When Anthony Miller joined Richard Holway in 1997, he helped build one of the most influential UK ICT analyst firms. The company, Richard Holway Ltd, was acquired by Ovum in 2002. Now, Holway and Miller are joining forces again to create TechMarket-View (www.techmarketview.com), a new services watcher. We caught up with Miller to discuss a service sector buffeted by offshoring, mergers and recession.
CIO Magazine: Has standardisation in IT reduced dependency on SIs and placed more focus on business consulting rather than technology-orientated consulting?
Anthony Miller: This is actually two questions. Has standardisation reduced CIO dependency on systems integrators? The short answer is ‘no’. Anyone who believes ‘standardisation’ means ‘simplification’ has been reading too many vendor marketing brochures. There are a number of flaws in the premise. The main problem is that standardisation rarely is. I’ve lost count how many ‘standards’ there are for telecoms, for operating systems, for databases, for application development... the list is endless. Even if there were only one standard in each area, vendors would still choose to implement different aspects in different ways just to show their products in the best light.
But I will say this: minimising the variants in any aspect of IT service delivery should help reduce the skills – and therefore the cost – to implement and support the systems. But it is a truism that IT systems always become more complex. They must do, as users always want to do more and vendors will always develop even more esoteric products. So-called standardisation can only reduce the pace of complication, not the overall complexity. Systems integrators can sleep peacefully in their beds knowing that there will always be more work for them in the morning.
You also ask whether systems integrators are placing more focus on business rather than technical consulting. Oh yes indeed, and they have for ages because they all want to be Accenture when they grow up! It’s simple, really. Business consulting carries higher fee rates than most bog-standard technical consulting, and higher margins too. Also, ‘business consultants’ usually operate at board level in the customer (not the usual ‘home’ for many CIOs) and are therefore in a far better position to influence downstream IT decisions, such as which vendor will implement the solution the consultant devises. The problem that many legacy technical systems integrators have is that you can’t train a business consultant in quite the same way you train a techie. The best business consultants have many years’ experience across multiple organisations and even multiple industries. That takes, well, experience.
CIO: What will be the fallout of recent, ongoing and future merger-and-acquisition activity, from mega-deals such as HP-EDS to cross-continent deals such as the sale of HCL?
Miller: I think industry consolidation is a good news/bad news story for CIOs. The good news is that CIOs have fewer vendors to manage, assuming of course the merger results in true integration, which is not always the case.
The bad news is CIOs have fewer vendors to pitch their business to, which potentially reduces choice and pricing power. In practice, I think industry consolidation is fine – indeed, inevitable – so long as the ultimate answer isn’t only Microsoft, or only HP or only BT, if you catch my drift. Frankly, I can’t see this ever happening, so the fiercely competitive market will keep prices in line with demand and supply.
By the way, consolidation will never mean the end of the niche vendor. True, many are getting snapped up by larger predators, but new ones always come along. It’s the very nature and indeed the soul of the tech industry.
CIO: How has the thinking about offshore work changed recently; what sorts of activities are now considered viable; what are the up-and-coming destinations; where are the ‘gotchas’?
Miller: Now don’t get me on my hobby horse else I’ll never get off. I’ve been banging the drum about offshore IT services since my first trip to India in 2001. Any CIO who has toured Infosys’ campus in Bangalore or their new training centre in Mysore will understand exactly what I mean when I talk about a jaw-dropping experience.
But to answer your question, everything is viable. Gone are the days when the Indian proposition was all about labour arbitrage. What the Indians are all about is process industrialisation. They can take any complex service, break it down into individual activities, optimise, simplify and even automate the activities; move most of them offshore; then knit the whole lot back together again into a low-cost, seamless, scalable process. I have yet to see a service they have not been able to industrialise in this fashion – including consulting. There is, of course, no reason why traditional on-shore vendors can’t do this too. In fact, -Accenture and IBM are well on the way. But many of our favourite vendors just haven’t got it yet; just putting bums on seats in Bangalore is not alone the answer.
The upcoming destinations? Well, wherever you can find cheap, smart labour. Currently that includes parts of south-east Asia (for example, the Philippines or Vietnam), China (with many caveats), central and eastern Europe and Slough. OK, not Slough. The ‘gotchas’ are many, but usually revolve around language, scope and scale. To put it bluntly, India remains the premier offshore services destination (well, source, actually) as there are just so many good, cheap (in our terms) English-speaking techies in almost any discipline you care to imagine. Arguably, you can buy cheaper in China but the chances of finding, say, 200 .Net specialists off the shelf anywhere else other than India are pretty slim.
CIO: In terms of staffing, to what extent are UK firms moving away from dependency on in-house staff and towards external agencies?
Miller: Good question – and it was a good question 20 years ago too. And I’ll give you the same answer. Faster and faster. It comes back to my answer to your first question. IT gets more complex, not less, therefore the cost of supporting service delivery simply spirals. What is changing, though, is what CIOs are looking for from external agencies. Twenty years ago it was almost entirely bodies. Nowadays, it’s -increasingly service levels. In other words, the risk is transferring from the CIO to the vendor – but of course at a cost.
CIO: How has the trend to applications, email, security and backup and so on being presented as remote, hosted services changed the nature of services?
Miller: Oh dear, another one of my soap-boxes, I’m afraid. You really have to question how much of a trend we are actually seeing towards software as a service (SaaS), also known as application service provision (ASP), a.k.a. hosted services and all that. Anyone who thinks IT is a utility – or ever will be – just needs to work through the analogy. I don’t know how it is in your home or office, but when I turn on the electricity I have the choice of 240V 13 amps – or darkness. And that’s pretty much how I see the future of SaaS. It’s great for vanilla applications that need virtually no customisation, such as email, security and backup, where one size pretty well does fit all. But once we get into the realm of real business applications, then almost every enterprise wants a custom jobbie. Even if they start with off-the-shelf ERP packages such as SAP or Oracle, nobody uses them straight out of the box. Indeed, there is a whole SI ecosystem thriving on installation, tailoring and rolling out these systems – and, yes, the Indians have gone a long way to industrialising these processes.
So it’s hard to see how on-premise applications will ever be completely usurped by a plug and-play equivalent, other than perhaps – and this is a big perhaps – in small enterprises where the business needs to be made to fit the solution in order to reach an affordable price point. The problem is, small enterprises have the same problems as large enterprises in proportion to their size, so they also want a bespoke solution. Unfortunately (for the vendors) they can only afford an off-the-peg price. This presents an interesting challenge to large systems services providers, few of whom – if any – have cracked the code.