deal architect

HP-EDS: the theories

It has been interesting to read commentary about HP-EDS and the theories about why, when, who

Hypothesis 1: It is a two horse race now - IBM and HP

Even after the acquisition, IBM and HP Services together will still be less than 15% of the global outsourcing and systems integration market.  There are tens of niches in outsourcing from desk side management to WAN services to application management to BPO - not to mention various geographic, vertical and SME niches. While EDS will make HP stronger in many of these niches, global telcos, offshore players, VARs, regional specialists continue to grow nicely in many of these.  HP will still not be number 1,2 or 3 in many of these niches.

Hypothesis 2: Services are inherently "low margin" - this will be Mark Hurd's Waterloo.

Look at well run Indian services firms in particular. Gross margins in mid 40s and reasonable SG&A - which make them almost as profitable as many software vendors. Executed well, this could be Mark's biggest impact on HP.

Hypothesis 3 - It's about the Data Center

I wrote last month about the opportunity in Data Center Makeovers. But while HP has done a nice job with its own internal DC consolidation, that does not mean it can build a major practice around it. Besides it's about way more than consolidation. It's about green, virtualization, remote diagnostics and more, and frankly much of the recent innovation in DCs has come from Google, Microsoft and amazon, not the outsourcing industry. If anything, the persistence of outsourcers to keep milking older data centers may partly be contributing to an energy crisis.

Promising Small Consulting/SI firms

every year Consulting Magazine highlights a few promising small, niche focused firms. This year's list ranges in size from $3 million to $52 million and from just 13 billable consultants to 200. While the pedigree of their founders is from the bigger consulting and SI firms, each of these firms is trying a wrinkle - like reduced travel for its consultants - to differentiate itself.

That ain't a cloud. This is a cloud!

With apologies to Crocodile Dundee.

There is cloud computing, and then there is the Yahoo! plan to use the supercomputer of a Tata sub - the only one in the top 10 fastest systems in the world today that’s available for commercial use.

For the curious, that monster cloud is a cumulonimbus. Some look like an atomic explosion, some go as high as 60,000 feet!

Photo credit - The Spluch Blog

Your next outsourcing contract - $ 10

I have written about the glacial place at which bigger outsourcers are moving to offer utility computing - because they try to customize, offer value-added services, add onerous early-cancellation penalties etc

James Governor raises the bar for the outsourcing industry with his post on cloud computing which includes: 

• If you need to send a 40 page requirements document to the vendor then… it's not a cloud
• If you can’t buy it on your personal credit card… it's not a cloud
• If it takes more than ten minutes to provision… it's not a cloud
• If you can’t deprovision in less than ten minutes… it's not a cloud
• If there is a consultant in the room… it's not a cloud

India and Infrastructure Services

McKinsey has recently analyzed Indian vendor role in IT infrastructure management services and its likely growth. The conclusion - depends on whether you see the glass half empty or half full. While India's revenues from such services are poised to double in next 5 years to $ 15 billion, they would still be less than 3% of the global market dominated by the likes of IBM, EDS, HP and other traditional data center and telco vendors.

Infrastructure services broadly fall in to 4 categories - capital intensive hosting, data center services and wide area network services; location-sensitive desk side, asset management and wired and wireless local network support; support desks and monitoring of networks and databases.

Indian vendors have traditionally been capital shy and stayed away from the first. If anything, we see the onus of capex moving more to vendors so this reluctance could hurt Indian vendors even more going forward. They have been challenged in terms of providing on-site support (though with acquisitions and partnering that is changing). When it comes to support desks, the BPO providers which have done well with other call centers have actually not done as well with IT support. Additionally, when folks look for global help desks, multi-lingual support is sometimes a challenge (though TCS, for example has built a multi-national staff in Budapest  and Genpact in Prague  to offset that issue). Finally, some of my clients have come around 360 degrees on the concept of help desk. They view it as glue which binds all IT support and vendor coordination and at least a few are bringing it back in-house.

The fourth - remote monitoring and management is clearly a growth area for India, especially for western off hour support  - though perversely, growing unwillingness of Indian labor to work in their night shift sometimes causes issues when seeking a 24x7 support relationship.

Most of my clients would love to see more robust, and more cost competitive offerings from other competitors to the IBM's and the Verizon's. But they often find specialist providers like Savvis with a virtualization focus, Dell with a growing deskside outsourcing focus, and even providers like amazon.com with its cloud computing and GeekSquad with its support in remote locations as more viable for specific areas.

It is a large market, but it will require much more innovation on part of Indian vendors like leveraging utility computing models . What has worked in application management services does not translate over that easily into infrastructure services.

Forrester on SAP Services firms

A reader shared with me this Forrester analysis of 16 firms with large SAP practices.

Not many major surprises in the choice of vendors they evaluated ((In SAP services evaluations I have been involved with over the last few years, I have seen proposals from all the firms in the survey other than Neoris) , though I would have included EDS and an East European player like EPAM. I would also have evaluated SAP's own (and fragmented) consulting resources since they play a role in just about every project. But, not surprised to see Accenture and IBM lead globally, and Satyam and Wipro from the Indian firms.

Four things I would have weighted more heavily in my ratings:

a) More of a focus on support and maintenance, and by extension BPO. This is a mature market and most deals I see now are post-implementation, SLA based deals which have an upgrade or implementation project component. From that lifecycle perspective firms like TCS, and the specialist Intelligroup would do stronger.

b) More of a focus on verticals. The survey focus is much more on functional components - ERP, HCM etc, whereas most implementations I see have a significant vertical emphasis, and often implementation of SAP's unique industry extensions. From that perspective, Infosys and Cognizant would do better in selected verticals.

c) Focus on upgrades. The hottest "project" in the SAP ecosystem in moving customers to ERP 6.0. It has been a slow slog for SAP to convince its customer base to move, and many are doing lateral upgrades taking minimal advantage of the services oriented features SAP offers in the version. But if that is what the market wants, SAP and its partners should be offering lots more vanilla upgrades at fixed price offerings. Many of the firms in the survey turn their noses on such small projects, but is the most immediate need in the customer base.

d) Lot more overall emphasis on economics. The 16 firms claim to have 80,000 SAP consultants and have done over 4,000 projects in just the last year (and in my estimation over 50,000 projects in the last decade). Most also have significant offshore capabilities.

This is one mature market and yet SAP and its partners still want to attach a "premium" label to these services as I wrote in The SAP Egosystem. With the report aimed at "Sourcing and Vendor Management professionals", I feel Forrester should be debunking that myth and probing rate cards, inflation rates, implementation productivity (shocking how little productivity firms are willing to share even while bragging of thousands of SAP projects in their bag) and continuous improvement on multi-year deals a lot more.

Mark Hurd to join Deal Architect

some day I hope...

...because he and CIO Randy Mott are poster children for squeezing HP's internal IT cost.

He would be my lead negotiator ...for HP spend at clients.

5 major opportunities he could help clients with:

- data center consolidation around HP infrastructure running today at many clients at less than 25% capacity
- renegotiating HP infrastructure outsourcing contracts to more realistic utility computing prices
- reducing maintenance on HP's growing systems management and IT governance software products
- reducing large margins around HP print consumables
- leveraging HP's growing offshore facilities in India, Poland and other low cost countries

“We could fire you and the entire management team,”

Lost in the debate in the fight between Oracle and BEA is the boardroom battle at a company much larger than BEA - ACS, where 5 directors resigned yesterday.

Imagine, how much more ink this would get if Icahn and Ellison were involved...

The PwC Consulting Phoenix?

Ray Wang writes about the end of the 5 year PwC non-compete with IBM. And speculates it will be a firm the larger outsourcers will need to watch. I am sure many at IBM will want to go back to the coziness and relative smallness of PwC.

But the market is so different than it was 5 years ago. The one mega-hit PwC Consulting had for the last few years before it was sold was its SAP practice which at peak had scaled to $ 3 billion a year. Today with offshore competition, and continued consolidation at top with IBM, Accenture and EDS in particular,  and with SAP license growth flattening, repeating that success would be tough.

Sure compliance consulting has been hot, but around most technology areas I see Big 5 heritage firms like Deloitte fragmented in many different markets and Bearingpoint struggling...not sure PwC would do dramatically better.

Of course, there is something to be said about quality of life at an enjoyable boutique...

Infosys acquiring Cap Gemini?

Rumors are flying. Heard it yesterday and again today.

Historically, Infosys has been a build versus buy culture. They made a tiny Australian acquisition a few years ago. This would give Infosys a huge foothold in Europe. Allow them to diversify from a largely English speaking customer base and delivery staff. And get plenty of business process expertise to supplement their techncial skills.

Be nice to see them make a bold move. But acquiring someone three times their size, with no previous integration/digestion experience at that scale, may be too bold a move. Not to mention  the likely foodfights when a 27% margin business tries to discipline a 6% margin business.