What challenges lie in store for UK IT in 2005?

The biggest objective for the IT industry this year will be to continue the solid progress of 2004. Nobody wants surprises, and everybody accepts that the days of industry-wide double-digit growth are in the past. The challenge is to do the straightforward things well, and to identify the emerging technologies that can deliver the greatest benefits to business and government.

Computing looks ahead to the themes and challenges that will be hitting the headlines this year.

Five key themes for 2005

Innovation

For years, the IT world has been obsessed with 'the next big thing' as the driver of growth. But this year, expect a change. There are many 'big things' in technology that are well-proven but not yet widely used, and the focus for 2005 will be on finding innovative ways to improve businesses and public services through the application of these technologies (see below). Most major suppliers will be using innovation as a big part of their sales pitch. Chancellor Gordon Brown has identified innovation in science and technology as vital to the UK's economic future, and the measures he is putting in place will need to start delivering in 2005.

Skills

It is time the IT community stopped moaning about 'skills shortages' and started putting in place an environment that will allow the UK to develop the skills we need to compete with the fast-growing economies of China and India. The Sector Skills Agreement from e-skills UK will be vital to achieving that goal - it kicks off in April and will need active support from government, employers and educators. But in 2005 the IT industry has to take its fundamental staffing problems seriously. Offshore outsourcing is far less of a threat to UK IT than the lack of older people and women. We need a diverse workforce that can make IT an aspirational, exciting career that retains its talent and attracts school children and students.

'Small' businesses

Small and medium-sized businesses will be a key target for IT suppliers in 2005. The large corporate market is increasingly saturated and opportunities for growth are harder to come by. But among the next tier - typically organisations with less than 1000 employees - there is huge scope for technology to improve productivity and increase profits. Just don't call them small businesses. These are companies that see themselves as specialist or niche, and many have no desire to become a billion-dollar multinational corporation. This sector will be a major engine for growth in 2005.

Consolidation

Last month alone, IBM sold its PC businesses to China, Oracle bought PeopleSoft for $10.3bn, and Symantec acquired Veritas for $13.5bn. Every month in 2004 there was news of a new merger or acquisition - the number of deals is likely to have outstripped even the peaks of the dot com boom. The IT industry is reshaping itself, and only the large or the specialised will survive. There will be no let up in 2005. A quick glance across the sector shows well-known names that may be vulnerable to predators - Siebel, BEA, EDS, and others. IT directors will increasingly opt for the biggest, safest vendors to protect from the risk of important suppliers being taken over.

Corporate governance

Sorry, but it's not going away. The mountain of regulation and legislation hitting UK businesses has been a headache for IT directors throughout 2004. Sarbanes-Oxley, Basel II, International Accounting Standards - even the public sector now has the Freedom of Information Act to cope with. But forward-thinking IT directors are already realising that governance can have its benefits - it's an opportunity to review and overhaul key processes and introduce disciplines that can improve the efficiency of IT across the organisation.

Five technologies to watch in 2005

Voice-over IP

VoIP started to come of age in 2004 and for many organisations it will be a no-brainer for investment in 2005. This is a technology that offers the potential for fast cost savings - rip out that old telephone exchange, and use your existing data network instead - but also offers new possibilities for improving the way staff work.

Mobility

Work-life balance is a growing issue for employers, and one to which technologies such as broadband and wireless communications are ideally suited. The growth in sales of PDAs and smartphones will continue, and the mobile operators will be pushing 3G services hard. Greater staff mobility means greater productivity too - just be careful it doesn't mean you're never allowed to switch off.

RFID

This month, the top 100 suppliers to US retail giant Wal-Mart start labelling deliveries with radio frequency identification (RFID) tags - and where Wal-Mart goes, the rest follows. RFID promises enormous cost savings and efficiency gains for high-volume supply chains, and could one day eliminate queuing for consumers. In the UK, Tesco, Asda and Marks & Spencer will continue trials and other major companies are likely to follow.

Utility computing

Nobody is going to turn IT into a pay-as-you-go utility in 2005, but leading edge companies are moving towards an on-demand infrastructure and many of the enabling technologies will be put in place this year. Tools such as storage virtualisation, grid computing and web services will be more widely deployed, and major vendors will devise new commercial terms to move towards utility-style pricing structures.

Security

IT security became a matter of national debate in 2004, and will continue to be a high priority for IT directors this year. The threat is changing as organised criminals move to the internet, and vendors will have to devise more proactive approaches to help organisations protect their infrastructure. Effective education of home computer users will be vital to help guard against risks such as phishing and identity theft.

Five IT challenges for government in 2005

ID cards

With an election expected this year, identity cards will be a hot political issue as well as the government's biggest technology challenge. It is too early to say whether David Blunkett's departure as Home Secretary will diminish the resolve to push through the project he championed so strongly. But the early stages of planning and implementing the National Identity Register will start in 2005, and key decisions will have to be made on biometric technologies.

NHS

The £6bn National Programme for NHS IT continues this year and faces its biggest test as the first systems start to go live. There are many sceptics waiting to say 'I told you so' if it all goes wrong. But the success of the programme is vital for us all - to improve service to us as patients, to prove the IT industry's capability to deliver such an enormous project, and for all working in IT to demonstrate that technology can support fundamental change. The challenges are great - we're still hoping they will be met.

Efficiency Review

Chancellor Gordon Brown's aim for huge civil service job cuts and efficiency improvements are a key factor in his economic planning. Review author Sir Peter Gershon tries to play down the role of IT in achieving the efficiency targets, but the goals will not be achieved without successfully completing numerous IT initiatives across Whitehall, many of which are already underway. The Office of Government Commerce will be under scrutiny as it tries to oversee departments' plans to achieve the Review objectives, while trying to enforce its Gateway monitoring process on the supporting IT projects.

Data Debate

We will continue our campaign for a review of the many, overlapping government database projects. The National Identity Register, NHS electronic patient records, the children database, the deaths database, and several others all risk problems in managing, using and controlling personal information about all UK citizens. Head of egovernment Ian Watmore has already pledged his support, and we're hoping he will lead a new approach to managing identity across the public sector - one that could have important knock-on benefits for tackling identity theft in the commercial world as well.

No more failures

There are many large-scale government IT systems that work perfectly well, day after day, without any publicity. But when one goes wrong - it hits the headlines nationwide. Lingering sores such as the Child Support Agency system have to be resolved. Foolish mistakes such as the Department of Work and Pensions PC network crash must be avoided. Tony Blair's reform agenda - and hence much of his election manifesto - is heavily dependent on IT systems, and every problem undermines confidence in Whitehall's ability to deliver. Ian Watmore and the chief information officers now in place in the major departments will have plenty to do this year.

Industry leaders' predictions for 2005

Duncan Mitchell, Managing director UK & Ireland, Cisco Systems Corporate governance and shareholder pressures were top of mind in 2004 and businesses will continue to invest in technologies which help solve these issues. The focus on 'doing more with what you have' may linger, but businesses will continue to take advantage of increasingly powerful applications enabled by greater connectivity.

Ian Smith, Managing director, Oracle UK By harnessing the latest innovations in IT, and taking a shared approach to the skills gap through partnerships with schools, universities and venture capitalists, UK plc will grasp the opportunity to become the economic tiger of the Western world. IT vendors have the shared responsibility to help make that a reality.

Alistair Baker Managing director, Microsoft UK 2005 will see the next wave of technology innovation, as digital media, 3G, and VoIP move more into the mainstream. But 2005 also holds challenges managing risk. Driving value rather than negotiating cost will be critical in making technology work for business. The world of the CIO is going to get a lot tougher as business demands accelerate.

Leslie Stretch, Managing director, Sun Microsystems UK

Last year I said that IT was finally being used to solve the really big problems that surround us in the UK and that Sun's resolution was to constantly question conventional wisdom and methods. For 2005 I see more progress. The government and business will continue to network the economy, citizens and employees.

Steve Gill, Managing director, HP UK and Ireland With an expanding service sector, near full employment and continued growth in UK consumer spending during 2005, the prospects for IT are good. There is no doubt competition will continue to get tougher, so the challenge is to balance a competitive cost model with flexibility to offer the best solution in terms of overall value.

Graham Kingsmill, Managing director, SAP UK & Ireland More demanding governance, the need to continually reduce operating cost and an ever more demanding and empowered customer will make 2005 extremely tough for all but the best-run organisations. Effective alignment and execution of business and technology strategies will be critical to success.

Bill Morrow, Chief executive, Vodafone UK 2004 was about getting people excited again about what mobile technology can do. We've all spent a lot of valuable time learning how people use these services in the real world. Customers want someone to take care of the service whilst working closely with them on development and plans moving forward.

Bill Rodrigues, general manager, Dell UK Security, mobile working and regulatory compliance have moved further up the agenda, and this will continue in 2005. Small to medium businesses will increase the amount they invest in technology as their needs and infrastructures become more sophisticated. Business plans and IT strategies will begin to work in tandem so true return on investment is realised.