My prior posting laid out the premise that CIOs look at the IT Services & Outsourcing industry today in three different ways. Part 1 of the 3-part story wasn't particularly revolutionary. It assessed the appetite for transformation-oriented, integration-heavy, services.
In that posting I said that there were really only five service providers that are considered "up to the challenge" of implementing a holistic transformation for a client. (Actually, I initially wrote that there were four, but I revised my assessment!) In my opinion, these are: Accenture, CapGemini, CSC, HP, and IBM.
Those five companies can marshal the technological, business process, financial, and domain expertise required to bite off a big change program. That's how I think CIOs look at the market.
Classification #2 is what I call the wage-oriented segment of the IT Services & Outsourcing market. I can count over a dozen high-credible service provider who go-to-market as a provider of lower-cost expertise provided via remote delivery models. Of interest, I think that only CSC and Accenture are among the "Transformational Five" that also serve the wage-oriented demands.
I've come to learn (and appreciate) that the companies in the business of wage-oriented services are quite capable organizations. They typically excel at knowledge transfer, process standardization, and automation. Simply said, these providers can industrialize a repeatable task. Don't ask for break-through improvements or holistic reengineering, but the benefits of high-quality production can be considerable.
For many CIOs who aren't looking for transformation, the existence of a healthy ecosystem of wage-oriented providers has been a blessing. Much of the cost-management that occurred over the past 5 years was achieved through effective use of offshoring - via Captive Centers and outsourcing.
In fact, to many traditional ITO providers it seemed that the ability to leverage wages was the CIO's alternative to outsourcing. Why go through a long and cumbersome contracting process when you could get the benefit of wage arbitrage relatively quickly and with less disruption?
Well, just as the market for big transformational sourcing initiatives has been challenged by the economy and the capacity for large change programs, the market for wage-oriented sourcing has experienced its own stress. Considered by many CIOs as being more variable than domestic employees, some offshore initiatives saw contraction during the recession. Certainly, we saw a reduction in discretionary project work.
Some analysts are asking if the runway for wage-oriented sourcing is exhausted. I think no, but I think the maneuvering space is much smaller. Offshore sourcing is here to stay as a tool for the CIO, and the universe of providers in this segment will remain rich in numbers. Their profit margins might not remain as healthy as the past, but the business model is proven and the economic flow is considerable.
If you buy into my premise that a CIO looks into the industry through a different lens for transformational services than he/she does for wage-oriented services, then you might be asking what's driving some of the M&A we've seen recently. Where to Dell and Xeros fit in this profile?
That question is answered through the third dimension of the industry landscape. For, as we enter 2010 and hear the incessant buzz from the clouds of innovation (pun intended), the CIO has an entirely different set of Providers from which to choose when it come sot managed services.
Up next: component-oriented sourcing.
Tuesday, November 24, 2009
Tuesday, November 10, 2009
Through the Lens of a CIO: Transformation-Oriented Industry Segment
I promised to share a snapshot of how I think CIOs are looking at the IT Services & Outsourcing industry. It's a three-part story, and I want to start with the tip of the proverbial iceburg.
Today's summation will feel like old news, but I think it is best considered in the conext of the next two chapters.
On those occasions when the senior leadership of a business concludes that "transformation" is required - that is, fundamental and substantial restructuring of the business support functions, typically driven by specified changes to the top-line characteristics of the business (like markets, product offerings, customers, etc.) - a CIO looks into the IT Services market for service providers that carry distinct attributes.
Transformation agendas demand solutions that blend technology and business process changes. Commonly, they require deep industry expertise. They are complex initiatives that draw upon the most mature of industry leaders. To some observers, the relationships formed around a transformationally-oriented agenda are the increasingly rare contracts valued at hundreds of millions of dollars. To me, the contract values are of lesser significance than the long-term implications of "managed change" and shared risk implied by this sort of relationship.
The buyers of transformation sourcing tend to be companies at the larger end of the complexity spectrum, and those that perceive the magnitude of change to be greatest. Sometimes the change is driven by relatively significant declines in traditional business volumes, sometimes its driven by the need to reinvent the business in a fundamental manner, and sometimes it's motivated by the anticipation of great growth. Alas, the latter has not been a prominent instigator of transformation for most companies lately.
So, the providers that are transformation-worthy are actually relatively few in number. I count five in the top echelon of technology-enabled change agents. (No, Perot and ACS are not, and would not have been, among the top four.) My universe excludes any providers that are focused on discrete functions, like networks, because their reach is constrained. My top 5 are the providers that can step up to the magnitude of holistic restructuring of technology-oriented business operations.
The market for transformation-oriented relationships can be described as somewhat stable in the sense that there is a realtively steady flow of new business opportunities entering the market each year. These new relationships tend to introduce the greatest impact on the costs/capabilities of the buying Client, but there just aren't an abundance of opportunities each year.
And, while the contract values can garner great attention for their size, it's my impression that the percentage of dollars spent for transformational sourcing inititives pales in comparison to that spent for other IT Services & Outsourcing solutions.
Further, you might be asking about all of the other providers in the wild IT Services & Outsourcing marketplace? They fit in the two remaining categories of solutions. Those segments, which I will describe in a future posting, carry very different characteristics than the transformation-oriented universe I just described.
The real "so what" comes from the fact that CIOs are buying solutions in very different ways today, and this fact is fueling some of the industry M&A we're seeing. More to come.
Peter
Today's summation will feel like old news, but I think it is best considered in the conext of the next two chapters.
On those occasions when the senior leadership of a business concludes that "transformation" is required - that is, fundamental and substantial restructuring of the business support functions, typically driven by specified changes to the top-line characteristics of the business (like markets, product offerings, customers, etc.) - a CIO looks into the IT Services market for service providers that carry distinct attributes.
Transformation agendas demand solutions that blend technology and business process changes. Commonly, they require deep industry expertise. They are complex initiatives that draw upon the most mature of industry leaders. To some observers, the relationships formed around a transformationally-oriented agenda are the increasingly rare contracts valued at hundreds of millions of dollars. To me, the contract values are of lesser significance than the long-term implications of "managed change" and shared risk implied by this sort of relationship.
The buyers of transformation sourcing tend to be companies at the larger end of the complexity spectrum, and those that perceive the magnitude of change to be greatest. Sometimes the change is driven by relatively significant declines in traditional business volumes, sometimes its driven by the need to reinvent the business in a fundamental manner, and sometimes it's motivated by the anticipation of great growth. Alas, the latter has not been a prominent instigator of transformation for most companies lately.
So, the providers that are transformation-worthy are actually relatively few in number. I count five in the top echelon of technology-enabled change agents. (No, Perot and ACS are not, and would not have been, among the top four.) My universe excludes any providers that are focused on discrete functions, like networks, because their reach is constrained. My top 5 are the providers that can step up to the magnitude of holistic restructuring of technology-oriented business operations.
The market for transformation-oriented relationships can be described as somewhat stable in the sense that there is a realtively steady flow of new business opportunities entering the market each year. These new relationships tend to introduce the greatest impact on the costs/capabilities of the buying Client, but there just aren't an abundance of opportunities each year.
And, while the contract values can garner great attention for their size, it's my impression that the percentage of dollars spent for transformational sourcing inititives pales in comparison to that spent for other IT Services & Outsourcing solutions.
Further, you might be asking about all of the other providers in the wild IT Services & Outsourcing marketplace? They fit in the two remaining categories of solutions. Those segments, which I will describe in a future posting, carry very different characteristics than the transformation-oriented universe I just described.
The real "so what" comes from the fact that CIOs are buying solutions in very different ways today, and this fact is fueling some of the industry M&A we're seeing. More to come.
Peter
Saturday, November 7, 2009
Just for Laughs - Luminaries Talking Cloud
Larry Ellison of Oracle on deriding Cloud Computing: http://www.youtube.com/watch?v=8UYa6gQC14o
Marc Benioff of Salesforce.com responds: http://www.youtube.com/watch?v=ZNfgi69cU74&NR=1
One of the better (more clever) explanations of Cloud Computing: http://www.youtube.com/watch?v=ae_DKNwK_ms&feature=related
Marc Benioff of Salesforce.com responds: http://www.youtube.com/watch?v=ZNfgi69cU74&NR=1
One of the better (more clever) explanations of Cloud Computing: http://www.youtube.com/watch?v=ae_DKNwK_ms&feature=related
Thursday, November 5, 2009
Musings and Coming soon: Outsourcing Industry - Through the Eyes of the Buyer
Please pardon the moderate lapse in posting ... I've been distracted by my day job!
Over the coming days I will be sharing observations around the clustering of industry service providers withn three distinct groups. It seems to me that the buyers of technoloigy-enabled business services are seeing very different characteristics of our industry take shape. And, I the M&A wave is distinct for each of these three clusters. More on that shortly.
In the interim ... please join me in congratulating one of the most prolific and insightful pundits, Phil Fersht, in joining one of the better companies in the service provider universe, Cognizant. Frank deSouza, Cognizant's CEO, is an inspirational leader. I can only imagine the sort of conversations occuring in the ether of Cognizant these days. Great move for Phil and Cognizant!
Finally - for today - is this piece.
Find here (http://www.industryweek.com/articles/an_ounce_of_prevention_20119.aspx?SectionID=4) a useful Industry Week article on how to keep large IT projects from going off track. My colleague Eileen Sweeney is quoted throughout and is a great resource for conversations with organizations about how to build and sustain support and momentum for change programs. If you want to speak to Eileen, I am sure she would be happy to share her experiences and insights with you. Eileen can be reached at esweeney@csc.com.
The article cites Boston-based Standish Group's "CHAOS Summary 2009" report concludes that just 32% of IT projects meet common criteria for success, while 24% of IT projects are cancelled or are never used.
Over the coming days I will be sharing observations around the clustering of industry service providers withn three distinct groups. It seems to me that the buyers of technoloigy-enabled business services are seeing very different characteristics of our industry take shape. And, I the M&A wave is distinct for each of these three clusters. More on that shortly.
In the interim ... please join me in congratulating one of the most prolific and insightful pundits, Phil Fersht, in joining one of the better companies in the service provider universe, Cognizant. Frank deSouza, Cognizant's CEO, is an inspirational leader. I can only imagine the sort of conversations occuring in the ether of Cognizant these days. Great move for Phil and Cognizant!
Finally - for today - is this piece.
Find here (http://www.industryweek.com/articles/an_ounce_of_prevention_20119.aspx?SectionID=4) a useful Industry Week article on how to keep large IT projects from going off track. My colleague Eileen Sweeney is quoted throughout and is a great resource for conversations with organizations about how to build and sustain support and momentum for change programs. If you want to speak to Eileen, I am sure she would be happy to share her experiences and insights with you. Eileen can be reached at esweeney@csc.com.
The article cites Boston-based Standish Group's "CHAOS Summary 2009" report concludes that just 32% of IT projects meet common criteria for success, while 24% of IT projects are cancelled or are never used.
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