It is now more than 4 years that I have been part of Software Services Industry (focused on providing IT/Software outsourcing solutions) after all my previous association with mostly product organizations – big and small. It has been an interesting experience for me – especially considering that my job (at GlobalLogic – focused on Outsourced Product Development business) requires me to play a role across Strategy, Business Development, Sales, and Delivery all throughout the years. Compared to many others in the Software Services Business – some might consider me as a relatively late entrant. However, these 4 years itself has given me enough perspective to think sincerely as to where this industry is going, what is working for them and what ails them too.
Now with lots of personal experience, after talking with many who have been part-of or have been associated in various capacities with Software Services companies, and scanning the internet for software/economic trends – I think I have started reaching some core prognosis and hypothesis for the state of software services industry. As one of the crew member in this software services industry spaceship I am now ready to acknowledge - “Houston, We have a Problem!“.
Before I proceed further, please note that my prognosis is not about a dooms-day scenario but about certain ills which if not addressed soon can possibly adversely affect the long term growth of software services industry.
Here are some of the challenges which I am seeing that software services organizations are facing from a global business perspective -
- Cost arbitrage is no longer the differentiator – Regardless of what many say – ability to help customers bring their costs/expenses down and at the same time scale too is of big value and will continue to remain so. So services organization providing any offering (while maintaining other attributes like quality, reliability, etc. constant) which successfully demonstrates this will always be attractive. However, there is always a lower limit beyond which the costs cannot be reduced. Entry points for other competitors to claim that they can provide better cost-arbitrage value is relatively very easy. So for organizations for whom cost arbitrage was the only value proposition they could offer for years – world is now catching up fast with them.
- ‘Cost Arbitrage‘ and ‘Value‘ are like oil in water. They do not mix! – Having realized the above challenge – many services organizations have now seriously putting in efforts to provide their customers value-added offerings beyond just cost-based offerings. Value added offerings are typically based on specialized skills, domains, business partnerships, etc. However, while there might be few cases of successes in this way, my personal opinion is that majority will have a challenge selling ‘value’ to their customers along with cost arbitrage solutions. Providing cost arbitrage and also providing value are inherently conflicting offerings. (Anyone who has read my previous blog post – “Psychology of Consumers During Consumption of Products or Services” and the associated article would probably agree with my view point).
- Need to shed away inward focus – Considering the nature of the business (especially when the focus is more on Point # 1 which I listed above) – substantial portion of services organizations efforts and energy is increasingly focused internally to manage people, salaries, delivery, costs, lunches, operations, personal aspirations, etc. assuming that this is key to their bread and butter. Very crudely, I would compare this to the day-in-the-life of a shepherd managing his herd of sheep. Ratio of number of people focusing on internal operations to number of people interacting with the external market/business has to reverse in Services Organizations.
- We cannot keep just consuming, we need to produce too! – Substantial number of Software Services organizations (including where I am employed) have been in business for long period of time and majority of them today can boast of servicing huge number of businesses / products / domains / technologies under one roof. Over the years majority of the services companies have done this by ‘consuming‘ knowledge / experiences / technologies / best practices produced by someone ‘not‘ under their roof. I am not saying this is wrong or bad. However, I am also assuming that with the years of experience under their belt now (again across domains, technologies, best practices, etc.) – software services organizations should be in much better situation to contribute back new discoveries/inventions/practices, etc. to the industry. We need to ‘produce‘ too! So I will confess here that in the day-to-day tactical efforts to manage points listed above, majority of services organizations are not able to properly concentrate on this count.
- Surely, we will get recognized by the company we keep; but we will finally get valued by the work we do! – Take a random survey of the Software Services Organization portfolio and look at how many of them claim that they work for a ‘Microsoft’ or a ‘Oracle’ or a ‘Cisco’. More than half of the thousands of Software Services Organizations would (honestly) claim that they do. Without any doubt that is the first big achievement. Now find out how many of these organizations do the Microsofts or the Oracles of the world acknowledge in their products that it was built with these organization’s help. Getting recognized or people knowing about us is one thing, but people acknowledging us as a thought leader is completely different matter. IMHO, majority of the Services Organizations still have to cross that bridge.
- and finally – focus on building the Taj Mahal, not the number of people billed to build the Taj Mahal – Perhaps slightly related to above point but a different perspective! Almost all of the customers of the Software Services organizations are focused on building something which they strongly believe would be the next Taj Mahal. Special, different, beautiful, strong, ever-lasting, etc.! The focus of organizations like mine should be on that. The number of people or hours billed in a billing cycle – though important – is a temporary thing and will eventually get replaced from the records with the change in the financial cycle, but if we can help an organization to be the next Cisco – the returns are going to be far better.
My intention in this blog post is not to crucify anyone or any particular organization, but to point out few things to correct the course. And this case, I am pointing these things out to the organizations which I am happily part of. Like in any retrospection along with an introspection discussion, I am possibly expecting a polarizing reaction from readers to my blog post. However, the key for me here is to start the debate and hear your view points. So let the comments/feedback/fires flow in.