Free IT SI and Outsourcing services pointers: Can we offer such services for different IT service categories?

Having looked at the problem statements for free IT System integration and outsourcing services, lets now look at some examples of 4 free IT pricing models based on the categories suggested by Chris Anderson in his Free book:
1. Direct Cross-subsidies: This category is defined by as those services that are offered as free in relation to another good. In simple terms we are cross-subsidizing one service while charging for the other. Given this definition, here are the problem statements:
1.1 For an integrated SI and Support service can we offer the SI service free to client if the support pricing exceeds a certain threshold?
1.2 For just support services, can we offer transition service free to client, instead of charging them for the transition service?
2. 3 Party markets: This category is defined by the fact that IT services are offered free to the actual consumers but being paid for by a third-party. For example in Radio & Boradcasting services, Newspaper and digital newspaper industry; advertising companies pay for the free services to consumers. Going by the statistics provided by chris the market for these services in US alone is USD 45 billion in 2006 and he estimates worldwide this is to the tune of USD 80-100 billion. In IT services space the following problem statement arise:
2.1 Can Hardware and IT product vendors sponsor the free IT service to client? Why not they do charge a huge AMC or Software Update and product support fees every year on clients? What is the minimum portfolio of services that can be offered free in this mode? Are their any companies already providing this in open (lets forget for a moment about IBM).
3. Premium or versioning: The service here is defined by the fact that few clients who can afford and are willing can pay for these services. In reality there can be tiered service offering to clients. For example Flicker and some Startup companies Web 2.0, etc. offer tiered services for free and some features and functionality only for premium clients. According to Chris, in 2008 there is an estimated USD 36 billion worth of business done through this medium: corporate clients USD 800 million, Retail clients USD 200 million, Opensource 30 billion (Red hat ), other apps ~1B, Online game markets (Multiplayer games is USD 1b; Casual is USD 3 B ). Now lets turn focus on IT services problem statement:
3.1 Can we offer a shared service model for outsourcing where we can offer free services for small support footprint? This may also help in smoothening the load of resources?
3.2 Can we charge premium whenever the bespoke service support requirement is high? Typically large and complex home-grown system. The challenge ofcourse is how do we qualify "Large and complex system" objectively?
4. Non-Monetary markets/ Gift Economy: Wikepedia example. Here no dollar figures attached. Apple iPod USD 4 billion, my space 65b (free music), 2b music concert business due to online trading of music.
4.1 Can IT product companies offer these IT support services for free like the Linux ecosystem? Can this atleast be modeled for PHP platforms? I'm sure there are lot of freelancer/mavens who would love to do it for free (just that it gets them the recognition)?

What are your views/insights? I'm sure the model can be better qualified and refined to a great extent.

Free IT Services - Pay nothing for IT Implementation (System Integration, Application Development) & Outsourcing (Maintenance & Support) Services

I was listening to the Free audio book "Free" and was quiet intrigued by why we havent seen any IT service provider offering free IT Implementation and Outsourcing services. This excited me and I had formed some interesting hypothesis based on my insights in the IT products and services industry.

Lets look at good examples cited by the author about 3 formats of free forms in markets and let me problem statements (some lead to hypothesis) on what similarities do we see in the industry:
1. Paying people subsidizing loss making products/services: I never imagined if IBM ever made any money selling some of their Hardware and software products like Lotus notes, z series and so on! IBM shift to services from their product focus may be a great example....see some companies like Sun never managed to make that shift and ended up getting bought out by Oracle...
Problem statement 1: Can we offer some (need to qualify this well) SI/AD services free and cross-subsidise this with some (qualifications needed) Outsourcing service?
2. Paying later subsidizing paying now: Well Red-Hat Linux or Novells Suse Linux is a classic example....no license cost for software but imagine paying their support through your nose...any CIO will keep scratching their heads on how to associate a firm value...wondering why Oracle dropped the idea of acquiring Red-Hat...theyy seem to be happy just allocate R&D investments to support Red Hat platform...
Problem Statement 2.1 : Can all SI/AD engagement services be billed (through claw back clauses) to client on annuity basis instead of charging them upfront?
Problem Statement 2.2: Can transition costs (for outsourcing engagements) be billed on annuity basis instead of levying an upfron fees on clients?
3. Paying people subsidizing free people: Adobe Reader is a great example where the reader is offered as free downloads to all, but some enterprises and media companies will be forced to buy the Adobe Writer so they can use the Adobe reader to reduce their distribution costs...Well ofcourse some may never buy Adobe Writer but use tools like Amyuni or Open-offcie ports to achieve the purpose....Poor Adobe!
Problem Statement 3: Can we offer free services to some clients who cant pay and cross-subsidize with other paying clients? (Ofcourse yes but what are these qualifiers. You have to pay me to know it or implement it!

What are your insights and data points that can help prove/disprove such hypothesis. IOfcourse it should be an econmoically feasible solution...I dont want to sell my brethrens to unemployment!

What options/scenarios lie in breaking the People-Revenue jinx for IT services firms

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!

Opportunity Engineering Does it really help plugging the downside without affecting the upside?

I recently read the book review of "Unlocking Opportunities for Growth" By Alexander B. van Putten and Ian C MacMillan and surmised if opportunity engineering methods and tools can really help in plugging the downside. The author argues that Opportunity engineering can help in breaking the typical symmetry on the downside of the opportunity. If for a moment we assume a normal opportunity return curve as illustrated in Fig 1 below where the mean is the break-even point for an opportunity, the author mentions that opportunity engineering can help in breaking the symmetry of the curve by eliminating the likelihood of an opportunity outcome falling on the left side of the curve. This effectively means we have an asymmetric curve (that is a curve with different functional drivers; obviously the whole curve is no longer normal then!)... Please note the author never mentions that the opportunity is a normal curve, all he mentions is that there is a symmetry between the risk and reward. These are typical stochastic models. i've used a normal curve to help illustrate the gaps that I see in what is proposed by the author. Now note that at the time of planning or forecasting for an opportunity we usually use DCF and NPV to make crucial business decisions, however in reality the actual outcome is influenced by several real-life factors and parameters. This means at any point in time we may land up anywhere in the green rectangular box at any point in time in reality assuming we fore casted and planned for a normal-curved based returns for an opportunity.... Now there are underlying assumptions in the argument the author makes that can be challenged:

 

1. The existence of symmetric relationship or equal likelihood nature of opportunity return curves. This is seldom a case where we have equal likelihoods on either side of a break-even point for an opportunity curve....there are countless product curves and innovations curves that can be plotted with products in the market that have a asymmetric opportunity return curves...

2. Assumption that any propensity to reduce the risk will impact only the left side of the opportunity return curve without having a holistic impact on the right side of the return curve...look at this this way have we ever seen a car or a computer that meets every customer need out there....if that is the case then we would not have various product categories and customer segments :-).... 

 

 

Having noted 2 such fallacies, let us also look at what are all the options or scenarios we can generate at the time of forecasting to ensure that we are in a position to manage the outcome always on the right side of the normal curve. (For a moment I've now assumed the normal curve remains and the authors inherent assumptions of changing the curve only for the left side to break symmetry is not feasible in real-life!). Let us assume that we are simplifying the forecasting model for business decision by only factoring a finite set of known parameters or factors that could affect an opportunity (Making that assumption is theoretical it is never practically feasible...I'm just attributing a zero probability for the occurrence of a  "force majure" event during a planning horizon!). Lets now look at 3 ideal scenarios:

 

1.  "Conservative Scenario": Reducing the skew or variance of an opportunity outcome (Fig 2) . In this scenario we make certain choices for the opportunity that limits the failure points at the same time also limits the success. Classic example is that of Nokia Mobile phones, they keep releasing model after model with incremental feature having now got a base mobile phone ecosystem right, they just add a camera, stereo phone, touch screens etc. as added feature on mobile phone. So every new model that Nokia makes can now leverage the evolutionary scenario forecast model. This model usually works in oligopolistic markets with few competitors: Microsoft, Nokia, etc. The have shaped their market as oligopolistic through differentiated strategy and reached where they are over the years by decimating competition. Basically what this means is that the opportunity curve for every model they release in the market have an equal likelihood of success and failure!

2. "Normal Scenario": ": Increasing the expected return for the opportunity curve while reducing the loss (Fig 3). This is just shifting the normal opportunity curve (Fig 1) by increasing the expected value of returns on positive side. Most businesses try to make sure that their forecasted model always has yields a positive return and reduces the likelihood of failure i.e. falling into the left side of the expected value. To achieve this forecast model look at an opportunity holistically from different functional perspectives: Engineering, Design, production, Sales, and  marketing. There are tactical strategies and lobbying made at conception stage of the opportunity to make it successful. Typically we see this in commoditized market where opportunities are shaped to meet a specific customer need. The customer need is well understood through market research. Good examples of such products are in the Consumer goods industry: Colgate tooth paste with salt. J…

3. "Aggressive scenario": Increasing the expected return for the opportunity curve while reducing the loss at the same time increasing the likelihood of the outcome falling within the forecasted opportunity curve (Fig 4). This is not just about shifting the curve by its mean and reducing risk, but also about increasing the likelihood that the outcome will fall within the opportunity curve that is forecasted. Good example of this model is that of an iPhone, iPod, etc, here Apple has done something magical in reducing the returns from the opportunity curve through innovative design to create an successful market for its product, while at the same time limiting the left side by offering complementary services such as iTunes, tie up with telecom operators who are ready to offer 3G services, and so on. They may not have necessarily addressed the immediate customer need, but created a new customer need. These products are revolutionary in its nature and it is often difficult to forecast such model without tipping off competition about such an entry into the market. There are few companies that can create such opportunities.

 

Having discussed all this, we cannot say with certainty that our forecasted model will always predict a positive outcome or we have a mind and hand of God to plug the downside of an opportunity without commensurately impacting the upside!

 

But we can definitely analyze scenarios based on range of possible outcome to satisfy ourselves at the time of making business decision!

 

 

Contractual options to manage IT Outsourcing risks and the paradox therein for Fixed price projects...

I heard a very interesting presentation by Late Peter Bernsteing knownt to be an expert in managing risks...he made very interesting remark about risks and gave some real-life examples from the finance industry where options are effectively used to manage risks...He had this very interesting articulation of the idea of risk through few anecdotes that sparked my imagination and led to some very interesting insights about IT outsourcing industry....Lets see some of the anecdotes he used and how they relate to our IT industry...

1. Finace industry always revolves around making decisions based on incomplete information. This leads to us taking risks and an expectation to be rewarded commensurate to the risks (the whole idea of CAPM by Modiglani and millers, the Betas our ability to quantitatively assess our risks).
In IT outsourcing contracts, we do similarly solution and price a fixed price deal based on incomplete information (estimates, scope of work, etc.). This is a risk that we undertake for which our rewards are the margins that client pay us. Now unlike financila industry there is no standard quantitative model we use to assess risks and can expect to get rewards commensurate to the risks we take....So the question arose within me why do we bid for fixed price projects when we do not have complete information? (It is a completely different topic to define what completeness in information mean...we will discuss this hopefully in some post in the future)
2. When we buy shares of a company we have a passive control over the decisions of the company and the decisons we make as passive investor is reversible. On the contrary if we look at the Executive or management has active control and make more decisions on behalf of the company but their decisions are irreversible. The do take equal amount of risks for making decisions as we do and their rewards are obviously paid in stock options and % commissions (maybe Obama thinks that CEOs of funded companies shouldnt be paid at all....:-))..Now in IT outsourcing contracts when we do a fixed price 3-5 year deals the client and service provider do make an irreversible decision for a fixed duration. Their decisions are irreversible and are actively involved, and seem to control the engagement through extensive management. Now paradoxically we do sign lot of Fixed price projects knowing fully well risks-rewards dont match, besides we make irreversible decisions which we presume to control when we dont/cant...(well there are other contract T&C to put a boundary around these changes but then what the heck the change management always are active and manage the heck a lot of change out of clients)
3. In finance industry we have instruments such as Futures, derivatives and Options that gives us the right but not the obligations to manage the risks with at a manageeable (Only for those who know how these markets operate and also note i'm not sayin small) price... So what it effectively gives a passive investor is the ability to make further choices in reversability of decisions but ofcourse at the cost of not being able to control the decisions of companies that has bearing on the outcome...Now lets turn to our IT industry the fixed price contract are risks with unknow outcomes, uncontrollable and active decisions require to manage a contract and finally has no instruments (forget the Change managers) to manage the reversability of decisions when we bid with limited information....

Given all the above tenets, why do we do fixed price contracts at all....Doesnt it make us stick out our ostritch neck to be chopped off by a predator, or sticking out a thumb that invariably turns sour....

Whats driving us to Fixed price projects that are based on limited information other then the seemingly predictable revenues that we fool ourselves to be getting out of these deals :-)....

Now why cant all the deals where we have incomplete information be contracted using the real options model that is prevelant in the Finance industry...come to think of it, this will lead us to consider all engagemetns where we are bidding with limited information to statrt off as T&M deals.. we can build a real option (:-)...if I can use the term here) to convert this to a fixed price engagement maybe 6 months to 9 months into the delivring on the deal...during this time we will definitely have lot of data and complete information to know what is the risk we will be underwriting through a fixed price contract...now to get the benefit of defering the decision of making an engagement with incomplete information to fixed price we need to compromise on the fact that the deal may not materialize for us at all at the end of 6 months or 9 months....we give client that right (but not the obligation to convert this to a fixed price deal), so it is like the client buying the call option if you will from us to convert it to a fixed price model...so what do we do as a firm selling the fixed price option to cover our cost for lost opportunity if the deal does not materialize...we will expect client to pay us for the T&M project in the interim of 6 months to 9 months and the cost of reversing this decision still exist with client and with the service provider......ofcourse imagine if we also have an exchange where different service proividers can trade this...we can in effect trade these options with several supplier out there in the market..and ofcourse the underlying resources need to move with this too that are serving the client....

Looks like this idea is too raw and i'm almost at the boundary of being called insane...but nevertheless a good topic to explore further....What is your thought here...pls share your thoughts on my jabber....

What lies on the other side of Economic Event Horizon for IT Outsourcing industry?

The economic event of meltdown and slowing growth that we are witnessing today is unprecendeted in its nature in terms of the following:

1. The scope of coverage (includes all the industries)
2. The scale (effects felt globally) unlike the prior Japanese, Argentinian currency crisis, Russian bond market initiated crash or the East Asian BoP crisis
3. The intensity/depth of effect it has had on the industry
4. The speed at which it propogated; virtually in 6-9 months timeframe it had affected the scope and scale


What lies on the other side of the unprecedented economic event horizon...No brownies for guessing it for the Financial industry as almost every one has seen and will see in terms of regulation, infusion and bailouts by governments, recapitalization, more stringent monitoring of risk exposure...read more of it in RGE Monitor an article written by NY Stern school of business. Lets look at our IT outsourcing market alone for a moment. I just happened to come out of a leadership meeting at work and was quiet amazed that every one claiming that the other side of the event horizon will be fundamentally different from what we have witnessed in the past...But no one knew what exactly what it really means :-)...either they thought we may not understand it or they themselves were not so sure.... I for one believe that they might've thought we would not understand it.

The IT outsourcing industry has witnessed just one such downturn in Year 2000 & 2001 (Popularly called DotCom Crash) when the Telecom & Technology industry led downturn had immense impact on us (we will compare and contrast this in a separate post) . Having seen through that downturn and journeying through several organizations and roles, here are my insights:

1. Client will demand more value (one can define it in many ways) to be delivered by Suppliers at lower cost.
2. Client would demand transformation of their IT services/model/organizations leading to higher efficiency and effectiveness of IT support function at lower cost.
3. Client would expect suppliers to bring innovations to life through IT services to businesses earlier, and faster than their competitors at lower cost.
4. Higher performance/productivity levels (enforced through stringent SLAs) for thier businesses than before at lower cost.
5. Better resources (may I call them Super-humans: higher talent, highly flexible, having shorter learning curves, working longer, etc.) at lower cost.

Now if you do not understand whats and how of lower cost, it is immaterial you are best in any other tenet. Remember you still cant get a dime for your organization and find yourself running around amidst headless chickens or Heady humans ;-)...

What has been your experience regarding these heads and your predictions on the other side of this event horizon?

Will democratising of Innovation lead to futility of Patents & copyrights?

There is the amazing trend of democratizing innovation carried out by Open Source Software..remember a blog I had written on the same topic fome time back....it seems the abstraction of the thoughts there has finally leading me to understanding the idea of democratizing innovation...thanks to great open source book by Eric Von Hippel and the book by MS Krishnan and CK Prahalad in their book "New age of Innovation"...


Interestingly, we are seeing more user initiated innovations shared freely and openly off late. It seems the key motivation for sharing the innovationa re:
1. The purpose of sharing innovation to benefit the society... Great example generics in the market by developing countries like India...I know pahramaceutical companies will hate this, but who cares! other example include wikepedia
2. The value of getting back refinements to the innovative idea by user community that leaves the product or service richer than it would have been otherwise..Great example is Linux...other example include the custom Semiconductor development kits by Xylinx
3. The motivation one gets by merely sharing their learning experiences to wider audience out there....Great example Innovation community portals (i've written about these earlier)

Now lets look at it from the financial angle:
we know that innovation leads to sunken cost for the innovator...there can be the direct costs or several proxies to these costs such as invested time, effort, and so on...We all know from our business experience that sunken costs are always unavoidable and unrecoverable unless some greedy accountant out there capitalizes it and amortizes it over the the life of the innovated product/service so he can avoid paying additional taxes ;-)...so whats the big deal in not being too obsessed with recoverability of the cost...the benefits of sharing openly that I listed above far exceeds the sunken cost for some....

So now lets come to the entire idea of having patent and copyright laws preventing/limiting the wider commercial benefit of an innovation...what it really means for the commercial benefit is to exploit the common need of the large community of users by the manufacturer/service provider to make money...in the process what really happens is the innovative product/service focus is to not only recover the sunken cost but also to generate more benefit to satisfy the greed of the organizations....The product/service meeting mass-market needs is not good enough for some users of it, who have either found better use for it by innovating more on the product...good example here is the surf board holders innovated by surfers to enable them jump over waves pointed in the book by Eric von Hippel...or alternate uses for the product :-) Benadryl used as a good substitute for chep intoxicating agent....

Atleast in the 21st century of consumerism we will see more users and the communities will start creating more innovation on the product making the product more of a commodity....the patents and copyrights then naturally becomes futile either by filing new patent over the base and completely altering it...well some of the TRIZ fans would love this.....Net-net what it will do is displace the manufacturer from the Product-Development/Engineering and Service development domains. They may only survive in the realm of Manufacturing or Service execution spaces purely due to the benefits that can accrue due to scale economies...

So what does it really mean....i've really argued (may not be a very erudite one) for futility of patents and copyrights and favoring the open source innovation as long as I'm not a manufacturer of the service provider with huge sunken costs :-)....Whats your view...

Cloud Computing & SOA - Hype and Hoopla

There is so much hype and hoopla about Cloud computing and Service Oriented architecture....as I had earlier mentioned in my earler article that these are going through the peak of Inflated expectation (thanks Gartner for this nice terminology other than the Magic Quadrant)....

If you have been long enough in the IT career say 10-15 years you can see through it nothing differently than Inflated expectations...

Remember the great hype and Hoopla created at every phase of an Innovation:
a. Midrange computers challenging the Mainframes: The SUN & HP of thw world giving the IBMs of the world the run for their money...it all seemed to be a great hype on midrange as Intel based servers today are giving the midranges run for their money...
b. RDBMS challenging the Network and Hierarchical DBMS: Remember the Oracle/Ingres/Sybase/Informix/DB2s of the world giving the DEC and IBMs databases run for their money...we also brefly saw Object oriented Databases momentarily sending sparks and fizzling out
c. Client server architecture challenging the Mainframe screens/C cursors/the Windows SDK fat clients: Remeber Oracle, Powerbuilders of thw world giving the gargantuan and complex Windows SDKs run for their money...all to be challenged again by the internet thin client frameworks...we saw a full circle here...

What is a pattern we see in all the above...it seemed that they are really reinventing the wheel or coming a full circle...I'm unable to articulate this much better, but let me try and give this simple analogy...its like the earht going around the Sun year after year in a clocks precision...I dont really see the Cloud computing any different from retracing the Mainframe era....and the SoA going back to the very fundamentals of what the technologies and methodologies exit for to run a business with what you have rather than buying new technology to support the existing business....

So whats so great about the SoA and Cloud Computing...not coz' i', not chasing them this time...it all seems to be a good marketing gimmick...what has to be innovated in the technology space has really been innovated and it is just about putting the old wine in a new bottle or just plain message in a bottle ;-).... it seems its all about the context and not really the core....

What do you think? Just a hype and Hoopla around cloud computing and SOA...Whata the big deal?

Innovation at the Core and the Context - An IT Services View

Lets define what is Core and the Context first.

The core is the raison-de-etre of an organization, and/or
the purpose for which a going concern/organization exists,

Good examples of core:
a. IT Service Organizations: Wipro, Infosys, TCS, etc. exist for the purpose of providing IT services to clients
b. Tiger wood brand exists so he plays Golf :-)...
c. Shahruk Khan/Amithab Bachan/Angelina Jolie brand exists so he acts in Movies


The context is every other things that supports the functioning of the organization:
a. For IT Services: Company laws, GAAP/IAS/India AS rules, Brand, Marketing divisions, etc.
b. For Tiger woods: His clubs, his golf gears, turf, Gillette ads, golf balls, :-)...
c. Sharuk Khan/Amithab Bachan/Angelina Jolie: Loreal, Inox, Paramounts etc.

In the earlier post I had discussed about the ideas I got reading "Dealing with Darwin"....Thinking further on it, I realized that most of the innovation 15-16 different innovation types were really in the core of the organization...nobody talked about innovation at the context....

Imagins a new innovation of Titanium metal used in making golf clubs it may give our great Tiger woods an extra fillip of performance on the turf...maybe even a minor edge in his core to win more matches...

Now I realized that some of the Operational excellence zone innovations: Value engineering, Value migration, Integration, and Process innovations actually performed on the context of IT service industry can infact give the IT services industries the extra edge....Imagine applying lean principles, 6-Sigma, and good accounting policies, excellend financial controls within the organizations can provide great reputation for the service industry and infact contribute to winning more deals for them in the market...guess what the innovation at the context really translates directly into providing experential innovation in the customer intimacy zone...clients would love tow work with organizations that are nimble, flexible and provide a great reputation when associated with....That is the case of some of the Indian Pure plays like Wipro, Infosys and TCS (for its Nano...god one client manager in US remembers only one name TCS not coz it provided IT services coz thee guys make lorries and also sell Tetley tea :-)....

So what I really think is that the different innovations mentioned by Moore in Dealing with Darwin are indeed highly interconnected and one feeds into another....it seems to me that great organizations in the world (not just IT services companies) have infact know these interconnectedness and play the innovation nodes so well that one feeds into another leading to growth...For example I dont think Toyota has just been known for just operational excellence through its lean principles that is leading it to be Numero Uno in the Automobile industry it is far greater than that!

What do you think!

Dealing with Darwin in the IT Industry - What is the Innovation strategy that is apt for the IT Industry

In Dealing with Darwin book Geoffrey A. Moore brings a great menu of innovations types that can be applied by organizations operaing in different market/growth phase of their respective industry...

Let me trace the growth of Indian IT Services Industry and the innovations that were so effectively applied over 2 distinct phases:
Early 1980-2000: The Indian IT Industry was in the growth phase and if we look at the dominant innovation themes was that of Disruptive innovation of Offshoring. The primary participants here were TCS, Wipro, Infosys, PCS, IBM, and HCL-HP
2000 onwards the IT Service industry is quickly become that of a mature market: The dominant innovation themes used in customer intimacy zone were: marketing Innovation and experential Innovation. The marketing innovation was to provide different types of services AM, & AD and within them Fixed price, capacity and T&M models. The experential innovation was to provide services to client businesses on SLA and KPI. The participant in the industry were still TCS, Wipro, Infosys, IBM, HCL-HP and we saw new emerging MNC like Accenture :-)...
On the operational excellence zone it was a combination of Process Innovation and off late Value engineering and Migration innovations. The process innovations were the ISO, CMMI and so on. ALl participants in the industry have adopted this innovation which resulted in these cores actually becoming the context. Very few organizations graduated to the value engineering and Value migration innovation like TCS and Wipro by adopting 6-Sigma and Lean management practices....But there are some fast followers..

Now all the above innovations have actually been adopted and replicated very quickly by other resulting in these cores actually becoming the context...Now every client looks for their service provider to have adopted and assimilated these innovations. Hence performing on Quality, offshoring etc. only gives a neutral or negative outcomes to service providers and definitely not positive :-)...

The question of what is really the core of the services offered by IT services companies...I really dont know....I've been struggling to figure this out myself...the core it seems really lies in the unique culture of the organizations and in specific domains of IT service like in embedded engineering etc. we'll dvelve on this topic later...but you can reach me through the comment section if you are interested in discussing this and application of the 5 model core-context repurposing strategy...

It is also interesting to understand what will a new player getting into the market operate on in the mature market. It definitely has to be a disruptive innovation...where will this disruptive innovation come from:
1. Marekting innovation/Experential innovation in the customer intimacy zone: For example: Cost, price innovations like outcome based pricing, variable margins, etc.
2. Integration, Value Engineering, Value Migration/Process Innovation in the Operational excellence Zone: Usage of automated tools or operating model to provide a unique benefit to the client....

Or a combination of the above two...It would be good to think about this
Interestingly we see that the market has not gone into Declining market yet...so I'll reserve discussing this for later...however we have seen some organizations may soon reach this phase if they are in niche/commoditized service areas like AM where only the bigger players can survive the challenges by sheer scope and size....

Well my thoughts are flying in a zillion directions right now....maybe i'll structre it better with more insights....watch out this space for more....

Factors driving Output based pricing in IT Services

What are the factors that drive output based pricing in IT Services?

This is an interesting question client seem to be asking for IT services from vendors. Lets define the context for zeroing into the factors for output-based pricing. The context of our discussion is typical Application maintenance engagements with defined Service level metrics. Some of these factors that could be applicable are:

1. Price per ticket. To accomplish this the ticket has to be clearly defined and categorized:
a. Level of ticket (L1/L2/L3 definition,
b. Priority/Severity of ticket (P1/P2/P3),
c. Technical skill/experience required to resolve the ticket (Technical/Functional),
d. Timing when the ticket is raised for resolution
The best place to apply these is in the Application maintenance tickets.
2. Price per Service. To accomplish this the service has to be clearly defined and categorized using the same parameters as above. This is typically valid for Infrastructure based tickets, archiving, patch application, typical admin. tasks, pwd resets and so on.
3. Price per outcome/deliverable. This can often be applied for minor enhancements tickets such as price to perform a test based on defined test scripts, release/transport of objects to production, etc.

But to define all the above one needs to have control over the mean and almost negligible variance in resolving the ticket, providing a service or a standard estimates for outcome agreed by both the client and vendors/service providers.

We'll discuss the benefits of such a pricing model to client in a seperate thread...

Avenues are available to play more with this by providing options to client. Any ideas that you want to share. If you are interested to develop and share more perspectives on this mail me to sunil_raghunathan@hotmail.com...

What is common or different between "Product Lifecycle", and "Technology Hype-Curve"?

 

To understand the basic jargons here are few references for you:
1. Product Lifecycle: http://www.quickmba.com/marketing/product/lifecycle/
2. Technology Hype-Curve: http://en.wikipedia.org/wiki/Hype_cycle

 

A quick Narrative

When we look at the combined figure all new technology trigger leads to new product introduction in the market. The unabated hype results in inflated expectation this is usally marked by the growth  and maturity phases. The market soon comes to grips with the real potential of a technology offering in terms of the benefits/utility of it and troughs in disillusionment, this often is the stage of market decline. The final phase is a plateau of productivity reached by the new technology, this is where the product sales tanks… This is where the “Innovators dilemma” creeps in and also if there is no innovation dilemma there is the “long tails” for the product…Which way it heads to depends on what is the nature of innovation….

Now lets look at the commonality and difference between the curves….

 

First Lets tackle what is common:
1. They all have a "S-Curves" or seemingly a "Normal curve"
2. They all explain the phenomena of a seemingly predictable pattern for entities through their lifecycle
3. They all appear to be simplifying (maybe somtimes trivializing!) the challenges of Technology Forecasting. (Refer more on techniques one uses in Technology forecasting...)

Lets look at what is so different:
1. They use different jargons (depending on your subject of interest: Marketing, Change Mgmt, etc.) to explain the inflection points on the curves


I cant see any more differences though...Need your help! Any comments or perspectives you can share?


We can look at few ideas like Grid Computing, Cloud computing, SoA and so on on the curves to see how they pan-out... Quiet interesting to view these trends by positing them on the curves....I was quiet amused when I was reflecting on my journey through school where I was so obsessed with AI and NLP...Thanks to my internship in one of the premier R&D center and few Terminator type movies, I was able to see through the disillusionment :-)...

Its a worthy exercise after all!

For more reading on this topic visit : http://www.au.af.mil/au/awc/awcgate/awc-futr.htm#adoption

Its time well-spent I would

Entrepreneurship: A great article on what makes entrepreneurs entrepreneurial and the gauge of value...

I came across this really interesting article written by Saras Saraswathi, which I downloaded while looking up Vinod Khosla the No: 1 VC ranked by Forbes & Fortune. http://www.khoslaventures.com/presentations/What_makes_entrepreneurs_entrepreneurial.pdf. The article clearly brings out what qualities makes an entrepreneur unlike the qualities that make a good manager by bringing out the difference between causal reasoning and effectual reasoning. While in causal reasoning the manager often knows that goals to achieve and may or may not use creativity to pick the best means to achieve the stated goal, while the entrepreneurial effectual reasoning takes stock of the means and set out to action on several means to achieve a unstated or not clearly articulated goals. The author brings out an interesting nuance that good entrepreneurs demonstrate both the qualities of reasoning fairly well....Quiet interestingly entrepreneurs have 3 very important principle abstracted by the author so well: 1. "The affordable loss principle", 2. The strategic partnership principle and 3. The leveraging contingency principle. The Causal reasoning fellows look for predictive model to enable them control a situation, while the effectual reasoning fellows don’t care predicting things they can control nevertheless...Quiet interesting insight for some managers out there :-)....it often sparks a question in my mind why are managers so paranoid about risks-contingency plans, issues etc. on an opportunity...aren’t they the experts who should take it on stride and solve it as it comes along or atleast influence the desired outcomes being the players rather than the spectators... to me that separates leadership and management....

I've also been simultaneously reading about the value created by entrepreneurship http://www.mitpressjournals.org/doi/pdf/10.1162/itgg.2006.1.1.97 . One is an Opportunistic entrepreneurship and the other is Necessity Entrepreneurship.
Opportunistic: It seems leads to tapping the opportunity for unmet need in the market through Innovation. This will result in creating probably a "New Business Model" with new job. This I also come to believe has a positive correlation with GDP and growth of country, thereby adding the maximum value.
Necessity: This I understand stems, when a new entrepreneurial venture is started as the resources are not employable or lack of opportunities for employment. Classic example is that of an agriculturist who ploughs his/her own land to make a living. This does not add great value to the society...
The article also goes ahead in identifying three stages through the development cycle that a country goes through resulting in entrepreneurial ventures/self-employment opportunities: The 3 stages are: agricultural/small manufacturing firms with high self-employment but limited value, stage 2 where managers are in great demand and small firms become bigger, here the self-employment opportunities shrink, this is then followed by Stage 3 where services overtake and creates more self-employment opportunities. Interesting to see in which stage a country is in, thereby giving us cues to what we can expect as the next stage of development/evolution of firms.... But, interestingly it also helps us understand whether an entrepreneurial venture would eventually lead to contributing value to the society on nation-sate.....interesting reflections for me is to consider if any of this thoughts could be used to view the new deals that we sign for our firm....are these deals value adding or value eroding....which stage of cycle is the firm in considering the unprecedented volatility in the markets right now....interesting to think about it....

Is R&D spending a good indicator of Innovation?

To understand that we first need to define what Innovation means. Innovation is a defined as new way if doing something. There are interesting ways of measuring this and one can get more information from the Oslo Manual, Frascati Manual, Patent Manual, and so on.

So now let’s try answering the above question on whether measurement of R&D spending is a good indicator of Innovation.

No maybe not. Let’s look at some examples all research does not fructify to useful innovation as in the case of Pharmaceutical research. Similarly all development expenses do not lead to innovation either, this cannot be more true than looking at the auto industry...Interestingly the R&D spend for 2007 by 1000 top companies (in terms of revenues) is 3.6% of their sales decreasing moderately from last year. Interesting pattern to observe here is that Software/Internet/Computing & electronics, Pharmaceuticals and Auto are the top R&D spenders. Software and Internet industry has been spending 13.7% of their sales on R&D and are on top of the table even before healthcare...isn’t it surprising....how much of their innovations are we seeing that is making difference to the lives of millions of ppl out there...contrast this with pharmaceuticals....interesting parody!

I'm dying to get the "Grabbing Lightning" book about innovation where the authors’ state: “We found no relationship between R&D expenditures as a percentage of sales and innovativeness,” . They reached this conclusion after reading the same article that I read :-)....( “Beyond Borders: The Global Innovation 1000,” by Barry Jaruzelski and Kevin Dehoff, s+b, Winter 2008.)


It is altogether interesting topic to discuss whether innovation has contributed to profitability and sustenance of a firm in industry more than anything else? I'm not too sure if I'd look at Auto companies in the US....

Exploiting the Market gap through innovation

Interesting interview from Charles Geschke on his life at Adobe....http://knowledge.wharton.upenn.edu/article.cfm?articleid=2038

Amazing to know that this 4th largest IT products company was the first to pioneer freeware with Adobe much before the Linux of the world. Charles cites of how Microsoft has bullied its way into the market by cloning someones innovation on Excel, Word, PPTs and so on and did so well for itself. He also mentions how the company belts out new products so frequently into the market and monetizes it. The simple rule he says is by exploiting the market gap i.e. identify a unmet need in the market, and launch a product to get 100% of market share....


But honestly, how does one spot such market gaps and exploit them for economic profit in an increasingly complex world! Lets look at what structured approached we have to uncover potent unmet needs:

1. Marketing research - which companies in CPG industries: P&G, Unilever, etc. constantly exploit
2. Proximity to customer by eliminating channels - which company like Dell has exploited so well...

Or a sheer gut feel and intuition!!!! or reading "Blue Ocean Strategy"!

Triggers for Innovation - A Laundry list!

What ae the triggers for innovation?

1. Unmet customer need/unfullfilled demand
2. Supply Side Scarcity (resources, capabilities, etc.)
3. Survival instincts!


Any more that can be added to this list!...

The innovation cost of information assymetry..

Is information assymmetry one of the biggest Innovation impediment?

My hypothesis is Information assymmetry can inhibit:

1. Innovating new product/service
2. Taking innovation to the market for economic benefit

It is often the case that innovative ideas do not come to the fore not coz' it is not potent to produce economic benefit, but more so coz the innovator does not have a method to its madness to tap it for econmic profit.

Some case in point:
a. Toyota did not invent innovative cars when they started off.
b. Dell did not invent innovative personal computers.

All they did was copied a FORD/GM or cloned IBMs innovative thoughts and exploited them to economic profit through ingenious process innovations. They did that as they knew that some of the methods when cross-pollinated in their industry can aid them in reaching far-fetched profits (which other wise would not be feasible). They exploited the information assymmetry of the existing companies in uncovering customers unmet need and applying these techniques/methods to economic profit.

Another way of looking at information assymmetry, I've seen countless number of cases where an innovative idea never reaches the light of the day due to several reasons:

1. Inability of a technologist to understand markets/customers well (case of Palm PC)
2. Inability of a marketer to understand a technology and its capabilities (cant get a case right-away bit can get back to this later...)
3. Inability of an innovator to understand legalities leading to loosing a patent and hence commercial benefit....


The cases could be innumerable. Whenever one understands and plugs these information assymmetries we have often seen successfull enterprises generating great economic benefit not only to its stakeholders but to the society at large...


Do you agree/disagree? Any interesting insight of yours!

Brains As a Service (BAAS) - Brains on rent

Is there a scope to offer brains on rent?

There are so many interesting innovations we hear lately especially in the Business-to-business space where enterprise services can be rendered as a utility (like electiricity, water, etc) without assuming ownership of resources & capabilites (power plant, river, engineers, etc...) and their risks (issues in dealing with resource & capabilities).

Think about few such themes:

1. "Cloud computing" where IT processing power is rendered as a utility service. Imagine something similar to electricity. We dont care who produces it, how it is distributed and how it is transmitted. All I care is I plug into a electric socket when I need power for my laptop and I get it. I pay a fee for it. I like the baby steps of Amazon here with their EC2 (Elastic clound computing) platform.
2. "Software as Service": Amazing feature to offer software as a service to clients. The client does not have to bother about infrastructure, software license, supporting the application and so on. All he needs is the IT information service rendered to it on paying rental for such a service. Good examples www.salesforce.com, Sugar CRM, SAP Business By Design???


All the above have a viable business to be made on the "long tail" of clients who need simple service at utility rates, without having to bother about the INfrastructure, Software, people to support and so on. Lot of business to be made out there it seems.

In similar light, can we lend our brains to enterprises to solve their productive problems? A kind of Brain as a Service model. Ofcourse, some of us can make a living out of it and that too a prosperous one at it. I guess, this is what Consultants and IT engineers off late do it seems, but by being part of a consulting firm or a enterprise. Imagine if clients can lend the brains of just the individuals and not contract out with companies/firms/enterprises and put them to productive use. All this, without being encumbered with large companies/firms/enterprises out there...Why should I have to go to consulting companies (like Mckinsey, BCG, etc) or Service providers (Accenture, HP, IBM, etc.) to hire the people they have. If I know that all I want is specific talent from people and not the encumbrance of these companies....

Some contractors out there have already doing this like for e.g. teamlease...are there business more companies out there that work on similar model? I contract with individuals not with companies then....

Maybe my idea up there is quiet raw! on the edges of being incoherent or senseless :-)....

Lean in ADM - Mckinsey Chauvinism

Sometimes I like criticizing Mckinsey and their superficial thoughts. Here it goes again on using Lean techniques for ADM engagement. How shallow and superficial they seem to be sometime! http://www.mckinseyquarterly.com/Information_Technology/Management/Applying_lean_to_application_development_and_maintenance_1979

I remember dealing with bunch of Mckinsey consultants donning a impeccable (Armani) suit and combing hairs in the rest room before a scheduled meet with CxO of my former organization - guess what they were pitching to get a consulting assignment to pioneer lean techniques in IT Services. Ironically they reviewed the work I was already doing for a large utilities companies, pretended to ask me questions and understanding what I've done (well ofcourse deep down I could sense they were thinking how to make their USD 25 Million money out of this client, and were giving me the "Rats-Ass"). They then repackaged whatever I told them into a nice document/ppt and pitched to the top mgmt. claiming to solve all the problems of the organization.

Guess what you can fool around with some people some time, but not all of them all the time!. They got mutiliated when their idea was presented to the leadership and lost the deal. On the contrary some good sense also prevailed among the leadership, to let us pioneer lean techniques ourselves by just reading books and applying it innovatively in our organization...the rest was taken over by the HBR case study on whether applying innovative techniques like Lean can help change course of my former organization over the other formidable competeitors in the IT services market....

The next I heard was 3000 miles away in Germany when an ex-Mckinsey partner messing up with a Communication giant telling them that vendors should apply lean techniques to cut-down ADM to accomodate + or - 30% variability after committing to the estimates....

Anyways happy reading Mckinseq quarterly....It is good sometimes to introspect!...

Now, I feel a lill good bitching about Mckinsey! I'm a mere mortal and this is my second nature!

Can we have a People Exchange platform to trade resources?

Think about this! We always struggle to get resources with right skills and experiences for an IT engagement. Though, we get the resource sometimes, we are unable to gauge the salary expectation and price them for a client requirement for a profit. How do we manage the resource economics?

I look at the above situation akin to a stock market where instruments (shares, bonds, options..) are brought and sold for profit. The analogy I can draw between the instruments and resources are as below:

1. Instruments have a certain buy price similar to the payroll cost for resources
2. Instruments can be sold in the market for a price, whereas resource are in turn deployed in engagements with client for a price.
3. The differential in buy and sell price of instruments can lead to profit/loss similarly for resources
4. One can speculate on the prices (buy/sell) of instruments in the market, similar to the one we do for resources. All that without agreeing on the intrinsic value of the instrument/resource...

Now lets look at what Stock exchanges do:
1. Provide a platform for buying and selling instruments based on demand and supply
2. Aid in speculate/price discovery of instrument based on whatever rationality/irrationality

Can we then create an exchange for resources as well similar to stock exchanges then. The resource exchange can then provide this platform for buying and selling these resources based on the need and also aid one in price discovery. Now let us devise this model to face the resourcing challenges for IT Services engagement:

1. The Job portals (like Monsters of the world) become the brokers similar to the agents who fulfill the resource transaction obligation
2. The IT Service Provider can behave like companies that house these resources based on intrinsic value the resource with specific qualities come with a specified price to sell in the market...there can be a standard valuation that is agreed by all IT Service provider in the industry for a specific grouping of resources based on skills and experiences...
3. The clients who want resources to solve their issues then bid to buy the resources through the exchanges
4. Have a new stakeholder regulating agency that comes up with a standard/proprietary valuation model that all Service provider agree on....


The benefits this will bring to the IT industry are:
1. Clients can benefit by discovering the price through the resurce excchange platform
2. Resources get what they are worth by having a standard pricing based on valuation model, rather than having a bazaar type negotaitions on salaries
3. Service providers can value the resources based on a proprietary model
4. Job portals can get their commissions based on the value they add to the clients and service providers


Can we develop similar model? Let me know if your thoughts if this model is viable!