Opinion: IT providers must learn to make services good business.
My view of the services business was first shaped by John Walker, founder of Autodesk. Its a view of unexciting margins, inconsistent quality and overall lack of appeal to the technology entrepreneurbut, today, its the business that IT providers must master.
Walkers book about the origin and growth of Autodesk, "The Autodesk File," is now in the public domain and available in several formats at www.fourmilab.ch/autofile/www/autofile.html.
My finding it online while doing research for this column was part of a pattern of late: Its the third time in a week that it proved quicker to get something off the wire than to find it in my 17-year archive of boxes and files, including not only books but also software drivers and product manuals.
Getting such bits by download, instead of hunting for an old distribution CD, is itself an example of a service that maintains and strengthens supplier relationships. Over time, a vendor whose after-sale support is second-rate stops being my supplier.
When Walker wrote about services, he was looking at a bigger picture that he feared his colleagues might find dangerously attractive. As a company grows, he warned, "there is a tendency for every department to look upon what it does as central to the mission of the company. Departments then tend to see if they can make a direct contribution to the till. ... For example, training could offer courses to users around the country for a fee. Technical could offer consulting services to driver developers for an hourly charge. QA could perform screening of third-party software products for vendors."
Walker offered more examples, but Ill stop there. His key point was that earnings from these activities would be less profitable, in terms of ratios of revenue to cost, than the companys core business of developing and selling its AutoCAD family of software products. "The analysts would then look at the numbers to find out what was happening and discover that we had gone into the education business. Education is not a stunningly profitable business," Walker warned his ambitious colleagues.
Walker makes an excellent point: It can seem attractive to any business to add new revenue sources, but that can be a path to a disappointing destination if it turns a clearly focused industry leader into a desultory grab bag of commodity offerings. Moreover, the skills and inclinations that produce a top-tier software or hardware developer are not the same as those that create an outstanding service provider. Software and hardware are testable, perfectible and reproducible; services are produced in quantities of one, and a unit of service doesnt even come into existence until the moment of consumption.
Even so, its clear from examples such as IBM Global Services (with fiscal 2004 revenues of more than $260,000 per employee and revenue growth of 8.4 percent) that services excellence is possibleand, as Ive already argued, is increasingly essential if a technology provider wants to differentiate its offerings in an increasingly standards-based marketplace.
Development managers concede that they measure code quality too little, too late.
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"The way that Fortune 2000 companies want to consume technology is far different from a few years ago, where they wanted to write a license check and refresh their hardware. They want to have conversations about value," said Thomas Lah, executive director of the Technology Professional Services Association (which announced its formation last month). "You cant have those conversations unless you have credible services," Lah added.
Rather than having many vendors learn redundant lessons, TPSA wants to promulgate core services knowledge and best practices. (A TPSA Webcast is scheduled for Oct. 20 at 2 p.m. EDT; more information is available at www.tpsaonline.com.)
"Its in a lot of companies DNA to make products, and now it needs to be in their DNA to make money with services," said Lah. And its in customers interest to have many credible competitors for their services spending.
Technology Editor Peter Coffee can be reached at email@example.com.
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