2020 Vision – IT Services: Visioners, Assemblers and Deliverers

In the last paragraph of her prescient post, Social goes to work, Puni Rajah struck a veiled warning to the IT industry: “We are at an inflection, where the proliferation of low-cost, high performance technologies will permanently change the way we run our lives, and consequently, our businesses”. In his equally provocative vision of Software, Philip Carnelley posited that the data centre world would be dominated by four vertically integrated systems vendors (Oracle, Cisco, IBM, HP) whose main purpose in life will be to “service companies providing external clouds (platform-as-a-service) to companies of all sizes; and those end-user companies (and government) large enough to create their own ‘private clouds’”. Tola Sargeant confidently predicted that in the UK Public Sector “shared services deals will increasingly cater for a range of public sector organisations in an area including local authorities, education establishments, the police and healthcare”.

Yes, IT delivery will look very different in 2020 and thus will the IT services industry.

Much of the change will indeed be the result of consumer technologies flowing ever more rapidly through to ‘the enterprise’ – both private and public sector.  This is because each new generation of technology (hardware and software) expands the way people interact; consumer to consumer; enterprise to enterprise; and between consumers and enterprises. Mind you, harnessing these new interactions has been more a process of discovery than design. More recently it has involved establishing communities of like-minded (or like-interested) users (e.g. Friends Reunited through Facebook/Myspace/LinkedIn to Twitter) and then wondering ‘now what’? Profitably monetising these new interactions often proves a vexatious problem.

The role of IT services companies (in the broadest sense) in 2020 will therefore be to help enterprises profitably monetise the expanded interactions that new technologies force upon them. This will require adapting, and in some cases completely overhauling, fundamental business models – both of the customer enterprise and of the service provider. As such, The IT services industry will broadly segment into three roles: the ‘Visioners’, who will show enterprises how to profitably monetise the new interactions; the ‘Assemblers’ who will build the systems to do it; and the ‘Deliverers’ who will make the interactions happen. Loosely speaking, these are the ‘new world’ equivalents of the consultancies, systems integrators, and infrastructure providers.

The new IT services value chain

The Visioners will design the interactions. They will have broad and deep domain and technology experience. Visioners will be relatively high margin businesses - typically mid-high teens or even higher - charging premium prices, but mainly on a ‘time and materials’ businesses. Their fortunes will then, as now, wax and wane in line with the economy.

The Assemblers will piece together the ‘interaction modules’ mostly from readily available parts (i.e. ‘apps on tap’) and integrate them using architected platforms such as those from Salesforce.com, Microsoft, and Google. There will be a huge ecosystem of Assemblers, some ‘vertically’ focused on specific industries and sub-industries, others assembling ‘horizontal’ interactions, for example personnel management, procurement, etc. Where independent, they will primarily target mid-sized enterprises and as such will only be able to command high single-digit or low teens margins. Pricing will be more aligned to ‘functions assembled’ and numbers of interactions. This is a more resilient business model than for Visioners as there will be a long-term support requirement post-assembly, albeit at a relatively low annuity fee.

The ‘Deliverers’ will provide the interactions. Some will do it directly to the enterprise as SaaS Deliverers and Business Process Deliverers; others will just provide the raw infrastructure to Visioners and Assemblers – Utility Deliverers. Whichever, most interactions will be delivered from a ‘Cloud’. Deliverers will generally be relatively low margin businesses – mid-high single digits – running standardised processes using a low-cost base and highly leveraged assets (i.e. shared services). There will be little ‘value add’, especially for Utility Deliverers, though specialisation – notably in business processes – will command higher margins. Deliverers are the proverbial ‘keep the lights on’ businesses, but as pricing will be mainly output-, volume- or usage-based, they won’t be totally immune to downturns. Deliverers will themselves be supported by an ecosystem of technology support organisations, basically maintaining the hardware and software (e.g. break/fix).

The new supplier landscape - VISVs, GITSPs, RITSPs and the rest!

So what will become of the players in today’s IT services industry and what roles will they take?

• Vertically-integrated systems vendors (VISVs) –as mentioned, IBM, HP, Cisco, Oracle - will aim to take all three roles (Visioners, Assemblers and Deliverers) in large customer enterprises. Some will also act as Deliverers for their mid-market channels (VARs as we know them today) whom they will transform into Assemblers.
• Global ‘independent’ IT services providers (GITSPs) – today represented by the likes of Accenture, CSC, and increasingly, the top-tier India-based SIs such as TCS, Infosys, Wipro and Cognizant – will mainly gravitate towards becoming Visioners and Assemblers for large multinational or very large national enterprises (especially public sector), for whom they will also (remotely) manage legacy onsite infrastructure. There will be little difference between the ‘onshore’- and ‘offshore’-based GITSPs by 2020 (if not well before) as they will all have fully scaled onshore and offshore presence, and will appear ‘local’ in each country market (annulling the political issue).
• ‘Pure-play’ business process deliverers (BPDs) – such as Capita, Serco et al – will stick to their knitting. They will include sufficient Visioner and Assembler capability to transition common vertical and horizontal business processes to their own delivery platforms. They will also partner with VISVs and GITSPs for unique, large-scale, complex business processes (e.g. as might be found in central government).
• Regional/national IT services players (RITSPs) (e.g. today’s Logica, Fujitsu, Capgemini, Atos Origin, Steria, et al) will have to make up their minds which role, and in which geographies, they are going to play. They will not have the scale to compete effectively against the VISVs and the GITSPs in the large enterprise market, nor the price-point to compete against the mid-market Assemblers. Those that have deep vertical expertise will gravitate towards becoming industry-specific Visioner/Assembler firms for large regional and national enterprises, partnering with Deliverers. The rest will get broken apart and snapped up by VISVs and GITSPs – or simply disappear.
• Existing IT outsourcing and BPO divisions of the GITSPs and RITSPs will be spun out into independent Deliverer organisations, triggering a wave of M&A to build scale.
• A new global Deliverer industry will embrace the ITO/BPO spin-offs of the GITSPs and RITSPs, as well as the ‘Cloud’ infrastructure services players such as Google and Amazon. Their ranks will rapidly swell with regional and national ‘unlikely suspects’ with their own IT infrastructure, particularly those targeting the SME market. For example, we could easily see the likes of Tesco providing Deliverer services to UK mid-market Assemblers – and offering double Club-card points on Tuesdays!

One thing is for sure. The Top Ten IT Services rankings in 2020 – both at a UK and at a global level – will look very different to that today!

Posted by Anthony Miller at '09:20' - Tagged: markettrends