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Friday, May 04, 2007

IBM’s LEAN Initiative & The Changing Global Services Landscape -Part II

This is a continuation of Bob Cringley's latest post on IBM.
Any change is painful - massive change would bring out more massive upheavels - this is true of all organizations around the world. I have no idea whether Bob's information is right or not - am assuming that he has all the facts with him. Since it aligns with general news that we hear in the marketplace, it is worth examining the changing marketplace and leave it for readers to assess if IBM is indeed making the right moves.
Recent studies of the global services market clearly rank IBM Global Services as the he largest services vendor in the world – a position it has held for more than a decade. It reportedly reported $48bn in sales in 2006 - this is more than double that of its closest competitor EDS, with $21.3bn. IBM’s individual market share stood at 8.7%, and the services market is highly fragmented. The point to note here is that IBM’s top line rose by just 1.8% last year, a consequence of slow contract signings in previous years. In contrast, some of IBM’s closest competitors – notably EDS, Fujitsu and Capgemini - reaped the benefits of successful restructuring programs during the last few years to return healthy growth rates of 7.6%, 8.3% and 10.3% respectively.

To understand the way the top 50 service players are executing lets looks at this - The top 50 IT services vendors employed 1.7 million employees at the end of their most recent reported financial years. This is almost an increase of 13% of the comparable total of 1.5 million from the previous year. Much of this growth has been driven by the major offshore sourcing suppliers, with the top five players adding 88,000 new staff last year taking their combined total headcount to 307,500. TCS, Wipro, Infosys, Satyam and Cognizant are poised to add a further 100,000 new recruits between them in fiscal 2007. Its just not the scale that matters alone. I firmly believe that investments make the difference in securing the future of service players. The whole service industry and enterprise software industry plays on the customer inertia and lack of an alternative. Whats that disruptive model that would shake up the services industry – clearly offshoring played that role to an extent but the laggards seem to be catching up here/atleast make up an appearance of catching up. Seen from a service industry perspective, next technology breakthrough heralding new opportunity could help them rejig their model – like what BPR/ERP wave did earlier or the dot com era – SOA is still many years down the line. Seen from a customer perspective, how does one lock themselves out of this ? Seen from an investor perspective, how to value service companies where increasingly the differentiation factors seem to be just the scale and historical presence.These are definitely key concerns. Innovation inside consulting and service organization needs a different mindset to foster and manage - clerical approach shall have deleterious effects.
The key thing would be to see the level of innovation and differentiable IP’s that service firms can showcase – this needs to be tied to increased productivity and reduced cost for customers. Ultimately, service players that have invested in emerging areas well ahead and in right measures, stayed close to customers, and focused on efficient execution are well positioned to capitalize on the market as it improves. Companies that will succeed in the services market going forward will be those that embrace the evolution of the software environment, collaborate closely with partners and customers, possess a strong understanding of industry-specific business processes, and have a mature and seamless global delivery capability – all these are achievable only by making right quantum of focused investments in the right direction at the right time. So, if you want to see where the well established service firms are headed – I would think look at their business model, closely scrutinize the investments that are being made – the quantum & nature of such investments. All other things being equal, this would make the difference between winners and laggards. IBM's reported move as spelt out by Cringley shold be seen against this background of global change and challenges that service players face moving forward.

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