At the start of this year, we discussed what we saw as the birth of a new IT service economy in the United States that will supercede the current market model based on the licensing of discrete hardware, software, and networking solutions. In that surge of service-focused energy, we predicted, rich opportunities will arise for U.S. vendors large and small – despite some quite legitimate concerns over the outsourcing and off-shoring of IT jobs and processes.

Now, it's always safest to forecast success in a “rising tide” climate of a robust overall economic recovery such as the one we seemed to enjoy during the first and second quarters of 2004. (Reason: If the recovery is robust enough, any sector will improve its performance!) But since we made our prediction, the pace of that recovery has appeared to slow, as evidenced by stop-and-go stock price performances and lackluster job-creation statistics. Even so, our recent general research activities and client engagements indicate that the services model still seems to be gaining market traction, and that several notable trends are beginning to emerge.

Rather than operate as conventional integrators assembling solutions from technology components provided by multiple vendors, some now are beginning to concentrate more on providing the advice and methodologies required to implement a successful solution for a specific vertical market or horizontal business process. Others have “private-labeled” suites of tools and applications built around several vendor partners' solutions and are marketing these products on their Web sites, sometimes without even mentioning the brand-name software that had been their bread and butter. Still others are migrating from being straight integration businesses to providing hosted services or service bureau capabilities.

Information Management Consultants, Inc., eTouch Systems, and Integrated Document Technologies are all examples of companies making this kind of strategic shift. Their goal, and that of other SI innovators, is to move beyond adding value to specific software platforms by directly supporting their clients with strategic IT services. Ironically, the very SI firms that most boldly proclaim their independence from proprietary software platforms are the ones that software market leaders like IBM and Microsoft are working hardest to recruit as partners, generally because of their deep knowledge about customers in specific markets. Surely this is a niche that U.S.-based integrators should be well qualified to dominate.

Tools to facilitate implementation and improve performance therefore are becoming increasingly attractive to user organizations wanting to maximize the value of the applications they are building, and vendors are responding in kind. For instance, IBM announced on July 29 that it had acquired Cyanea Systems [www.cyanea.com] in order to give users of its WebSphere, Rational, and Tivoli solutions these kinds of capabilities, which fundamentally behave more like management services than packaged applications. Since enterprise computing systems are unlikely to get simpler anytime soon, we can expect market makers of all stripes to make similar moves, either by acquisition or by forging strategic partnerships with smaller firms whose charter is to help streamline the application lifecycle.

ContinuServe calls itself a “business function outsourcer” and is banking on its ability to recruit and retain what it calls “next-generation managers,” highly compensated individuals whose job it is to optimize the returns clients receive from outsourcing. Job requirements include technical skills and domain expertise, extensive career experience in the U.S., and a willingness to develop and lead ContinuServe solution teams in India – often in person.

Such an individual clearly will have to have advanced business as well as technical training in order to succeed, and will have to find like-minded executives at customer companies in order to effectively sell ContinuServe's services. Right now the talent pool in this regard strikes us as being relatively shallow. But as the economy continues to lurch along and the political rhetoric sharpens, we believe the market will accelerate its turn away from simply cutting the cost of using IT, and increasingly focus on maximizing the value of IT to business.

As we see it, exploiting the value dimension of IT requires a deepening commitment to delivering computing resources to users as they are needed, when they are needed – and this in turn screams “services” as perhaps the best business model for the future. With recent indicators suggesting better things for the economic fourth quarter, we see no reason to back away from our original expectation. Contact Us for More

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