1. Labor Arbitrage: More low-cost countries China, Africa replicating the IT service model and providing the labor cost arbitrage benefits to developed markets - Probability 40%
2. Growth in OSS: and the associated services - Probability 60%
3. Automation through IT tools - Probability 30%
4. More stable platform based COTS applications that reduce the cost of maintenance for S/w - Probability 80%
5. Seeking lesser skills and hence lower cost of providing the required IT maintenance services - Probability 70%
One needs to look at the above trends and run correlation of the above models growth to the reduction in cost of providing maintenance service...The interesting challenge here would be to first track the cost of maintaining the Software and definition of right elements to be considered here such as:
a. Labor payroll cost
b. Non-Labor costs such as Software/Hardware/Network Support, Maintenance & Upgrade license costs
It seems the above is relatively straightforward factors to track. The impacts of the above trends on the elements of costs are interesting to see as in the following table:
Events\Factors | Labor Cost | Non Labor costs |
Labor Arbitrage | Medium | Medium |
Growth of OSS | Medium | Low |
Automation | Low | Medium |
COTS package | Medium | Medium |
Pyramid rationalization | Medium | Low |
Based on the above matrix…it seems one can evaluate the effect of the impacts by understanding the proportion of cost play for the Labor and the Non-Labor factors... Typically this ratio swings from 70-80% of payroll cost and shift the maximum impact to lowering the Payroll cost….It will not be too far when the Non-Labor cost factors moves up to take a significant share of the cost primarily due to COTS packages oligopolistic powers, increasing customization of the packages, extraneous other factors such as inflation/forex mkts and so on….
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