Preparing for the industry inversion

When people look back at 2003, some might see it as the beginning of an economic recovery that sparked renewed growth in the IT and telecom industries. However, there are numerous indicators that these industries are not only experiencing renewed life, but are fundamentally recreating themselves. It is very likely that 2003 will be seen as an inversion point in which the IT and telecom industries began a broad-based shift from technology-driven to services-led businesses.

This movement toward service-centric business models poses new challenges and offers new opportunities for those who grasp them. This industry inversion will require IT and telecom professionals to swap old technical skills for new business proficiencies. It also will force IT organizations, technology suppliers and telecom carriers to redefine how they deliver value to their end users and customers, respectively.

On the enterprise side, IT organizations must prepare for the inversion process by looking at themselves as internal service providers rather than insulated cost centres, in order to respond to budgetary constraints and rising end-user discontent. They must learn how to package, price and promote their IT competencies in corporate business terms, or they will become victims of an expanding array of outsourcing alternatives that could land them on the unemployment line.

Offshore and domestic IT and business process outsourcing (BPO) has become the rule for a growing number of companies. AMR Research estimates that 70 per cent of energy companies will have outsourced all or part of their application development and application management in 2003, and utility companies are increasingly contracting for BPO services to cover their back-office operations.

Meta Group Inc. predicts that nearly every corporation will outsource some aspect of its IT operations by 2006 and on-demand computing will become the dominant outsourcing model by 2007. Gartner Inc. expects less than 10 per cent of companies will have the appropriate business processes and governance structures in place by 2005 to effectively manage their outsourcers and other external service providers. Therefore, companies must develop better vendor relationship-management skills and procedures to get the most out of outsourcing arrangements.

The inversion is forcing systems vendors, led by IBM Corp. and Hewlett-Packard Co. (HP), to repackage and re-price the computing power of their products to offer more cost-effective, on-demand services.

Low-cost competitors such as Dell Inc. must augment their phone and online support with greater on-site and remote management services. Software firms such as Oracle Corp., PeopleSoft Inc. and SAP AG must restructure their traditional licensing agreements and re-architect their products so they can sell and deliver hosted application and database services.

Telecom carriers must convert basic bandwidth services into a comprehensive portfolio of turnkey-managed availability, security, storage, messaging and other services.

These initiatives should be at the top of every enterprise IT department, technology supplier and telecom carrier agenda in 2004. Because in today’s upside-down world, it is no longer about your technology features, but about how you deliver business benefits.

Kaplan is managing director of THINKstrategies, a consultancy in Wellesley, Mass. He can be reached at [email protected].

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