Everyone’s main priority over the coming year is to control costs as much as possible without damaging operations.
And that has significant ramifications when it comes to the choice of IT services providers.
Those able to demonstrate the wage-saving contribution associated with offshored services will remain popular.
However, there is an equally important way for service providers to reduce their costs and that lies with the ability to use industrial processes and tools to deliver services more efficiently.
Industrialised service delivery also enables greater transparency of service levels, because where there is clarity of definition, as well as measurement, it is easier to audit and benchmark.
All IT service vendors should be able to demonstrate widespread use of systems management tools, which underpin IT delivery, and the adoption and pervasiveness of ITIL, ISO 20000 and Six Sigma frameworks and methods in delivery.
They should also be able to demonstrate an ability to direct manpower to where it is needed and the level of centralised control for service delivery and explain how this will assist in contract delivery and pricing.
Bathwick estimates that industrialised service capability typically provides productivity gains of about 10 to 15 per cent based on manpower, operational process and technology optimisation and enables highly accurate fixed-price tenders.
Over the past few years, the noise about global delivery has obscured the equally important ability to develop a “factory hub” approach to IT services.
Despite the unsung virtues of productivity gains gleaned from migrating to an industrialised approach, vendors such as HP/EDS, CSC and IBM have persevered and are now in a more advanced operational shape than their Indian and European competitors.
But the Indian IT services companies are operating a slightly different business model from those in the West and, consequently, direct comparisons can be misleading.
For example, Indian providers typically do not expect clients to migrate to their operational IT infrastructure and often go to market with the view that they will work within the client’s structure, rather than impose their own operating environment on the customer.
They are, however, very advanced in their use of standardised techniques and have had a large impact on the market in raising expectations of certification levels in the industry.
But, in terms of industrialised service delivery, they have almost had a negative market impact by throwing in a slightly different, labour arbitrage-based business model.
Indeed, several Indian vendors declined to participate in Bathwick’s research on the basis that they have not invested in automation to the extent of other vendors.
This will have to change, however, as they move further into provision of remote infrastructure management services and delivery of fixed-price contracts.
They will need to improve levels of investment in automation, especially as their non-Indian competitors are investing in offshore capabilities and so can offer labour arbitrage as part of their value proposition, alongside industrialised capability and local relationships.
The IT services sector is further along the path towards industrialised delivery for IT infrastructure than it is for application services.
In some ways this is not surprising, given the drive to standardisation and commoditisation in IT infrastructure.
However, it is worrying that application services are lagging because for service-oriented architecture projects to deliver standardised, pre-configured service components, industrialised service delivery is an extremely important attribute for a vendor.
Katy Ring is principal analyst at The Bathwick Group
Opinion: Time for IT service's industrial revolution
By Katy Ring on Feb 27, 2009 6:15AM