A lot has been said of the commoditization of the IT services industry. Phrases like commodity skills, commodity services are commonly heard/used. The disruption of the services industry due to this ‘commoditization’, and due to automation, software, etc. has become a popular topic of discussion.
Let us understand the context in which this is happening.
This is happening at a time when companies across industries, are fundamentally transforming themselves and more often than not technology is both the core driver & the enabler for that transformation. A change in customer expectations (need stuff on demand, pay for what I consume), competitive disruption, innovations in technology (cloud, mobility, analytics, the usual suspects) are creating a constant need for change for companies. And every dimension of how a company does business, is changing, from the core business, to the business models, to the processes to the IT systems to the data; the change is deep and wide. It is, generally speaking, a change economy.
Let us double click on a couple of these change dimensions.
Let’s start with the first dimension, the ‘core business’ of the company. There is a tremendous push in companies across industries to create a fuller proposition for their customers, essentially ‘own the experience’ like Apple does. This is driven by various reasons ranging from product commoditization, to the need for finding new avenues for growth or customer expectations. From hi-tech to medical devices, to media & entertainment, B2B & B2B2C companies are betting their future on transforming themselves from the “product-only companies” to ‘X as a Service company’, or subscription companies. This means not only will they have the product, but in many case, they will also offer the services required for the consumption of the product. This is a very different model, a model that requires a very last mile/services mindset. Rolling out a service requires software & hardware deployment, ongoing operations, data mining, constant improvement in user experience, etc. and all this has a strong services component.
For the second dimension, let’s look within the organization towards the internal processes & systems. The forces are described earlier are driving a significant change when it comes to customer experiences, business processes, IT systems, etc. Cloud, analytics, mobility, IoT, etc. in specific, and technology in general, are aiding this change. A closer look however, reveals that a technology intervention succeeds only when it is integrated or applied ‘in context’ – the context of the customer, the domain, the organization, existing systems/workflows (business case, adoption, incentives). This integration with ‘context’ is again where the role of ‘services’ is pivotal. Even the ‘mundane’ task of IT & business process operations are going through an unprecedented transformation through automation, personalized operations and that cannot achieved without a combination of high quality software tools & sophisticated services.
Hence, in times where product companies want to expand their proposition to services, in times where high quality services can so significantly amplify the power of technology, how come there is this talk of commoditization of services?
In my view, there has been no better time than now to be in the technology services business. However, that will need companies in the IT services segment and the internal IT organizations, to fundamentally rethink what ‘business’ are they in. Not that this change is not under way, but perhaps it needs to be bolder in its ambition, and it needs to be accelerated. This is an era of ‘services-led differentiation’ and not services commoditization!