The Hindu Business Line : Business Solutions

Future competitive advantage in IT services will, in large measure, be defined by mastery over Business Solutions. For service providers, Indian or MNC, cost-competitive, within-budget deployment of technology will be passe. They will have to offer solutions to improve their clients businesses.

FUTURE SERVICES delivered by the Information Technology industry will be dramatically different from that of today. Simple, technology-based solutions will no longer suffice; they have to be embedded in vastly more complex Business Solutions of which they will be but a part.

The basis of competition for IT providers, Indian or multinational companies, will no longer be cost-competitive, within-budget deployment of technology. It will soon change to the improvements in clients' businesses that can be enabled by these service providers.

Drivers of change

Two important drivers are forcing the IT service provider industry to change.

First, what happened in second generation outsourcing in the traditional industry will overtake the IT services industry too. Take manufacturing: In the first generation, manufacturing companies outsourced production of large sub-systems or even complete products as suppliers could produce them at a lower cost. Such outsourcing was driven by Ricardo's classical principle of comparative advantage — buy from others who are more efficient at it than you. Contract manufacturers Solectron, Jabil and their ilk are products of this trend.

The second generation of outsourcing in manufacturing spawned a new relation between companies and their suppliers. Customers started involving their suppliers in collaboratively developing products. Suppliers are not passive recipients of information in such a process. They proactively influence the function and the design of the new products of their customers.

This process is so collaboratively organised that it is hard to demarcate the boundaries between the customer and the supplier. Sometimes the product development process happens more on supplier premises than on customer's. When the new product finally takes shape and is released in the market, the customer and the supplier switch to their original relation of ensuring supplies for what has become yet another product.

In other words, in the second generation of outsourcing, suppliers participate in crafting their customers' future and partake of it when the future turns into the present.

As Fortune 500 firms outsource large volumes of work to the IT and BPO industry, they would expect their suppliers to become partners in shaping their future. The consequence?

IT firms have to now turn themselves into partners, helping their customers shape their business future, not merely their technology future. This means IT firms have to now acquire the capability to design potential business scenarios that incorporate and examine various technology alternatives, simulate them, and test them for attractiveness. This is set of services the industry is largely unfamiliar with. Once a scenario has been decided, much as in traditional manufacturing outsourcing when a future product design is frozen, the IT firm has to partner with its customer in implementing it.

The second driver of change is that IT expenditure as a percentage of capital spending worldwide is 50 per cent and growing. Even assuming that IT expenditure grows at a muted 5 per cent per annum, in a few years, it would be 60 per cent of capital spending worldwide. This percentage would be even higher for service industries. At these levels, the IT expenditure becomes virtually indistinguishable from business spending.

Therefore, the IT spending will also be subjected to more rigorous tests for return-on-investment (RoI). Any IT investment will have to be justified on the basis of the business returns it would produce, buttressing the preceding argument for IT service providers to turn into business partners. IT service providers, in their role as partners, would guarantee the production of reliable business outcomes in return for the substantial IT investments they advocate.

What is a Business Solution?

A Business Solution is significantly different from a technology solution in many ways.

There are at least three ways to define a Business Solution:

Outcome-based

Unlike a technology solution, a teleological definition of a Business Solution is that it improves the business performance of the client's business in measurable, tangible terms.

A Business Solution targets improvements in parameters such as profitability, market share, transaction costs and return on capital employed. A technology solution, on the other hand, focuses merely on the completion of the project within the budget and conformity to functional specifications.

Structure-based

A Business Solution has to deal with business strategy, business process, IT and change management while a technology solution, the domain of IT companies, deals with just technology. Current generation technology services companies seldom concern themselves with the successful deployment of technology. In the past, the successful delivery of a working computer programme defined the end point of the engagement. In the Business Solutions era, it would be one of the mid-points. A whole range of business consulting capabilities has to be married to IT capabilities to deliver high impact Business Solutions.

Engagement-based

Business Solutions will not be delivered under the time-and-materials or the fixed price contracts of today. Since the targeted outcomes define vastly superior business performance, a full-fledged partner contract will be enforced upon service providers.

Clients and service providers will enter into new generation contracts that will be risk-reward or equity based. No more the abdication of business performance responsibility by the service providers. They have to bear at least equal responsibility for making their clients' IT and business investments work.

The new imperative

Future competitive advantage will, in large measure, be defined by mastery over Business Solutions. Indian firms and MNCs are equally inexperienced in Business Solutions using the global delivery model, and will face their own challenges in becoming experts at it.

Service provider firms have to completely change all the entrenched ideas about hiring, competencies, measurement and incentives to win in the new order. Companies courageous enough to question their orthodoxies will succeed.

Others may be forgotten in what is an ill-documented history of this industry.

(The author is Director — Consulting and Enterprise Solutions — Satyam Computer Services Limited. He can be reached at Prabhat_GB@satyam.com. These are his personal views.)

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