Everyone—both customers and providers—wants to get away from the big, monolithic deal in which the provider spends a lot of time and trouble on one-off, specialized implementations. Such deals cost more for customers and offer lower margins for providers.
The result is that neither the provider nor the customer becomes more competitive. The customer has paid more than competitors have but has not gotten more IT value; the provider has developed skills that cant be applied elsewhere once the customer engagement is finished.
Instead, Adam Smiths invisible hand of the marketplace is moving both sides of the outsourcing equation to smaller deals in which providers package services into something very much like products-—offerings that consist of services that can be broken down into tasks that can be performed for one customer and repeated for others. In short, its services as a product.
Its hard to find outsourcing providers that are not adopting this strategy. The most obvious is Electronic Data Systems, which wrote the book on big, exclusive deals and paid the price with a near-death experience a few years ago. EDS turnaround is built in large part on its so-called "adaptive enterprise" strategy, in which it builds implementation skills around the technologies of a few mainstream vendors such as Dell, Cisco and Microsoft.
IBM Global Services has been touting a similar concept it has been calling the "component business model," or the breaking of business practices enabled by IT into modular chunks that can be offered to one customer and then repeated for others.
"Were trying to get more repeatable offerings. Its a change of mind-set. Instead of looking at things deal by deal, you look at the market," said Kevin Custis, partner and management solutions leader at IGS, in Alpharetta, Ga., in a recent interview. "Well have real offerings that look like a product." IBM is responding not only to the desire of big customers for smaller deals but also to its own need to sell services to a marketplace made larger by the inclusion of many companies that IBM once would have considered too small.
Patni, the Indian outsourcing company, is also on a drive to offer services as a product—to come up with specific, defined offerings, Patni executives told me in interviews at the companys Cambridge, Mass., headquarters. The major impetus for the move is Patnis need to deliver stronger margins, company Chairman Naren Patni said. Those margins, which could stand improvement, are coming under the close scrutiny of Wall Street since the company went public late last year.
"We are developing IP [intellectual property], but not IP for products," said Mrinal Sattawala, the companys recently appointed chief operating officer. Sattawala stressed the company is not about making actual products but, rather, making service offerings under which customers will retain IP. "Were looking for opportunities for code reuse," said Sattawala. "The code is the customers property, but we want to retain knowledge."
While all service providers are talking along these lines, you may be tempted to think this trend supports the thesis of Nicholas Carr, who gained fame with his Harvard Business Review article, "IT Doesnt Matter," and his notion that IT is becoming a generic condition of doing business—something like electricity—rather than a differentiating source of business advantage. That may or may not be the case, but many vendors are making their services like products. Just dont call them "commodities." The vendors hate that term. It makes their offerings sound so un-special. But whether you call the services commodities, products or repeatable exercises in delivering IT value, the trend is real.
Executive Editor Stan Gibson can be reached at email@example.com.