How does IT add Value to Business?......what is behind the question?
Saturday, November 14, 2009
It suddenly seems to be the flavour of the day. Everyone is talking about “ how does IT add value to business”.
It is not as if IT was not adding value earlier so I wonder what is behind this heightened sensitivity towards “adding value”.
Some top of the mind factors as I see them –
a) Economic Downturn – When money was aplenty, and creativity of IT world was at its peak, budgets were generous and freedom to IT significant. Now the situation is grim, the market is tanking, shareholders are questioning the board, board is asking the CEO, CEO is asking CFO, CFO is asking CIO and CIO is asking his team and his vendors – Are you sure you are adding value to my business for all the dollars that I am spending ?
b) IT within Enterprises has become way too complicated – In the last 30 years, IT has become increasingly complicated with multiple vendors and standards. The mortality rate of vendors has increased the complexity. Interoperability of various systems is a key problem and integration which was thought of as a solution often leads to more problems if it is not thought through well. This complexity is coming in the way of business getting the ROI on the dollars it spends on IT.
c) Vendors are guilty of overpromising – In the last 30 years, the best of global talent gravitated towards IT and Finance. The share of this talent which went in marketing also went over the top in promising what IT can deliver. IT can solve some of the problems and can help in many areas but it cannot fix everything. Enterprises who spend a huge amount on costly products and servics, often discover to their dismay that they have not got what they thought they will and the gap in expectations continues to be signficant. The lock-in models (both techology and business models) practiced by most vendors only increases the complexity.
d) Enterprises not clear about what they want – If IT has to deliver value to business on a consistent basis, business, finance, CIO, and vendors (products and services) have to be in harmony and sing the same song. Enterprises need to align the IT strategy to business strategy and articulate clearly their expectations from the technologies they choose to implement.
If enterprises do not do their job , the talk of adding value to business will become like a husband asking his wife – fine you take good care of our house and our kids, and you ensure the food is on the table when I am home, but how can you help double my salary at work?
It is not impossible, but it is not realistic and not a necessary condition.
Having said this, the fact remains that IT has the rare positioning of being both an infrastruture lever and a transformational lever. Given this interesting position, IT does have an onus to show clear and consistent value to business, both in terms of keep-the-lights-on work, and transformational, game changing level…
In the Next post, will attempt to answer the question,
posted by Anirudh Joshi @ 10:49 PM,
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IT Services Companies...time to be wooed?
Sunday, November 1, 2009
The IT world has seen a heightened level of interest in the services busienss in the past 18 months.
HP acquires EDS for $13.9 Bn in May’08 at a premium of 32.5% over the closing stock price.
Dell acquires Perot Systems for $3.9 Bn on 21st Sept 2009. at a premium of 68%
A wek later, on 28th Sept, Xerox acquires ACS for $6.4 bn. at a premium of 33%
For years the IT services companies were seen as the poor cousins of technology companies who built technology products both in hardware and software. Companies like IBM, HP, Sun, Dell, Microsoft, Oracle, SAP stole all the limelight and all the attention, and had the best of margins, especially the software companies.
IT Services companies, some of whom had started as early as 50s (CSC) and 60s (EDS) were seen as the backroom “operations” people who attended to the nuts and bolts and plumbing and engaged in what was perceived as low end, low margin business.
Although IBM was the first technology company to give a strong focus to services in 90s in the post Gerstner era, the other technology vendors did not see it necessary to copy IBM’s strategy, untill last year.
What exactly does this recent interest in services business signify and what does it portend for future?
1) Watch out for more acquisitions of services companies by product companies
As the global economy moves from growth phase to recession to a possible but slow recovery, hardware product businesses are no longer assured of steady revenues and healthy margins it enjoyed from fulfilling the natural demand which came out of growth till a year back.
Services can provide a healthy succour in a revenue stream which is additional, recurring and predictable unlike sale from hardware products which is one time.
As every product company hastens to strengthen this revenue stream, we will see an increased interest in acquisition of pure play services companies by companies who get majority of their revenues today from sales of products.
The other large scale product companies thugh not necessarily server companies are Acer, CISCO, EMC.
It won’t be a surprise if these companies announce acquisitions of services companies. These acquisitions may not necessarily be multi billlion dollar acquisitions but acquisitions of some scale of niche services companies is a very high possibility.
2) Software Companies will climb on the bandwagon too…
Software product companies have significantly higher revenues from sale of software licenses and recurring license maintenance. Enterprise customers, with everyone under pressure to reduce costs, are less and less willing to keep shelling out huge costs for software license maintenance and will look at options to avoid this. Success of third party maintenance companies like Rimini Street is a clear indicator of this trend. More companies will copy Rimini’ business model and very soon software product companies will join the HPs, Dells, and Xeroxes of world to acquire services companies.
3) All this activity is more good news than bad news for pure play services vendors
Companies like Accenture, Cap Gemini, TCS, Wipro, Infosys, Logica, Atos are set to gain as the neutrality of independent services companies with no axe to grind in terms of a techology platform will be seen as a big positive by enterprise customers.
It will be hard for the services arms of IBM, HP, and EDS to avoid the customer perception that they will push the technology platforms of the parent companies
4) Good opportunity for smaller services companies who are in trouble..
Services companies who are not doing well, and there are several of them, will try to benefit from this recent interest to hasten their merger strategies and will rush to find an appropriate suiter who will buy them and bail them out of their troubles.
posted by Anirudh Joshi @ 1:38 AM,
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