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Tuesday, July 11, 2006

Services, Scalability, Global Talent & Profitability

Courtesy of Vinnie saw this note on the long tail of the services industry. A Gartner survey finds that the top 6 services companies (Accenture, CSC, EDS, Fijutsu, HP and IBM) combined have only - 21% - market share and a long tail follows. This makes interesting reading given that the big six are seen to be increasingly on shaky grounds. Ofcourse, Accenture keeps reporting good numbers in recent quarters.
Close to Bob Cringley’s insightful assessment of state of things inside IBM, comes the news that IBM has begun shifting executives from its traditional computing business into senior positions in its giant services arm in an effort to inject new momentum into the flagging division. These days, IBMers talk about “productising” services, turning them into clearly defined offerings that can be marketed and delivered in much the same way that new mainframe computers are. Its small and medium-sized business unit, for example, now distributes a catalogue outlining its main services. The emphasis on applying product-style marketing and brand management to services has drawn hardware executives into some key marketing roles in the global technology services unit. Company executives described the unusual injection of hardware talent as an attempt to bring traditional product disciplines to bear on the services business. IBM aims to make services more consistent and “repeatable” by designing standardised processes that could be delivered in a uniform way around the world. Traditional product management disciplines have also been used to identify new markets and to design and market services to take advantage of these opportunities. The shift in focus represented a move to turn services into a global operation to match IBM’s other product-based units. Turning services, which by definition are delivered by people, into repeatable processes where IBM can get economies of scale, amounts to an organisational and cultural overhaul of significant scale. Its not only for IBM – The other big name – HP is struggling in its service business. It finds that big deals are hard to manage and that digesting a large number of deals can hurt earnings and that aggressive top-line growth happens at the expense of profitability. HP now believes that focusing on the smaller deals could be a winning strategy.
As I see it the services landscsape is indeed becoming ripe for a major change. Come to think of it - substitute IBM with any other known name from consulting & services industry – would it look any different –unlikely barring a few.(I do know of a few really having different models, metrics and approach). 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.

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