IT Trends In and Out of Downturn 190
An anonymous reader writes "Washington Post has an interesting article talking about how IT industry is changing its business models to survive (IBM: "Pay As You Save"; HP: universal printer driver; Consulting weak; Oursourcing booming), as well as how outsiders view the downturn (Merrill Lynch: it's just another bust after PC and mainframe, but the good thing is, "each 'wave' has so far represented a tenfold increase in the number of technology users."). I'm particularly interested in the outsourcing story. It might explain why IBM will benefit and other vendors like Sun Microsystem which don't have a strong service arm will suffer."
Outsourcing is on the rise?? (Score:5, Insightful)
Oxymoron (Score:5, Insightful)
My two thoughts (Score:5, Insightful)
2. Scale can help. Like insurance spreading the cost can help manage bumps, and smooth out the actual required resources.
By outsourcing you could save money by not buying more service then you need, and even lower your support if all you need is someone 'on call' incase "something happens".
But like any pooled asset, there will be times it isn't available, and it isn't like having a dedicated team to take care of stuff
The tech industry will mature? (Score:5, Insightful)
Services business weak too (Score:4, Insightful)
Yes, service orgs make lots of PR for each signed deal, but they are over many years and sometimes they get cancelled in advance of completion.
Also, services have more costs associated with them than do software or hardware sales.
To some extent, accounting of service contracts can be misleading by both front-ending the benefits and by buying other service orgs to obtain their profits but spreading out the acquisition costs.
It's not a comfortable business to be in right now.
Know the business? (Score:4, Insightful)
The business or 'customer' should clearly specify their requirements. The techs should build it.
If they just guess at your requirements they need to know the business to get a good guess, project takes too long, everything's a mess and the end solution sucks.
Yes I work in design, yes I know nobody does it this way, but they should.
Outsourcing is foolish (Score:5, Insightful)
The result is usually the reduced cost you were looking for and severely reduced service levels.
I once consulted for a very large Insurance company, which decided to outsource it's legacy IT staff, approximatly 300 people.
About a third of them left and they were the most knowledgable, each averaging 20 years experience on the systems they maintained.
A small modification that might take any of them a day to build, test and install would take me three weeks. (it's hard to compete with 20 years of domain knowledge).
Skilled IT workers are not assembly line workers. Outsourcing should be for easily replaced resources.
Consulting vs. Hardware vs. Software vs. Services (Score:5, Insightful)
One - Sell hardware. Generally billed once, though often financed and perhaps with a "support package" attached
Two - Sell "software". Usually licensed with an annual "maintance" agreement in addition (speaking of enterprise software - in consumer terms this is the annual or bi-annual upgrades/updates that you have to pay for)
Three - Sell a "service" (think ASP's, telcos, ISPs - generally billed on a periodic basis - often monthly, but also quarterly or yearly plans exist).
Four - sell "consulting" or services. This is further subdivided into "project work" or "outsourcing". Projects are generally of a limited duration and for a specific purpose, outsourcing usually involves the takeing over a company's IT staff, equipment, and processes - and is generally of a very long term duration.
There are, of course, variations to all of the above - but these are a basic choices that a company today faces - and all of these are driven in tandem by corporate needs.
New software usually meant new hardware, plenty of services needs, and lots of projects and outsource contracts to go around.
However, we are still suffering from the combination of Y2K, the "dotcom bust", and diminishing returns on technology investment (or at least the PERCEPTION of diminishing returns).
Y2K caused many large corporations to move up spending - which they had planned to do in the past two-three years, to 1999 so as to put new software and systems in place in advance of Y2K. In the course of doing this major corporations also steamlined and simplified their internal systems - often reducing by 50% or more the number of applications they supported internally.
Further, many corporations standardized on fewer platforms - and reduced variation within their corporations.
In 2000 it appeared that perhaps the "Internet boom" would be the driver of future investment in a post-y2k world - and indeed many corporations spent a lot of money on Internet/e-commerce projects - however though a lot of money was spent on these projects, and some companies did see big gains - far less money was spent on Internet projects than had been spent on ERP or other similar enterprise wide projects.
Further, as a new field - most of this money was spent on consultants and projects. Some was spent on services (hosting packages, additional T1s etc) - but less spent on software packages or additional hardware.
Software companies and hardware companies alike have not, in general, offered compelling new systems that provide powerful reasons for additional investment - corporations look at the desktops and servers that they have, note that most of their systems are underutilized, and see little reason to return to regular upgrade cycles - rather they see little to be gained from expensive upgrades - and much to be said for focusing their resources on using what they already own.
So, this in turn, means that corporate internal resources are increasingly available for internal projects - reducing still further the need for outside consultants on a project basis.
What then is the solution?
First - technology is driven by providing VALUE - i.e. providing systems that help people make money (by saving them money or making people more productive). Software vendors should focus on what their tools "really" need to do - and make compelling enhancements in those areas.
Second - We may be seeing a transition from a mostly growth industry to one that will be more stable - there is still money to be made, but annual growth rates of 30+% are probably a thing of the past.
Third - companies should focus on building long term value added relationships with their customers - if you make your client money on an ongoing basis, that is generally a recipe for continued and mutually profitable business - in the "internet boom" many service/consulting firms forgot this - they made money, but their clients just lost money - now those clients are often reluctant to spend further funds with those firms (if the firms are even still around).
So what do I suggest - focus on value added, focus on building systems that customers want, and offer them in a model that both you and your customers gain value (i.e. don't price in such a manner than it is impossible for your client to make money, or conversely don't price your products, services, software, or consulting below what you need to make profit - neither route leads to long term success.
As the president and founder of a software and consulting firm started in 2000 I have observed this up close and personally - at present, my firm is focused on out consulting practice - looking at how we can continually add value to our clients - and still make money doing so.
Re:Know the business? (Score:5, Insightful)
But beyond that, thre is no such thing as a "computer tech without business knowledge". Even the lowest printer repair tech has to make decisions such as "respond to VP A's call or Executive VP B's call first?". Anc unless you are aware that although VP A is lower on the totem pole his team is working on a company-saving proposal and needs priority support, you aren't going to make the right choice.
Then there is the simple 1st-level help desk call, "Why don't the numbers on my Crystal Report add up?" That one could take from 30 seconds of mouse training to 30 hours of analyzing the business rules behind the data to resolve. The outsourced provider will either refuse to answer the question, or will miss the deeper significance.
Of course, the 1st year savings get booked and credited to the CxO who decided to outsource; the pain gets booked to the rest of the business units down the road. Oh well.
sPh
Re:Know the business? (Score:5, Insightful)
People who only know the tech are also unaware of how they can add value to a business, because they have no clue what that business does.
Tech people who also master an executive level understanding of a particular field (insurance, financial planning, transportation, medical care, manufacturing, general accounting, etc.) are worth a fortune to their companies, as are business people who master technology. Not only do such people find ways to save costs or improve income to the tune of millions, but they are also few and far between, cranking up demand for their services even higher among those companies who are shrewd enough to hire them.
Should the paper MCSE who runs your Exchange server be expected to know the business? No, I suppose not. Especially since you should probably lay him off as soon as your network administrators replace that server with a sendmail process on a spare UNIX box. But your development staff should know the company's business as well as any of the suits, if not better. I know you would probably rather pick up another programming language or some other skill that's easy to transplant between the jobs you change every two or three years (my attitude is very much the same) but sooner or later, you hit a salary ceiling as a general "hired gun" techie, and you need a deeper, more specialized knowledge of something before you are going to break past it.
Re:The tech industry will mature? (Score:2, Insightful)
There is NEVER going to be a piece of open source software that can compete with SAP, BAAN, JD Edwards, or Peoplesoft. No matter what, it will NEVER happen. These products are too extensive to be created in the open source world.
This means I'm still paying $2.5m for a piece of software that I can run on Linux or Solaris (let's assume they all get ported to Linux). So I can run them on Linux on Intel hardware or Solaris on Sun hardware. Which choice do you think the technical architects and executives are going to make? What Linux system is going to compete with a Sun 6800 for these software packages?
Open source is NOT ALWAYS the answer.
Outsourcing vs. Internal (Score:4, Insightful)
Companies need to learn what to outsource and what not to outsource. My personal opinion is that large scale projects need to be internal, with only small, specialized sections outsourced to the appropriate firm.
Small business can benefit immensely from handing off, for example, their websites and design services instead of bringing those services in-house. But does a large, multinational firm really benefit from turning these services out to another company? More than likely not, and in the long run it will cost them more.
The last company I worked for handled the website and design services for several large companies, on top of many smaller businesses. The large companies spent, on average, $300-400k per yer for web management and design, whereas the smaller firms only maxed out at around 12-40k per year. Proportionally these services where the same. The larger firms would have benefited from hiring and keeping internal these services.
Just my $0.02.
Do not believe the pundits (Score:4, Insightful)
Re:Sun support weak ? (Score:3, Insightful)
Most HP/Dell/Compaq guys that come out to replace our components are exactly that, parts pullers.
You pay big $$$ from IBM/Sun/SGI for service contracts, and you get what you pay for.
But the Compaq and Dell techs come out and have no clue what's going on, and they get parts Fed-ex'd to their moms house and bring them out. When there's a REAL problem (read: more than a bad power supply) you're in trouble.
Re:Outsourse tech support for grandma (Score:2, Insightful)
Re:Outsourcing is on the rise?? (Score:2, Insightful)
Sort of like going through a divorce..
Or maybe having a kidney removed
Not outsourcing but something like it. (Score:3, Insightful)
I think, however, that you could do something like that on a ala cart basis. Outsource stuff piecemeal. Remote 3rd party backup, remote 3rd party network monitoring, etc... The customer expectations are different that level. The interface issues are smaller and more manageable. And in more narrow specialties, you have a better chance at getting ecnonomy of scale.
Oh, should have defined... (Score:1, Insightful)
"Good Business" - both sides end up feeling the relationship was equitable.
"Bad Business" - one side, or the other, end up being, or feeling they were, taken advantage of.
"poorly run business" - a business that is willing to engage in bad business.
I bring this up because the masses of MBA being churned out are taught maximizing profit is the definition of "good business". That is, however, a new age viewpoint that actually ends up driving most modern companies into doing significant bad business.
Re:Know the business? (Score:2, Insightful)
The business or 'customer' should clearly specify their requirements. The techs should build it.
Yes I work in design, yes I know nobody does it this way, but they should.
If it worked this way, my job would be 50% easier ;->
But seriously, the biggest issue IMHO is that users don't often know what they want. I've sat in and brainstormed to fix so many workflow issues that if I were to take thier requests verbatim, it would have been the most bizarre, kludged together POS that ever lived. Often times people don't see the bigger picture/problem and don't see how technology could improve it. Other people assume too much from technology (where Human intervention requirements are neccesary and AI won't suffice).
The best solution is to have a group of the techies who know the business be the bridge between both parties since they can just about always come up with excellent solutions. Anymore we have IT people sit in on most meeting like this to help move things along and not get stuck on mundane issues.
As always YMMV, but it seems to hold true most of the time
Three things to drive IT by 2010 (Score:4, Insightful)
While we may be in an economic slump right now, we are forgetting that there are upcoming technologies that will likely drive a second tech boom in the second half of this decade.
I cite the following:
1. Cellular phone companies have started on the road to 3G cellular phone technology, technology that could completely transform the way people use cellphones. Imagine bi-directional 384 kilobits/second data transfer, about the same as low-end SDSL, but operating in a wireless fashion and well beyond the reach of 802.11b Wi-Fi; this could allow people to upload and download data fast enough that even high-resolution digital photographs or circa VHS quality video can be transferred quickly. To keep up with the competition from Europe and Japan, expect major rollouts of 3G cellular technology by middle of this decade. Because of the bandwidth requirements of 3G, this will need massive investments in infrastructure to support these new phones.
2. The mandatory imposition of digital television in the USA in accordance to the Advanced Television Standards Committee (ATSC) standards by late this decade. This will mean a lot of new investments in television broadcasting hardware, especially when you have to implement these standards for both over-air and cable broadcasting on a scale far beyond what we've seen so far.
3. The beginning of the switch from IPv4 to IPv6 addressing. Much of our current Internet hardware infrastructure is not yet suited to support IPv6, and many of today's computer operating systems don't yet support IPv6, either. As the switch to IPv6 accelerates there will be considerable investments needed in both software upgrades and network infrastructure upgrades to be IPv6 compatible. Yes, I know network hardware built within the last two years are IPv6 compatible but there is still a huge fraction of installed hardware that is not IPv6 compatible yet.
I would not be surprised there will be a surge in demand for IT hardware and services as these three technologies rapidly rise in usage by the end of 2010.
Re:Do not believe the pundits (Score:3, Insightful)
Same as in the industry, things are kinda coasting on the whole at a constant rate of minimal maintenance, but once funding returns, companies will be looking to implement potentially profitable changes and taking risks again.
While it is true that the industry as a whole has a more realistic view of what can and cannot work, as well as what is and is not needed than it did in the
Re:What I don't get about outsourcing (Score:2, Insightful)
Its not that its cheaper to outsource, but rather that outsourcing expenses show up on a different financial table than regular employees. You can claim alot of cost cutting/employee reductions and boost your image to Wall St. Of course, you spend more and get less service. But hey, we cut our medical costs!
One of the reasons outsourcing companies are having it rough right now is because they are thinking of closing that loophole. Outsourcing expenses would have to be reported right with employee expenses. Businesses are waiting to see how that shakes out before spending more in this little accounting scam.
Re:This industry is shooting itself in the foot. (Score:2, Insightful)
Re:Vertical Integration vs Outsourcing (Score:3, Insightful)
Vertical integration is not the only way...
Re:Outsourcing is foolish (Score:3, Insightful)
>internally. And that does not include the price of
>the server! These are all internal chargebacks. If
>I was a stockholder I would be pissed that they
>didn't outsource, or at least get rid of half of
>their IT staff.
That $1K/month is monopoly money, i.e. it does not leave the company.
If they outsource that function, the money they pay actually leaves the company.
Re:Do not believe the pundits (Score:3, Insightful)
This is called the "broken window fallacy" by economists. Intuition suggests that all economic activity adds value, which leads to people saying silly things like war is a boost to the economy. It is not, because it consumes resources that could more profitably be used elsewhere. Will the switchover to digital television result in an increase in the value of television to the consumer (i.e. will it make more people watch more television)? Probably not... so spending money on digital TVs might be nice for TV manufacturers, but will have a negative effect on the economy as a whole.
If the broken window fallacy was not one, then you could get out of any economic slump by destroying buildings and rebuilding them, and you could repeat this as often as you liked to produce economic growth. This clearly is not the case.
We may be in an economic slump right now, but by mid-decade the technological developments I mentioned will need hardware upgrades on a scale that will make the 1990's tech boom seem like a minor even in comparison, since these technological changes will affect everyone.
Same goes for IPv6 and 3G - if it is rolled out by mandate without adding value (not the same thing as having the potential to add value, which is all it is because there's no pressing need), then it's wasted money, because it's costing money that could be invested elsewhere.