deal architect

"We were dead wrong"

Trust a fellow ex-analyst (Chris Selland ex Yankee, Aberdeen) to pounce when I acknowledged "we were dead wrong" at Gartner (Chris, I will get you with some really hot food when we next go to dinner!).

I would be remiss to not point out at other times we were also DEAD RIGHT at Gartner. One of my proudest moments as a Gartner analyst was when we (thanks to Erik Keller's persistence) called that the ERP market would slow down due to Y2K drivers in 98, not 99. We were hearing from many CIOs their "batten down" plans. Wall Street, other analysts, even Gartner Y2k analysts, the vendors disagreed with us, but we stuck to it.

The key there was we were in touch with the buyers. My issue with the analyst model today is it is too passive and often out of touch with buyers - see my blog Influence v/s Intelligence.

So, why did we get it wrong in 1998 around services vendors taking the mantle of IT leadership? The numbers certainly supported us...the services spend around ERP and Y2K was already pretty high. We also knew buyers were unhappy (That year I co-authored a major report titled "Application Implementation Consultants - Over priced, Over hyped, Over worked". The report started with ""A Michelangelo should not charge Sistine Chapel rates for painting a farmer's barn," once ruled a U.S. Circuit Court of Appeals. Although the ruling in this case related to lawyer's fees, it might well have related to a systems integrator's (SI's) fees on an application implementation project")

What we underestimated was just how unhappy buyers were - it did not completely ripple through till 2001. The effect was dramatic. PwC sold to IBM at one fifth of what it was planning to sell to HP. We all know what happened to the Scients and Viants. All the majors - EDS, CSC, Bearingpoint, Deloitte etc have had a rough last few years. The offshore vendors have done well, but are still a small percent of the market. So, yes I have no problems saying we were wrong to project this group was going to take over leadership of the IT industry.

OK, I promise no more backward looking stuff....I look forward to that dinner with Chris...

IBM PwC 3 years later

I am hearing of at least a few ex-PwC consultants exiting IBM as the 3 year earnout period comes to an end. Services firms are being valued at 1 to 1.5X again, much higher than when PwC sold at the bottom of the services "nuclear freeze". Of course, well run firms like Cognizant are valued today at 10 times their revenues. It would not be surprising if a few PwC folks try to build firms which they could sell at these much higher valuations.

Is this bad for IBM? I am not so sure. A number of PwC partners did well in the 90s - especially around ERP and business process focused practices. They thrived on relationship selling and they taught several IBM salespeople the art of solution selling to a blue chip client base they brought. Not sure, however, many transitioned well to the price sensitive world we live in. In a young BPO market their process skills (especially in the finance and accounting areas) are still very useful but as offshore competition grows there also, IBM will need to go back to its hardware roots to re-think and re-position its services price/performance story.

Offshore due diligence

Chris Koch quotes me and others in CSO magazine around security issues when offshoring. There are several other dimensions around security - given relatively poor physical infrastructure in many offshore locations, badging of on-site employees, secure access to dedicated client areas, information security etc.

There are several other unique due diligence areas - business continuity (often due to geo-political risk), hr standards (ergonomics, visa compliance, health/safety, recruiting/retention, on-site housing, others), telecomm connectivity and robustness,  financial stability/standards, intellectual property protection, data privacy protection, methods/tools, key staff interviews and several others.

The good news is many offshore vendors (especially Indian ones) have gone through such diligence from many buyers and come off with flying colors. After 9/11 accented the need for such reviews, a number of CIOs were impressed with redundancies offshore vendors had built into their infrastructure compared to their own operations.

The bad news is instead of proactively developing FAQs for these areas you often have to pry out of the offshore vendors their positioning/capability in many of these areas.

Porsche and Optimal Outsourcing

A client and I had an interesting discussion this week about optimal level of internal v/s outsourced - the buy v/s build as it comes to IT talent. We discussed Porsche - and the fact that they outsource almost 80% of what goes in to their car, and primarily focus on design (can you imagine the reaction to the guy who first proposed they let someone else manufacture the engine - the "heart"). But industrial and retail supplier management has evolved over decades. Boeing, Bechtel, Nike, Wal-Mart - they have learned the art of collaborative design, vendor managed inventory etc. IT supplier management in comparison is still a young art.

In theory, you could outsource 95% of IT (as Nicholas Carr appears to suggest). But even GE, which has sophisticated supplier management, targets 70%. For most companies the comfort zone would be in the 25 to 50% range. Outsourcing vendors are pushing for more, quicker - not sure they have shown the discipline, risk mitigation culture and continuous improvement mindset to justify this.

"The End of Corporate Computing"

Outsourcers and SIs are abuzz about Nicholas Carr's new theme . Hey, may be clients will outsource close to 100% of IT....see my detailed posting on that titled "The end of corporate computing? The beginning of chaos..."

In 1998, at Gartner we projected service providers would assume mantle of leadership in the IT world. We were dead wrong. With ERP, Y2K, ebusiness project overruns the services firms did not provide industry leadership - they almost bankrupted corporate America.

Will they perform better this time around? Buyers are more wary, but I would be so much more comfortable if I could see an Intel like price/perfomance driven leader in the services pack ...see my blog on that

http://dealarchitect.typepad.com/deal_architect/2005/05/the_morphing_of.html#

Why tech Marketing should report to Sales

In the late 90s, CIOs started showing up on org charts as reports to CFOs. Too much IT money was being wasted and needed better watching. It is painful to see my client, usually the CIO, report to the bean counters, but c’est la vie. Something similar needs to happen in the vendor world – with marketing reporting to sales, for the mirror reason - start showing tangible results.

Sarah Lacy in a BusinessWeek blog talks about “Sounding the Alarm on PR” . It reinforced my view too many technology Marketing, PR, AR executives and consultants just network with each other and with industry analysts and tech media. This “ecosystem” often seems so removed from the buyer audience – even the analysts (see my blog on Influence v/s Intelligence ). To me, the only metric to measure a PR firm on is how many RELEVANT buyer eyeballs did you bring me? Not how many analyst meetings, not how many press mentions.

It was then refreshing to read some of the views on Renee Blodgett’s blog “What CEOs want from Marketing” I read at least 15 mentions of the words “sales” or “customer”

No, most CFOs still do not understand technology (it is a treat to work with those that do) and many CIOs have earned back the right to report directly to the CEO. Similarly, the VP of Sales is usually a crude, money driven animal. But he/she needs to be the buffer between Marketing and the tech CEO. It will make Marketing much more results focused like CIOs have learned to become.

Elevator pitch for Indian food

every darn marketing consultant wants to hear your "elevator pitch". When was the last time anyone asked you for a pitch on an elevator? Unless it was propositioning of the adult consenting kind? But we work and re-work those pitches and squeeze them in to voice mail sales messages that never get returned...

I am convinced an ancestor of a marketing consultant (probably worked for the British civil service during the times of the "Raj") came up with a one word elevator pitch for Indian food - "curry". It matters little that there are at least 20 different regional flavors of Indian food and that no self respecting Indian housewife would use packaged curry powder when she can pick from this wide list of exotic herbs and spices.

So Indian food is now defined by its elevator pitch - "curry". 25% of the world likes it, 75% hates it...about average for your garden variety elevator pitch!

"Peer-to-Peer" Labor Arbitrage?

Most of us have seen idle PC cycles leveraged in peer-to-peer mode for space/cancer and other research? What if we could do that for under-utilized labor cycles?

Chris Selland, ex Yankee and Aberdeen CRM analyst strongly believes VoIP will "disintegrate" the contact center. Stay-at-home moms and dads can effectively do many tasks as Jetblue has shown around its reservations over the last few years.

Could we also teach them to code Java or become Oracle DBAs? As the open source community is showing, we are just beginning to leverage a vast network of labor...the opportunity is huge - our next wave of cheaper labor may come from "Gulfshoring" not offshoring

BPO, Software and accountants

a software CEO pointed out to me his "ace in the hole" against likely BPO competition. Software projects can be capitalized and amortized over several years (the accounting rules like AICPA SOP 98-1 are fairly complex) compared to BPO contracts. Many companies often have more slack in their capital budgets than they do operating budgets...

who would have thought an accountant could be a software salesperson's best friend?

But wait - round 2 advantage to BPO - many US states tax software, but not services...

as they say, check with your tax attorney...

What if Intel was a services vendor?

At a conference in India earlier this year I heard Murthy, the founder of Infosys predict that improvements in IVR technology would kill call centers. Murthy is generally revered in India as one of the founding fathers of the offshore industry. But this comment so incensed a call center CEO in the audience that he asked Murthy "and when do you think automated code generators will kill your software business?" Murthy mumbled something about software being much more complex than handling calls. They should be listening to each other.

Offshore vendors have delivered a layer of much needed productivity improvement to IT budgets with their labor rate arbitrage. In the next wave they better be thinking about labor productivity through technology leverage to offset their wage inflation, staff turnover etc. Unfortunately, the DNA in services worldwide is defined more by Accenture and EDS, not the "eat your children", relentless price/performance improvement culture at Intel. While they talk about "accelerators", shared solution centers - their 1000th SAP or 100th Ariba project actually costs more than their first - because they now have more experience so believe they deserve to be paid more.

Cannot even count on IBM, which understands price/performance curves extremely well. In a speech last year Sal Palmisano, CEO talked about focus on technologies to improve labor productivity. But when half his revenues now come from services, you really think he meant his own client billable labor?