DOMESTIC I/T SERVICES MARKETS
WHERE ARE THEY HEADED
THOUGHTS ON THE TOPIC
BY
WALTER BROWN
I RECENTLY PARTICIPATED IN A PANEL DISCUSSION ON THE FUTURE OF OUR DOMESTIC I/T SERVICES MARKET, WHICH MOTIVATED ME TO THINK THROUGH THE LESSONS OF MY LONG EXPERIENCE IN THIS SPACE WITH A GOAL OF ENVISIONING TOMORROW'S MARKET. HERE ARE THE RESULTS OF THAT EFFORT.
THE YEAR THIS MARKET WILL FINALLY RETURN, RIGHT?
RECENT ECONOMIC PUNDITS HAVE FINALLY BEGUN TO PREDICT THE RETURN OF BUSINESS SPENDING FOR I/T, PROJECTING A STEADY INCREASE FOR THE SECTOR IN THE MONTHS AHEAD. SO LET'S ASSUME THAT THEY ARE RIGHT.
BUT WHAT DOES IT MEAN TO THE AVERAGE I/T SERVICES VENDOR, ESPECIALLY TO A PRIVATELY OWNED VENDOR WITH MODEST REVENUES (UNDER FIFTY MILLION ANNUALIZED)?
MOST OF THE VENDORS I KNOW ARE HOPING IT MEANS THE RETURN OF ENOUGH DEMAND TO RESUME GROWTH, IF NOT A RETURN TO THE BOOM TIMES OF THE LATE NINETIES.
SINCE NEARLY ALL OF THEM HAVE CUT EXPENSES TO THE BONE DURING THIS LONG MARKET DOWNTURN, THEY EXPECT TO SEE SOLID PROFITS APPEAR AND, HOPEFULLY, TO SEE THEIR ASSET VALUES TO RISE ACCORDINGLY.
AND, SINCE SPENDING FOR I/T OVERALL DID NOT REALLY SHRINK DURING THE LAST THREE YEARS, AN UPWARD TREND FROM THIS POINT CONTAINS SEEDS OF GREAT PROMISE FOR ITS VENDORS.
BUT WILL A REFRESHED MARKET BE FAMILIAR, OR HAS IT EXPERIENCED FUNDAMENTAL CHANGES?
WHAT IN THE WORLD HAS BEEN HAPPENING TO OUR MARKETPLACE?
ALL EVIDENCE POINTS TO SEVERAL MAJOR CHANGES, WHICH COLLECTIVELY AMOUNT TO A VIRTUAL ‘SEA CHANGE'. HERE ARE THE MOST SIGNIFICANT OF THOSE CHANGES, IN MY OPINION.
I/T AS A WORLD WIDE TALENT POOL
UNTIL THE LAST FEW YEARS I/T TALENT WAS DRAWN MOSTLY FROM LOCAL SOURCES, GENERALLY WITHIN A GIVEN METROPOLITAN AREA. SO, FOR EXAMPLE, IN THE WORLD'S LARGEST I/T SERVICES MARKET (NEW YORK METRO) A MANHATTAN BUYER OF I/T TALENT WOULD EXPECT TO BUY, OR RENT, NEARLY ALL OF THE TALENT NEEDED FROM NEW YORK CITY'S METRO AREA – MANHATTAN, LONG ISLAND, SOUTHERN CONNECTICUT, AND NORTHERN NEW JERSEY.
TODAY, ENABLED BY TECHNOLOGY AND BY A WORLD WIDE ECONOMY , THAT SAME BUYER CAN CONTRACT FOR I/T TALENT ANYWHERE IN THE WORLD, ALTHOUGH MOST OFFSHORE TALENT WILL LIKELY WORK OFFSHORE, UTILIZING A LIAISON STRUCTURE TO INTERFACE WITH BUYER'S LOCAL PERSONNEL.
WHILE SUCH STRUCTURES ARE RELATIVELY NEW, AND HAVE BEEN UNEVEN IN OUTCOME, QUALITY IS IMPROVING RAPIDLY, AT LEAST FOR CERTAIN CATEGORIES OF WORK – CODING AND TESTING PERSONNEL OR HELP DESK RESOURCES, FOR EXAMPLE.
AS A CONSEQUENCE LARGE BUYERS OF I/T SERVICES ARE DISCOVERING THAT THEY CAN SUCCESSFULLY EMPLOY THE LOWEST COST SUPPLIERS OF I/T TALENT ACROSS THE WORLD.
WHICH CHANGES THE GAME FOREVER!
I/T AS A COMPONENT OF THE SUPPLY CHAIN REVOLUTION
AS MOST OF US KNOW FROM DEALING WITH ENTERPRISE CLASS CLIENTS, A WORLD WIDE SUPPLY CHAIN REVOLUTION HAS BEEN UNDERWAY FOR AT LEAST A DECADE, DRIVEN BY MANY FACTORS INCLUDING THE NEED TO COMPETE IN A WORLD MARKET, AND ENABLED BY CONTINUING PROGRESS IN COMPUTING POWER AND SOFTWARE.
IN RECENT YEARS THIS SUPPLY CHAIN REVOLUTION HAS CONSUMED EVERYTHING IN ITS PATH, FROM MANUFACTURING TO ASSEMBLY TO DISTRIBUTION OF GOODS; AND MORE RECENTLY TO A WIDE RANGE OF SERVICES, AMONG WHICH IS I/T TALENT, WHETHER PURCHASED OR RENTED AND WHETHER CONTRACTED AS INDIVIDUAL TALENT OR AS END PRODUCT DELIVERABLES.
EXAMPLES OF A SUPPLY CHAIN REVOLUTION IN THE SERVICES SECTOR ABOUND – FROM ELECTRONIC AUCTION OF ALL KINDS OF GOODS TO TWENTY FOUR BY SEVEN DEVELOPMENT OF APPLICATION SOFTWARE.
INTERNET AS THE GREAT ENABLER
IT IS NOT NEWS THAT THE SINGULAR TECHNOLOGY FACTOR IN ENABLING MUCH OF THESE WORLD WIDE PHENOMENA IS THE INTERNET – A ‘UNIVERSAL SOCKET' OF CONNECTIVITY THAT HAD BEEN KEPT WAITING ACROSS SEVERAL DECADES OF COMPUTING PROGRESS.
AND, WHILE THE INTERNET IS ENABLING OUR CLIENTS TO INTRODUCE SUBSTANTIAL NEW COMPETITION TO LOCAL MARKETS, IN THE END ALMOST ALL TRUE PROGRESS IS GOOD. AND THIS PROGRESS IS NOT LIKELY TO BE THE EXCEPTION.
SUPPLY/DEMAND EQUATION AS THE ESSENTIAL METRIC
IT REMAINS TRUE THAT, GIVEN ANY DEMAND FOR A SPECIFIC KIND OF I/T SERVICE, THE AVAILABLE SUPPLY OF THAT SERVICE WILL DICTATE THE OUTCOME. WHICH MEANS THAT I/T SERVICE VENDORS NEED A FAVORABLE (TO THEM) SUPPLY/DEMAND EQUATION IN ORDER TO PROSPER AND GROW.
AND NOTHING CITED ABOVE CHANGES THAT FACT – ONLY THE ‘SUPPLY COMPONENTS' THAT EFFECT TODAY'S EQUATION.
MOST INDICATIONS ARE THAT I/T'S SUPPLY/DEMAND EQUATION ON A WORLD WIDE BASIS IS LIKELY TO REMAIN FAVORABLE (TO SUPPLIERS) FOR THE NEXT DECADE, DRIVEN AS ALWAYS BY CONTINUAL CHANGE IN COMPUTING ENVIRONMENTS – PROVIDED THAT ONE IS SMART (OR LUCKY) ENOUGH TO SPECIALIZE IN HOT SKILLS AND SERVICES THAT HAVE NOT BEEN COMMODITIZED.
IF THE WORLD CHANGES THEN SO MUST WE
THE QUESTION IS, HOW SHOULD WE CHANGE IN ORDER TO PROSPER FROM THE CHANGES CITED ABOVE. HERE ARE A FEW RECOMMENDATIONS.
SEPARATING FROM YOUR COMPETITION – DIFFERENTIATION IS ESSENTIAL
FOR SEVERAL DECADES, CULMINATING IN THE LATE NINETIES, AN I/T SERVICES VENDOR COULD PROSPER MOSTLY BY SHOWING UP AND SHOWING SOME COMPETENCE. AND THAT WORLD ENDED, MAYBE FOREVER, SHORTLY AFTER Y2K.
TODAY ALMOST ALL I/T SERVICES VENDORS ARE STRUGGLING TO KEEP FROM SHRINKING, SOMETHING THEY HAVE BEEN DOING SINCE END OF Y2K. MOST OF THEM HAVE SEEN CUMULATIVE REVENUE SHRINKAGE OF AT LEAST THIRTY PERCENT, AND FREQUENTLY AS MUCH AS FIFTY PERCENT, FROM THEIR HIGH WATER MARK. OF COURSE THEIR OPERATING PROFITS HAVE SHRUNK AT LEAST PROPORTIONATELY AND OFTEN MUCH FURTHER.
THE EXCEPTIONS, ESPECIALLY AMONG SMALLER FIRMS (UNDER FIFTY MILLION IN ANNUAL REVENUES) ARE THOSE FIRMS THAT HAVE CLEARLY DIFFERENTIATED THEIR SERVICES, ESPECIALLY INTO SPACE THAT IS IN REASONABLE DEMAND. BUT THE KEY IS TO BE CLEARLY MARKED BY BUYERS AS PROVIDING WELL DIFFERENTIATED SERVICES.
WHICH MEANS THAT A SMALLER FIRM CANNOT EASILY CLAIM TO OFFER A ‘FULL MENU' OF SERVICES, AT LEAST NOT TO ITS ENTERPRISE CLIENTS, WITHOUT BEING ASSIGNED TO ‘HERD' STATUS AND TREATED ACCORDINGLY.
HERE ARE A FEW EXAMPLES FOR CLARIFICATION.
YOU ARE PROBABLY WELL DIFFERENTIATED IF YOUR FIRM PROVIDES
SPECIFIC INDUSTRY EXPERTISE
SPECIFIC APPLICATION EXPERTISE
SPECIFIC TECHNOLOGY EXPERTISE (PROVIDED THAT IT IS ONE OR TWO TECHNOLOGIES AND NOT A MENU OF TECHNOLOGIES)
HIGH END TALENT (IN VIRTUALLY ANY CATEGORY HIGH END TALENT REMAINS SCARCE).
BUT YOU ARE PROBABLY NOT WELL ENOUGH DIFFERENTIATED IF YOUR FIRM PROVIDES
PROJECT SERVICES (UNLESS SUCH SERVICES ARE ROOTED IN SOME SPECIFIC EXPERTISE SUCH AS INDUSTRY OR APPLICATION OR TECHNOLOGY)
FULL MENU SERVICES (UNLESS YOU ARE TAKING YOUR MENU ‘DOWN MARKET' TO MIDDLE TIER CLIENTS)
LOW END TALENT (GENERALLY DEFINED AS TALENT WITH LOWER TIER BILL RATES)
SERVICES THAT SIMPLY REFLECT THE LATEST JOB POSTINGS OR ‘HOT SKILLS' (BECAUSE YOUR COMPETITORS ARE ALL OVER THE AVAILABLE TALENT POOL).
A RESPONSE TO WORLD WIDE COMPETITION IS ESSENTIAL
BY EMBRACING IT
TODAY NEARLY ALL ENTERPRISE CLIENTS ARE USING OR PLANNING TO USE OFFSHORE TALENT AS A COMPONENT OF THEIR TALENT POOL, WITH MANY OF THEM BEING DIRECTED TO USE SUCH TALENT IN GROWING PROPORTIONS.
SO A SMALL I/T SERVICES VENDOR MUST REACT IN SOME WAY, TYPICALLY BY MAKING AN ALLIANCE WITH AN OFFSHORE VENDOR, SOMETIMES BY SPECIALIZING IN ‘OFFSHORE LIAISON SERVICES', RARELY BY FORMING A CAPTIVE OFFSHORE TALENT POOL.
OR BY AVOIDING IT
SOME ARE EVEN IGNORING THE TOPIC, E.G., NOT OFFERING ANY SOLUTION. WHICH SEEMS A SHORT SITED STRATEGY, AND PERHAPS IS INTENDED AS SUCH.
BUT ANYONE WHO ASSUMES THAT I/T TALENT WILL NOT BE INCREASINGLY SUPPLIED FROM A WORLD WIDE TALENT POOL THAT ENABLES AT LEAST ENTERPRISE CLASS BUYERS TO UTILIZE LOWEST COST PROVIDERS, IS BEING WISHFUL.
HOWEVER, NOT ALL I/T TALENT OR PROJECTS CAN BE EFFECTIVELY SUPPLIED BY OFFSHORE RESOURCES. IN FACT THE EVIDENCE IS THAT MOST TALENT WILL REMAIN LOCAL, INCLUDING TALENT RENTED AND PROJECTS OUTSOURCED. THE TRICK IS TO DISCOVER WHAT IS LIKELY TO REMAIN LOCAL, AND CONCENTRATE YOUR SERVICES ACCORDINGLY.
AND THE MOST COMMON KEY TO SUCH DISCOVERY IS YOUR ENTERPRISE CLIENTS WHO, IF ASKED, ARE OFTEN WILLING TO SHARE THAT INFORMATION. SO WHY NOT INSIST THAT YOUR FIELD SALES FORCE RESEARCH AND REPORT ON THIS TOPIC BY MEANS OF REGULAR POLLING. SOURCES TO ASK WOULD INCLUDE INDIVIDUAL BUYERS, YOUR OWN PERSONNEL ON SITE, TALENT INTERVIEWED FOR EMPLOYMENT, AND EVEN YOUR LOCAL COMPETITORS ON OCCASION.
AVOID THE COMMODITY BUSINESS
UNLESS YOU CAN SOLVE THE HIGH VOLUME/LOW TOUCH EQUATION REQUIRED TO OPERATE SUCCESSFULLY IN THAT ENVIRONMENT. WHICH IS GENERALLY THE PROVINCE OF YOUR LARGER, MULTI BRANCH COMPETITORS. WHO ARE ALSO CHALLENGED TO MAKE ANY REAL PROFIT IN THIS SEGMENT OF THE MARKET.
CAPTURE & KEEP YOUR INTELLECTUAL CAPITAL
IN MANY I/T SERVICES FIRMS, THE ‘INTELLECTUAL CAPITAL', I.E., THE CORE COMPETENCIES (SKILLS AND KNOWLEDGE) LEAVE THE BUILDING EVERY EVENING.
SO THE MOST ENLIGHTENED OF THESE FIRMS INVEST IN ‘INSTITUTIONALIZING' THEIR CORE COMPETENCIES – BY MEANS OF EMPLOYEE CROSS TRAINING, SERIOUS DOCUMENTING OF CORE PROCESSES AND PROCEDURES, AND MORE.
AND THE DIFFERENCE BETWEEN THE FIRMS WHO INVEST AND THOSE WHO DO NOT IS TANTAMOUNT TO DIVIDING THE EVENTUAL WINNERS FROM THE EVENTUAL LOSERS.
INVEST IN THE LONGER VIEW
THE I/T SERVICES INDUSTRY, ESPECIALLY ITS STAFF AUGMENTATION COMPONENT, WAS BUILT BY PEOPLE WHO WERE VERY STRONG AT DAY TO DAY TACTICAL EXECUTION. AND SUCH PEOPLE GREW THEIR FIRMS SUCCESSFULLY AND PROSPERED.
BUT ONE OF THE MOST SIGNIFICANT CHANGES TO THIS INDUSTRY SPACE IS THE NEED TO THINK BEYOND THE SHORT TERM. AND SLOWLY BUT SURELY THE SURVIVORS ARE BEGINNING TO DO WHAT IS REQUIRED, NAMELY TO
EXECUTE SHORT TERM BUT THINK LONGER TERM.
AND THIS CRITICAL DIFFERENCE IS ALSO LIKELY TO DIVIDE THE EVENTUAL WINNERS FROM THE EVENTUAL LOSERS.
RECAP
FOR THOSE WHO WANT THE CLIFF NOTES, HERE THEY ARE.
WHAT IS HAPPENING
• WORLD WIDE TALENT POOL IS EMERGING
• AS PART OF THE WORLD WIDE SUPPLY CHAIN REVOLUTION
• ENABLED BY THE CONTINUING COMPUTING & COMMUNICATION EVOLUTION
• SUPPLY/DEMAND EQUATION IS STILL THE KEY METRIC TO WATCH
• WHICH STILL LOOKS FAVORABLE FOR I/T SERVICES VENDORS
HOW WE MUST CHANGE
• SEPARATE FROM THE HERD
• RESPOND TO THE WORLD WIDE TALENT POOL BY
- EMBRACING IT (ACQUIRE LOW COST CAPABILITY) AND/OR
- AVOIDING IT (SEEK THE WORK THAT WILL NOT LIKELY GO OFFSHORE)
• AVOID THE COMMODITY BUSINESS (UNLESS YOU CAN SOLVE THE HIGH VOLUME/LOW TOUCH EQUATION)
• CAPTURE & KEEP YOUR INTELLECTUAL CAPITAL
• INVEST IN THE LONGER VIEW (EXECUTE SHORT TERM, BUT THINK LONG TERM)
WHAT THE FUTURE HOLDS
• CONSTANT CHANGE – DOORS OPENING & DOORS CLOSING
• RELIABLE CASH ENGINE FOR WELL POSITIONED VENDORS
• BUT UNCERTAIN ASSET VALUES
• OVERALL, A BRIGHTER FUTURE THAN WE HAVE YET SEEN IN THIS NEW DECADE. |
