It is not suprising to see that the revenue growth and profitability of IT services firms have been closely knit with the people scale. The levers (Strategic, tactical and operational) for growth and profitability that have been driving this industry has not changed in the last decade and neither are we seeing any innovation that would break the jinx. This is quiet contrary to what we see in the IT Software products companies, where the relationship between people and revenue/profitability does not exist. Why is that different for IT product companies? It is simple their economics of operation is not very different from that of industries like FMCG, CPG, pharmaceutical, their levers of revenue growth/profitability is the unit of product sold and the cost of creating them....Definitely NOT PEOPLE.
What are the options are available with leadership of IT services firm to break the people-revenue jinx?
Lets look at what IT services firms have been talking about lately:
1. Commercial pricing plays: There are several variants, whereby one can claim to break the jinx between revenue/profitability from people. They all go by different names like Fixed-price delivery, value-based delivery/pricing. All these as I've seen are just the variations in pricing plays. The underlying delivery construct had hardly changed. We still see that the core drivers of revenue and profitability are still based on people.
2. Shared services: Services delivery with 1-many client realtionships. For example 1 resource serving multiple clients and thereby changing the linear relationship between revenue growth and profitability.
3. Productized service: Offering more products and building layers of services around the product that require less people to service. The companies then charge premium for selling such productized service.
But none of the above three seems to set the tragectory or crossed the required threshold or gained the required meomentum to enable the IT services firm to break the revenue/profitabilty-people jinx.... Atleast they are trying, not by design or forethought but my compulsions to meet their short-term numbers!
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