The market’s need for true transformation is driving a competitive war that pits legacy business models against the innovators.
Forty years ago, juggernauts such as Accenture, CSC, HP/EDS, and IBM dominated the global services industry. Over time, they gave way to India-centric firms such as Cognizant, Infosys, and TCS. Now those Wall Street darlings find themselves pushed from the technology headlines by upstarts such as Blue Prism and IPsoft. Few predicted that IBM would report negative growth for the 17th consecutive quarter in April 2016. HP absorbed EDS and then, after moves to scale down the services business still fell short of expectations, split the company. It is now spinning the core services unit out and merging with CSC (who just completed splitting off its federal government business as it struggles to sustain profitable performance). The upstart-to-leading labor arbitrage-based firms (mostly India-centric) now face attack from automation solutions that threaten their core value levers. The landscape is anything but static.
Meanwhile, customers thirst for more flexible, agile service solutions, embracing pricing constructions that align their spending with consumption and often accelerate value capture by orders of magnitude.
The picture is anything but business as usual. The dynamic landscape represents a battle of business models that has emerged over the last decade and is accelerating as customers drive to tap the benefits that some new approaches deliver. Prospering in this vibrant environment requires nimble service providers that eagerly challenge the core of what created their legacy success. Failure to recognize that business models change, or just tweaking legacy practices, is perilous, as customers (and shareowners) vote with their wallets.
As keen observers of the global services marketplace, we watch enterprise customers’ rising expectations of their service providers, whether they are internal or third parties. Clearly, the principles of theoretical economics are playing out. Service providers are either changing to meet the evolving needs of their customers, or their customers are turning to non-traditional players that have turned their approaches to new market realities.