Experts in the global services terrain
Recently I had a conversation with an executive at a large software house known for its ERP. One of many things that struck me in our conversation was the change in whom the sales team targets. Their primary target is no longer the CIO; now it’s the CFO.
Apparently, in today’s business outcomes-driven world, CIOs are no longer authorized to drive tech spend decisions of this type, nor do they have the ability to write the check.
As I reflect on this change in decision rights and executive focus, I don’t find it at all surprising; after all, it is consistent with what I’ve blogged about several times. As she put it, the reasons for buying technology today are driven much more by business need and the impact that the technology can drive; it’s increasingly less about the technology itself. In this shift in mindset, the CFO and senior business stakeholders have become more influential because they have the best understanding of the business impact needed from the technology.
The lesson for a global services business
If the technology players are shifting their focus to the CFO as the influencer of tech spend, I think this underlines the changing dynamics or decision rights for the global services industry and the imperative to engage with and serve others outside of the CIO.
CSC just went through another employee layoff, and it’s apparent that it might be as much as 5 percent of its total staff. This move comes within the backdrop of the impressive turnaround that CEO Mike Lawrie has been driving. Since he took over, the stock has done exceptionally well and is back up in the 60s. But can CSC pivot from cost take-out to growth?
The turnaround plan Lawrie laid out was to go through two years of cost take-out and then pivot to growth. Now at the two-year point, it appears that he has taken about $2 billion in costs out of CSC. Like the IBM playbook of cost take-out, he has succeeded in significantly increasing CSC’s margins — to the applause of the shareholders.
We’ve watched CSC in the marketplace during the turnaround, and its morale remains adequate and its ability to execute seems to have improved.
But the provider hasn’t been able to grow. To be realistic, the plan was always to address the cost base first and then grow. It will be interesting to see if CSC can now pivot from cost take-out to fast growth. As we’ve blogged before, at a minimum, the firm will need to grow quickly to offset the cloud-driven likely revenue losses in their mature core business.
We look forward to seeing how successful CSC becomes.
Photo credit: Philipp Pohle
In a recent blog I noted that there is a new wave of shared services activity. But don’t dismiss that news with an assumption that new starts in shared services just means taking a slice of business away from third-party service providers. Here are my tips for shifting this potential business loss to a new revenue stream.
Tip #1: Be patient
If a company has decided to go down the shared services path, your trying to convince them to use purely outsourcing is not likely to succeed. However, we know that over time companies that decide to embark on a shared services journey later decide to use third-party providers in their shared services mix, to a lesser or larger degree. So be patient. These activities take years to develop.
Tip #2: Be an ally
Don’t be an enemy of their decision to take the shared services path. Instead, be an ally and assist them on their journey. You can help them build out their shared services approach and use that relationship to identify where they could use a third party for part of of the services.
Tip #3: Cede control
At some point a shared services unit probably will adopt a hybrid approach to services. Even so, companies moving to shared services inherently favor maintaining control; so the types of services you offer them should be designed to allow them to exercise control.
Much of the outsourcing model is about giving the provider control so the provider can operate in an efficient manner and give the customer a low price. That approach won’t work in a hybrid shared services model. Instead, take an approach along the lines of “Let us help you craft control” so you can participate going forward.
PwC announced last Friday that it completed its acquisition of Booz & Company — now named “Strategy&.” Why did Booz agree to be acquired and why did PwC want Booz? And what does this mean for the services industry? My opinion: It’s a bold move that has the signs of being a game-changer in the global services world.
Booz had a trouble spot. I’ve blogged before about this phenomenon — the growing power of large consultancy groups and service providers’ ability to utilize access to their existing customer base to increase their revenue. It enables the rich to get richer. The champions of this strategy are the Big Four (Deloitte, E&Y, KPMG and PwC in the consultancy arena) and Accenture, Cognizant and TCS, to mention a few in the provider landscape.
Even though Booz had one of the most venerable, respected brands in strategic consulting for the past 100 years, it became increasingly difficult to drive consistent customer access. Booz believes it will be easier to succeed in this strategy of radiating to advantage by meeting client needs within the PwC family rather than having to blaze its own trail.
Using existing customers to grow a services business is a proven model that Deloitte certainly demonstrates in today’s marketplace, and PwC enjoyed the advantages of this model before the SEC asked it to divest services years ago.
Bringing Booz into the PwC network is a bold commitment signaling that PwC intends to join Accenture and Deloitte as a major transformational player. PwC has been studiously building back its consulting and advisory services since its divestiture, and the Booz acquisition adds the high-end strategy capability that will enable PwC to be a strong value player in advising and driving major transformation deals.
What it means for the services industry
The arrival of PwC Strategy& in the marketplace changes the provider landscape significantly. It adds another true power with a broad set of capabilities stretching from the boardroom and strategy to implementation. And it will contest the market for large-scale transformational work.
In that contest, it will prove interesting to see which providers lose some market share to PwC Strategy&. Will this new power inhibit Deloitte’s growth? Will it affect Accenture and IBM? Will it affect the aspirations of Cognizant, TCS and Wipro as they look to join the transformational party?
One thing is for sure: The transformational dance floor is getting crowded.
To date, the global services industry in 2014 has all the signs of being a “son-in-law.” As many parents will tell you about their prospective son-in-law: “He’s nice, but … I was hoping for something a little better.”
2014 arrived with so much promise, both in IT and BPO. Europe’s economy was improving. We hoped the U.S. economy was ready for robust expansion. We hoped we would see a surge in discretionary spending. And we hoped that the uncertainty that characterized the past four years would recede. We also anticipated that disruptive technologies and new solutions in cloud, big data and analytics would generate robust growth opportunities in the services space.
All these things happened. The economy has stabilized and new technologies are generating growth opportunities.
But as we look at the net results of the first quarter, well — it’s nice … but it does feel like a son-in-law. We were hoping for something a little better.