Mike Anstee warns of the dangers of continual restructuring for industry software suppliers

' When preparing this piece I was going to say that consolidation of the UK insurance sector was probably complete.

What I should say is that I hope that we have seen the last of the major consolidations in the market.

My reasons for this are quite simple.

As an industry we have spent the past five years wrestling with the fall-out of insurer and broker mergers, takeovers and reverse takeovers.

Whereas neither insurer nor broker consolidation has had a direct adverse impact on end customers, there has clearly been an adverse effect on the supply chain, and it is in this area that we have yet to see the final impacts.

The software suppliers to the industry have not escaped. How are they coping and has their own consolidation benefited the industry?

Consolidation itself is not necessarily a bad thing. Although it leads to a reduction in customers, there is always the opportunity to increase the number of users of a system or service. The new larger customers have more purchasing power, which should lead to increased healthy competition.

The biggest impact of industry consolidation has been the need to focus on merging staff, processes and systems.

This has led to stagnation in software development in-house, decreased appetite for purchasing new products and a reduction (or removal) of research and development budgets. The emphasis has been on cost-cutting and outsourcing.

This has been going on for too long and has damaged the overall software capability in the industry.

In order to try to remain competitive there have been a number of consolidations in the software industry over recent years.

These have been driven by scale, acquisition of user base, removal of a competitor and the push to reduce cost base through rationalisation of products and services. The desire to buy a superior product has seldom been a driver.

Many providers have found themselves unable to realise the benefits and take the necessary cost out of the new enlarged business.

Consequently there have been low levels of investment in new products by many software vendors. This in turn has left them even more vulnerable to reducing income.

In order to maintain or maximise profit some have sacked their sales forces, retrenched on development and service support or even resold the business. This has left many customers with ageing systems, no future upgrade path and the prospect of a worsening competitive position vis-à-vis their competitors.

Today, we have a number of software suppliers still up for sale and many others facing the prospect of scaling back over the years. There are some suppliers with up-to-date products that continue to invest in development, but usually on the back of sales outside the UK.

Let us hope that when the industry is ready to start looking forward and investing in new systems again we will still have a robust software industry capable of delivering its needs. IT

' Mike Anstee is a director of Hindsight Partnership and a non-executive director of Sirius Financial Solutions