IT Services Industry in 2015

After a couple of years away from services business, I am back in it – albeit with a different flavor . My current services responsibility is to run consulting for a software company, as opposed to doing so in a pure services company. Nevertheless, with the new role, I have been thinking (and talking to old friends and customers) quite a bit over the last couple of months on what is changing in the IT services world. I am ignoring BPO services for now. Also, I am just jotting down six top of the mind items – there are a hundred other things which need attention too.

1. Increased demand for shorter time to value

In the 90s, I could easily convince a customer that the business requirement will take 6 months to implement. It is really difficult – but not impossible – to do so today. Customers do not have that kind of patience these days. We have both the hardware and software industry innovations to thank for that.

This is one area where smaller companies have a definite edge over larger companies in adapting to the change.

2. Business model changes

At a high level – most big services companies will continue to make a lot of money from large outsourcing deals given inertia of customers to let go of legacy, and fragmented SaaS solutions. This happens laregely in fixed scope/price as well as Time&Materials basis contracts today. But the model is changing for sure trending towards outcome based models. Customers expect vendors to provide more flexible capacity with less and less predictability. Some customers expect vendors to provide predictable TCO savings year over year via portfolio optimization. Not all vendors are equipped to deal with these though unfortunately. An increasing trend – but not mainstream quite yet, is the idea of managed application services tied to factors other than TCO.

3. Estimation needs to grow up real soon

If you look at estimation techniques – it is stuck in the 90s. Even in packaged software world, where it should take progressively less time to build something over time – estimates still show very little improvements from the mid 90s. A complex interface from ERP should take less time today compared to 1995 – but it ain’t so.

4. Talent Management needs a complete reboot

Talent management – or lack thereof – is the bane of services industry. Accelerated career progression (maybe more so in offshore centers) is one area that concerns me a lot in particular. Many midlevel managers have not had enough experience as individual contributors before they earned their promotions. This was the price to pay for the aggressive growth in last 10 years. But it also has resulted in a loss of senior level technical competency. Every company in services claim to have a technical career path – but very few actually do anything to make it work. For the most part, a rewarding career in services still exists only for sales and management jobs. Delivery skills are not rewarded anywhere close to sales and management. It is high time this changed.

5. Leadership Attrition

This is what is going to hurt established services companies the most in my opinion. The “rainmakers” in the established companies are a largely disillusioned bunch today from what I can see. Many of them will recognize that their impact is a lot higher if they join smaller companies , or even start a company on their own. This is a double whammy – this level of talent is extremely difficult to backfill, and usually they take their customer relationships with them. Coupled with the attrition at lower levels due to career and pay stagnation – this is a big area of concern. I am not convinced from examples I know personally that services companies are spending enough attention on this brewing problem.

6. Blurring of lines across software, consulting and support.

Most companies – pure services or software companies who do services too – keep software, consulting and support separately. There are good reasons for doing this from vendor point of view. From a customer point of view, this is mostly artificial. I expect 2015 is when many customers will demand more offerings from their vendors that blur the lines between software, services and support. This is a really hard problem for vendors in many ways – compensation, hiring, accounting, marketing, selling etc will all get disrupted when these two groups come together after being separated.

Happy new year, every one !