of enterprises ICT budget
Figure 4: South African enterprises (external) ICT budget allocation in 2012

Source: Kable

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Table 4: South African enterprises (external) ICT budget allocation in 2012 Category Hardware Software Services Communications Consulting Other Total
Source: Kable

Average budget in 2012 (%) 27 25 15 15 11 7 100

Kables survey of CIOs and IT managers indicates that most South African enterprises are focusing on developing a strong ICT infrastructure. This is validated by Figure 4, which shows that the combined expenditure on hardware (27%), software (25%), and communications (15%) constituted 67% of total external ICT budget allocations in 2012. Aside from these categories, South African enterprises are also spending an average of15% of their ICT budgets on IT services and 11% on IT consulting projects. Further analysis of the survey data indicates that large enterprises in South Africa are spending more on hardware. Large enterprises are allocating 31% of their total ICT budgets to hardware, whereas SMEs have a more balanced spend, with hardware and software both constituting 25% of their total ICT budgets. It is also evident that SMEs in South Africa are allocating a higher proportion of their budgets (12% of the total budget) to IT consultants, in comparison to large enterprises (10%), primarily to reduce complexity and enhance the efficiency of their IT systems. The survey also reveals that sectors such as education, healthcare, insurance, and utilities are witnessing more investments in IT hardware, while sectors such as energy and retail banking are spending more on software.

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Software and consulting spend will be marginally higher in 2013


Figure 5: South African enterprises (external) ICT budget allocation in 2013

Source: Kable

Table 5: South African enterprises (external) ICT budget allocation in 2013 Category Hardware Software Services Communications Consulting Other Total
Source: Kable

Average budget in 2013 (%) 27 26 15 13 12 7 100

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In 2013, the ICT spending scenario in South Africa is expected to remain similar, albeit with a slight shift in investments from communications towards software and consulting. Kables survey indicates that South African enterprises are expected to increase their ICT spending slightly on software (26% in 2013 compared to 25% in 2012) and consulting (12% in 2013 compared to 11% in 2012). The proportion of the ICT budget spent on communications, however, is expected to decline by 2% in 2013 compared to 2012. The survey indicates that large enterprises are going to be at the forefront in terms of their spending on hardware, (with 35% of their 2013 ICT budgets allocated here), compared to SMEs (with 24%). Kable finds that SMEs are more likely to make greater investments in software, as they plan to spend about 27% of their total ICT budgets here in 2013. Further detailed analysis of the survey responses reveals that sectors such as education, energy, and utilities are expected to spend more on IT hardware, and have plans to allocate between 35-41% of their ICT budgets to the likes of devices and peripherals, servers and mainframes, and communications infrastructure in 2013. Meanwhile, investment in software will be greatest in the financial services sector (including financial markets, insurance, and retail banking), with institutions here set to spend between 24-31% of their ICT budgets on software purchases.

1.5

ICT budget allocation by function

Enterprises are expected to increase their spend on networking and applications


Figure 6: South African enterprises ICT budget allocation by function, 2012 and 2013

Source: Kable

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Table 6: South African enterprises ICT budget allocation by function, 2012 and 2013 Function End-User Computing Network Applications Data Centre Service Desk Communications IT Management Total
Source: Kable

2012 (%) 18 16 15 14 14 12 11 100

2013 (%) 17 16 16 15 13 12 11 100

An alternative view of the enterprise ICT landscape, as shown in Figure 6, suggests that South African enterprises are investing significantly in end-user computing, networking, and applications. The largest proportions of their ICT budgets are being spent on end-user computing (18% of the ICT budget), followed by networking (16%) and applications (15%). Further analysis of the survey data indicates that SMEs are spending a higher proportion of their ICT budgets (16%) on applications, on average, compared to large enterprises (13%). Meanwhile, large enterprises are investing 16% of their ICT budgets on data centres, compared to SMEs who are investing 14% of their budgets here. This trend is likely to continue in 2013, as respondents across all size bands intend to allocate the major proportion of their budgets on end-user computing (17%). The survey indicates that there could be a slight increase (of around 1%) in the budget allocations for applications (16%) and data centres (15%) in 2013, while budgets for end-user computing and service desks are expected to decline slightly. Meanwhile, proportional investments in networking (16%), communications (12%), and IT management (11%) are expected to remain the same in 2013.

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1.6

ICT spending by entity

Spending with third parties amounts to almost 75% of South African enterprises ICT budgets
Figure 7: South African enterprises ICT budget allocation by entity in 2012

Source: Kable

Table 7: South African enterprises ICT budget allocation by entity in 2012 Entity Internal development and maintenance Technology (product) vendor Local resellers of technology products Specialist outsourcer Telco Systems integrator Total
Source: Kable

Average budget in 2012 (%) 25 18 17 14 13 13 100

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Kables survey reveals that South African enterprises allocate a large proportion of their ICT budgets (25%) on internal development and maintenance. However, a significant amount of their ICT budget is being spent with thirdparty technology providers. About 18% of enterprises I CT budgets are being spent with technology vendors, while 17% is used to buy products and services from local resellers of technology products. Kable believes that technology vendors offering a range of client computing and enterprise software products are in a strong position to take advantage of the opportunities provided by the growing South African ICT market. South African enterprises are also keen on spending with other third party entities (other than technology vendors and local resellers), and are allocating significant proportions of their ICT budgets to Specialist outsourcers (14% of ICT budgets), Telcos (13%), and Systems integrators (13%). With the South African economy showing stability, enterprises are continuously focussing on expansion, cost optimisation, process integration and streamlining operations, which are going to provide significant opportunities for specialist outsourcers, telecom providers, and system integrators.

The ICT budget for internal development and maintenance is set to increase in 2013
Figure 8: South African enterprises ICT budget allocation by entity in 2013

Source: Kable

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Table 8: South African enterprises ICT budget allocation by entity in 2013 Entity Internal development and maintenance Technology (product) vendor Local resellers of technology products Specialist outsourcer Systems integrator Telco Total
Source: Kable

Average budget in 2013 (%) 27 18 16 13 13 13 100

South African enterprises ICT budget for internal development and maintenance is expected to increase by 2% as a proportion of total ICT budgets in 2013, with most enterprises strengthening their internal ICT investment in order to improve accountability and performance. Expenditure with technology product vendors is expected to remain at the same level, as they continue to be the preferred third party for making ICT investments. However, proportional spending with local resellers of technology products and specialist outsourcers are likely to witness a drop of 1% each in 2013, compared to 2012, as South African enterprises look to bring more of their ICT investments in house. Enterprises across South Africa are investing cautiously with Systems integrators and Telcos, and are planning to spend 13% of their total external ICT budgets on such providers in 2013 (similar to in 2012), primarily to improve their operations and infrastructure. Overall, in 2013, Kable expects there to be decent opportunities for technology product vendors, particularly those who are able to provide a range of hardware and software products and solutions to help enterprises achieve sustainable revenue growth. However, with many enterprises not looking to expand their operations, Telcos and Systems integrators are likely to experience more limited opportunities in the South African enterprise market.

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1.7

IT staff distribution

Technical staff are mainly resourced to develop applications and support the IT infrastructure
Figure 9: Average allocation of full-time IT staff members in South African enterprises

Source: Kable

Table 9: Average allocation of full-time IT staff members in South African enterprises IT function Applications Infrastructure Service Support & Help Desk IT Management Total
Source: Kable

Average allocation (number of staff) 40 35 31 27 133

Average allocation (%) 30% 26% 23% 21% 100%

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South African enterprises are cautiously resourcing their IT staff across various functions, aiming to ensure the best fit between employees and jobs, while avoiding manpower shortages or surpluses, and looking to embrace new opportunities that exist across the globe. Kables survey indicates that with the rise in the adoption of mobile devices and social media platforms, the need to modernize the existing application environment is forcing South African enterprises to allocate a significant proportion of their IT staff (30%) to application-related functions, typically involving application development, management, and support. A significant proportion of IT staff (26% of the total) are also being allocated to IT infrastructure. Large enterprises have more staff dedicated to IT infrastructure (29% of IT staff) compared to SMEs (20%), in order to support their distributed networks and the greater complexity in their IT systems. The lower proportion of IT staff allocated to infrastructure among SMEs can be attributed to the fact that they are paying more interest in hosting and managed services, as a means of focusing on their core operations and reducing the complexity of their IT infrastructure. According to Kables survey, a considerable proportion of staff are also being allocated to IT support and the help desk (23%), reflecting the aspiration of South African enterprises to offer better technical support to their employees and customers by controlling their IT operations internally, rather than outsourcing them. This stems from the fact that labour costs in South Africa are relatively cheap in comparison to more developed markets, and also because in-house support helps enterprises to achieve better co-ordination across their business functions. It is also noteworthy that SMEs are allocating a higher number of staff to IT support and the helpdesk (28% of IT staff) compared to large enterprises (21%).

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2
2.1

Detailed ICT budget allocations


Introduction

In addition to identifying ICT budget trends at a top level, Kables survey also drills into depth as to how South African enterprises are allocating their investments within the core areas of ICT spend. This section of the report focuses on the ICT budget breakdowns for hardware, software, IT services, communications and consulting.

2.2

Hardware budget breakdown

Enterprises are making substantial investments in clients, and networking and communications
Figure 10: South African enterprises average hardware budget allocation

Source: Kable

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Table 10: South African enterprises average hardware budget allocation IT function Clients Network and communications equipment Mainframes Servers Security Storage Peripherals Semiconductors and Processors Total
Source: Kable

Average budget (%) 18 17 14 14 11 9 9 8 100

Kables survey reveals the importance that enterprises place on investing in client computing technologies and network and communications equipment. Table 10 shows that about 35% of South African enterprises hardware budgets are allocated to client computing (18%), and network and communications equipment (17%). The increasing adoption of various hardware equipment and communications devices, such as PCs, laptops, media tablets, and smart phones is driving the demand for client computing technologies. Simultaneously, the increasing implementation of new media and communications applications, as well as end user demand for more interactivity and mobility has stimulated a tremendous growth in IP traffic. Therefore, in order to ensure that end users operating these devices have real-time access and connectivity to corporate information, enterprises are making substantial investments in enhancing their network and communications infrastructure. Traditional mainframes and servers still form the nucleus of enterprises ICT infrastructure across South Africa, as they continue to invest around 14% of their hardware budgets in this area. Moreover, sectors like government, retail, and utilities, which require high data processing capabilities, unequivocally rely on mainframes to achieve their desired results. Meanwhile, the growing number of data transactions across major industry verticals such as banking, manufacturing, and media are expected to drive the demand for servers. Hence, Kable expects ample growth opportunity for vendors operating in the server and mainframe market in South Africa. In addition, a decent amount of the hardware budget (11%) is being spent on security, which is expected to increase in the next two years as enterprises increasingly make investments in content and network security, given the rising volume of new devices hitting enterprise networks and the greater levels of risk from advanced persistent threats and other sophisticated cyber attacks. Kable also believes that the increasing penetration of cloud services within South African enterprises is expected to create additional demand for security products.

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2.3

Software budget breakdowns

Spending on software is mainly focussed on software licences and support costs


Figure 11: Average allocation of software budgets in the South African enterprise market

Source: Kable

Table 11: Average allocation of software budgets in the South African enterprise market Areas Software licenses Software vendor's support costs/maintenance Software as a service (Cloud) Other Total
Source: Kable

Average budget (%) 37 29 21 13 100

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According to Kables survey, software forms an integral part of South African enterprise ICT budgets, with almost a quarter of total ICT budgets being allocated here (see table 4). Table 11 shows the breakdown of the average South African enterprises software budget, which is mainly divided across three areas; software licensing, software vendor support/maintenance costs, and SaaS. Kable finds that a major proportion of South African software budgets are spent on buying the licenses (37%) for core business applications, software infrastructure, and information management solutions. In addition, another 29% of the total software budget is attributed towards software vendor support costs/maintenance, in order to ensure that enterprise software is fully operational. The adoption of SaaS is also gaining traction in South Africa, with enterprises of all sizes opting for on-demand software solutions, whereby software applications and the associated data are centrally hosted in the cloud. According to Kables survey, a noticeable portion of the enterprise software budget is being allocated to SaaS (21%), as enterprises in South Africa have started to value the potential of reducing the total cost of ownership of their software. Industries such as retail banking, healthcare, and insurance are the leading adopters of SaaS in South Africa, spending 50%, 32%, and 31% of their software budget in this area respectively. Kable believes that the significant investments in SaaS from these sectors will act as a catalyst for the other verticals to adopt cloud in the coming years.

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The application lifecycle and software infrastructure segments will receive increased allocations
Figure 12: South African enterprises average software budget allocation by technology

Source: Kable

Table 12: South African enterprises average software budget allocation by technology Technology Application Lifecycle Enterprise Applications Information Management IT Management Software Security Software Infrastructure Integration & SOA Other Total
Source: Kable

2012 (%) 17 16 16 14 13 11 10 3 100

2013 (%) 17 17 15 13 13 12 10 3 100

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Kables survey indicates that South African enterprise software budgets are primarily allocated to application lifecycle and enterprise applications, with average allocations of 17% and 16% of the total software budget in 2012 respectively. The growing need of enterprises to modernize their existing applications and the increasing uptake of applications like CRM, ERP and BPM are driving the demand for application lifecycle and enterprise applications in South Africa. This trend is set to continue in 2013, where the total spending on enterprise applications is expected to increase by one percentage point (17% of the total software budget), while investments in application lifecycle are expected to remain similar to that of 2012. South African enterprises have also been allocating a significant proportion of their software budgets to information management (16%) and IT management software (14%) in 2012. However, Kables survey shows that both segments will experience a slight decline (1% each) in investment in 2013. Kables survey also reveals that South African enterprises are allocating 13% of their software budgets on security in 2013, which is a similar level to 2012. The rising number of sophisticated cyber threats and security breaches is compelling South African enterprises to increase their investments in security tools in order to protect their confidential information and data. Moreover, the increasing usage of the wired and wireless internet, smart handheld devices, and the possible rise in the adoption of cloud computing, is forcing enterprises to adopt advanced security solutions, in order to reduce risks and vulnerabilities. The proportion of software budgets allocated to software infrastructure is expected to increase by 1%, with an average of 12% of total software budgets set to be allocated here in 2013, compared to 11% in 2012. However, Integration & SOA is experiencing lower investments compared to other segments, as enterprises in South Africa are reluctant to invest in such solutions in the current economic climate. However, Kable believes that with the rise in enterprises integration complexities, including application -to-application, business-to-business and cloud services, SOA-related investments will gain momentum in the long term.

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2.4

Third party IT Services expenditure

Application development and desktop services are driving the IT services market
Figure 13: South African enterprises average IT services budget allocation

Source: Kable

Table 13: South African enterprises average IT services budget allocation Areas Application development & integration Desktop services & user support Security & privacy services IT consultants and contractors Hosting & data centre services Cloud Services Other Total
Source: Kable

Average budget (%) 20 19 18 15 15 10 3 100

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According to Kables survey, a major proportion of South African enterprises IT services budgets are being allocated to Application development & integration (20% of budgets), followed by Desktop services and user support (19%) and Security services (18%). In addition, IT consultants and hosting services also receive significant portions of the average IT services budget, with both of these categories accounting for 15% of the total IT spending in this area. The data clearly indicates that South African enterprises are highly focused on application development and integration due to the increasing complexity of enterprises businesses . They therefore require new and improved software to manage geographically dispersed locations and to integrate systems to obtain a holistic view of their ICT infrastructure. The demand for new mobility applications is also driving the adoption of application development & integration services. In short, the demand for enhanced applications is high among South African enterprises in order to achieve a competitive advantage in their respective markets. With the constant rise in the mobile workforce and a greater demand for smart devices, South African enterprises are becoming more cautious about the potential threats of security breaches and data theft; not surprisingly, a significant proportion of their IT service budgets is being allocated to tackle issues in these areas. The survey reveals that SMEs are more inclined than large enterprises to spend on security and those sectors like utilities, retail, and education are also heavy investors in this area. South African enterprises are facing challenges around data management, which is driving the demand for hosting and data centre services. Moreover, with organisations looking to improve their operational efficiency and reduce overheads, the adoption of hosting and data centre services is only going to witness an upward trend, primarily driven by SMEs and sectors like education and utilities. Kables survey of the South African enterprise ICT market reveals that a significant portion of budgets are being allocated to IT consultants and contractors, in order to help enterprises smoothly embrace new technologies such as virtualisation, online employee collaboration, mobile computing, Bring Your Own Device (BYOD), and social networking. According to the survey, verticals like energy (33% of IT services budgets) and financial markets (16%) are likely to allocate the most in this area.

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Investment with IT consultants is mainly centred around systems planning and design
Figure 14: South African enterprises average IT consulting services budget allocation

Source: Kable

Table 14: South African enterprises average IT consulting services budget allocation Areas Systems planning & design consulting Training, education and other consulting Disaster recovery & business continuity planning Other Total
Source: Kable

Average budget (%) 35 34 27 4 100

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South African enterprises IT consulting services budgets are primarily spent on Systems planning and design consulting, followed by Training, education and other consulting, and Disaster recovery and business continuity planning. The highest proportion (35%) of consulting budgets is being spent on Systems planning and design consulting, specifically to improve the efficiency and effectiveness of business operations and resource utilization. Meanwhile, 34% of the total average IT consulting budget is allocated to Training, education and other consulting to support various technology implementation processes in enterprises. South African enterprises are focusing on training their IT staff on new technologies, such as enterprise applications and cloud services, in order to exploit these technologies for driving transformation and the productivity of their businesses. It is also noteworthy that SMEs are spending a major proportion of their budgets on training and education services (34%), in an attempt to develop their technical skills and meet the demands of the rapidly changing business environment. Disaster recovery and business continuity planning also holds a significant proportion (27%) of the average IT consulting budget, where the demand is mainly driven by sectors such as utilities (60%), retail banking (37%), and education (34%), which are heavily reliant on data transactions and require higher storage capacities.

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2.5

Telecommunications budget

Telecommunications investment is primarily focused on fixed voice and data networks


Figure 15: South African enterprises average telecommunications budget allocation

Source: Kable

Table 15: South African enterprises average telecommunications budget allocation Segment Fixed voice Data Mobile voice Wireless data Converged voice & data networks Other Total
Source: Kable

Average budget (%) 24 22 19 17 16 2 100

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South Africa has the most developed telecommunications network in Africa, and Kables survey shows that South African enterprises are focusing on providing better connectivity to their employees by strengthening their telecommunications networks, while spending more on voice and data communication solutions from service providers. Table 15 shows that a large proportion of the average South African enterprise telecommunications budget is allocated to fixed voice (24%) and data (22%), in large part due to the high dependence on legacy fixedline infrastructure. Larger investments in fixed voice and data show that organisations of all sizes are focused on strengthening their leased lines, fixed lines, WAN connectivity, and broadband services. Kable therefore sees a huge opportunity for vendors operating in this area. Mobile voice (19%) and wireless data (17%) also share a significant proportion of enterprise telecommunications budgets. With an increasingly remote workforce, the demand for mobile data and voice technologies is also set to increase. To deal with this increasing demand, South African enterprises are willing to raise their expenditure with mobile operators on basic telephony and wireless data services, including 3G mobile, telecommunications and WiFi. The survey data also shows that South African enterprises spend 16% of their total telecommunications budgets on converged voice and data technology. Enterprises, particularly SMEs, are increasingly looking towards this technology as a cost saving measure, in which the traditional voice and data networks are merged into one shared infrastructure, saving approximately 60% on administration and 40-50% on maintenance and operating costs.

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3
3.1

Summary
SMEs are leading the South African ICT sector on a growth trajectory in 2013

South Africa is Africas leading economy, and the country on the continent that is most integrated into the global economy. However, the exposure of the South African economy has meant that it was one of the first African countries to be struck by the global financial downturn - affecting its export, manufacturing, and hospitality sectors. Yet South Africa's ICT sector has remained broadly unaffected, and it is expected to continue to show strong growth in the future due to key competitive advantages specific to the country and the continent. Kables survey reveals that enterprises across South Africa are looking to increase their ICT investments, with SMEs playing a significant role, as they clearly understand the importance of ICT in their business environment. These investments are, however, mostly directed towards improving their traditional ICT infrastructures rather than investing in new technologies. The findings from the survey show that the key drivers for ICT investment remain as operational efficiency, cost optimization, innovation, and customer centricity. According to Kables survey of the South African enterprise ICT market, overall I CT spending in South Africa is expected to increase in 2013 compared to 2012, mainly due to high spending on hardware and mobile communications by enterprises in order to build better ICT infrastructures. Investments in hardware have been at a high level in South Africa, dominated by client computing and network infrastructure investments, whilst software licensing is forming the major part of software budgets. It should come as no surprise that the country that invented touchtone dialling has world-class telecommunications services. According to the survey, South African enterprises are more likely to continue investing in traditional fixed line networks; however, wireless communications and data are also likely to gain prominence with certain increases in the proliferation of mobile devices. The growing availability of wired and wireless access, along with decreasing communications costs, has also been driving sales of notebooks, tablets, and smart phone devices among enterprises of all sizes. Investments in consulting services are gaining importance as enterprises, particularly SMEs, are investing heavily in consulting services to improve the efficiency and effectiveness of business operations and achieve better resource utilization. Cost effectiveness, maintenance, and data storage capabilities are the primary reasons for the penetration of cloud services in South Africa, and Kable expects this trend to increase in the near future as organisations look to increase both profitability and sustainability.

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4.1

Appendix
Definitions

Core areas of enterprise ICT spending


Hardware - includes computer hardware, devices and peripherals e.g. printers, semiconductors, servers and mainframes, storage, telephony infrastructure, data/network infrastructure. Software - includes enterprise applications & Enterprise Resource Planning, software infrastructure (e.g. operating systems, systems management) and information management (e.g. Business Intelligence, content management). Services - includes spending on third party IT services e.g. Application Services, Business Process Outsourcing Services & Infrastructure Services. Communications - relates to all telecommunications costs in the enterprise. This would include both voice and data communications costs (fixed-line telephony, Managed Services, connectivity etc.) as well as mobile telephony and data costs. Consulting - covers professional services spending with third parties e.g. Business and Strategy consulting, IT staff contracting and Technology & Transformation consulting. Other - any other areas not included above, where the external IT budget is spent.

ICT budget by function


Data centre enterprises investment in facilities (in-house and from third parties) providing a secure environment for its computer systems and associated components, including servers & mainframes, telecommunications and data storage systems. Service Desk expenditure on the provision of desktop services that manage an enterprises desktop environment and distributed IT assets. End-user Computing expenditure on end-user computing equipment, including the likes of desktops, laptops and mobile devices. Network investment made in enterprises network infrastructure, including its wide area network (WAN) and local area network (LAN). Applications expenditure on enterprise software and applications either deployed on-premise or supported remotely and delivered as a service. Communications as above, the costs associated with telecommunications in the enterprise, including voice and data communications over fixed and wireless networks. Management expenditure on the enterprise-wide administration of distributed computing systems, including both systems management and network management.

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Hardware budget
Clients covers end user computing devices, including the likes of personal computers and workstations. Mainframes high-end computers used by corporations and governments for critical applications, bulk data processing, and transaction processing. Network and Communications equipment enterprise ICT infrastructure for networking and communications covering the likes of hubs, switches, routers, access points and customer premise equipment. Peripherals covers additional computing devices including printers, phones and adaptors, and scanning and imaging devices. Security covers security hardware and appliances including content-filtering and anti-spam appliances, encryption/SSL accelerators, firewall and VPN gateways, smart card readers, and smart cards. Semiconductors and Processors expenditure on computer chips and processing units. Servers investment made in mid-range and low-end server systems. High-end servers are included in the mainframe category. Storage IT storage infrastructure includes hard-disk drives, NAS filers and gateways, SAN adaptors and connectors, SAN disk arrays, and tape libraries.

Software budget
Application Lifecycle covers Application Development, Application Testing, Architecture and Modelling, Change and Configuration Management, Development Methodologies, Project and Portfolio Management, Requirements Management. Enterprise Applications covers Business Process Management, Commerce Applications, Customer Relationship Management (CRM), Enterprise Resource Planning, Financial Applications, Human Resources and Payroll, Product Lifecycle Management, Supply Chain Management. Information Management covers Business Intelligence, Collaboration and Knowledge Management, Content Management, Data Management, Portals, Search. Integration and SOA covers Application Integration, Data Integration, Legacy Renewal, Middleware, SOA. IT Management Software covers Application Performance Management, Desktop Management, IT Service Management, Network Management, Systems Management. Security covers Application Security, Business Protection, Communication Security, Content and Web Filtering, End-point Security, Identity and Access Management, Information Protection, Network Security, Security Audit and Testing, Security Management. Software Infrastructure covers Application Platforms, Databases, E-mail and Communication Servers, Mobile Platforms, Operating Systems, Storage Management, Virtualization.

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IT Services budget
Application development & integration service expenditure relating to the development of enterprise applications, including the customisation, rationalisation or modernisation of off-the shelf packages, as well as the development of bespoke applications. Integration services cover the planning, design, and building of enterprise applications which automate business processes. Hosting & data centre services Hosting & data centre services include the management and monitoring of an enterprises entire IT platform. As well as covering normal servers, it includes the associated network infrastructure, storage infrastructure, security and systems management software. Security & privacy services Security and privacy services help enterprises protect their IT assets and comply with an increasingly regulated environment. Examples include Threat & Vulnerability Management Services, IT Security Management Services, IT Security Compliance Services, Secure Communications Services and Secure Content Services. Desktop services & user support Desktop services cover the management of an enterprises entire desktop environment and distributed IT assets. User support services give an enterprises IT users a single point of contact for IT issues in the desktop environment. IT consultants & contractors expenditure on third party IT consultants and contractors to undertake IT systems design and implementation projects. Cloud Services expenditure on services made available to enterprises via the Internet from a service providers data centre. This category excludes the allocated cost of the software licence related to such services.

IT Consulting budget
Systems planning & design consulting expenditure with IT services providers relating to both the re-design and overhaul of IT systems, as well as the planning phase relating to IT systems integrations. Disaster recovery & business continuity planning services that help enterprises ensure the continued availability of mission-critical processes and IT resources against potential loss or damage caused by disruptions, disasters or IT security breaches. Training, education and other consulting investment made with IT consultants to provide training and education services to enterprises in-house IT staff.

Telecommunications budget
Fixed voice expenditure on fixed-line communications for voice services, including line rental and call charges. VoIP services are excluded, as well as charges for calls routed within the same WAN. Mobile voice enterprise expenditure on mobile voice telephony services, including monthly subscription costs and voice minutes. Converged voice & data networks expenditure on services that combine voice and data functionality over one network, including voice over IP, MPLS VPN networks, and IP VPN networks (with metered or unmetered voice).

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Wireless data enterprise expenditure on services that involve the transfer of data over wireless networks, including third generation (3G) mobile telecommunications and WiFi. Data expenditure on fixed data services including internet connectivity, leased lines, WAN connectivity and other managed data services such as ATM and Frame Relay.

4.2

Further reading

ICT Procurement trends in South Africa, February 2013 ICT Priorities in South Africa, February 2013 ICT Budget & Staffing trends in Australia, March 2013 ICT Budget & Staffing trends in New Zealand, May 2013 ICT Budget & Staffing trends in the Middle East, April 2013

4.3

Contact the authors

Rajat Saxena, Associate Analyst, t: +91 (40) 3099 0330 rajat.saxena@progressivemediagroup.in

Tim Gower, Research Director, t: +44 (0) 20 7936 6618 tim.gower@progressivemediagroup.com

Your comments, feedback and questions are very important to us and help shape future business direction. To discuss any aspect of this report with the relevant analyst, please contact customerservices@kable.co.uk

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