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IT Trends In and Out of Downturn
An anonymous reader writes "Washington Post has an interesting article talking about how IT industry is changing its business models to survive (IBM: "Pay As You Save"; HP: universal printer driver; Consulting weak; Oursourcing booming), as well as how outsiders view the downturn (Merrill Lynch: it's just another bust after PC and mainframe, but the good thing is, "each 'wave' has so far represented a tenfold increase in the number of technology users."). I'm particularly interested in the outsourcing story. It might explain why IBM will benefit and other vendors like Sun Microsystem which don't have a strong service arm will suffer."
Well, don't ask EDS about it. And IBM seems to be a little sheepish on it, too. Outsourcing IT doesn't appear to be very strong lately, either. I don't know why that'd be focused on as a strength. (Although comparitavely, it isn't THAT bad as other things.)
The problem with outsourcing arrangements is that companies only see savings at the beginning of the arrangement. Sure, they get to fire their expensive permanent employees. But guess what happens when something breaks? You end up with people who don't know how that particular company does business. I've seen this happen in three places. Average problem resolution goes from hours to days as users and staff try to figure out which call center halfway across the country to address their problem to.
There's the oxymoron of the day: "Save as you spend". Wow.
1. You get what you pay for, and good help is hard to find. Getting good constant support coverage is expensive.
2. Scale can help. Like insurance spreading the cost can help manage bumps, and smooth out the actual required resources.
By outsourcing you could save money by not buying more service then you need, and even lower your support if all you need is someone 'on call' incase "something happens".
But like any pooled asset, there will be times it isn't available, and it isn't like having a dedicated team to take care of stuff
"I don't think the computer industry will truly mature until 2015, 2020," he said. I don't understand where this comment fit into that article. BUT - I do not believe this at all. The technology industry changes each and every day, I don't believe that it will "mature" at any time, if at all.
Companies outsource because they don't have the political will to control costs themselves. So they pass it off to another company like IBM.
The result is usually the reduced cost you were looking for and severely reduced service levels.
I once consulted for a very large Insurance company, which decided to outsource it's legacy IT staff, approximatly 300 people.
About a third of them left and they were the most knowledgable, each averaging 20 years experience on the systems they maintained.
A small modification that might take any of them a day to build, test and install would take me three weeks. (it's hard to compete with 20 years of domain knowledge).
Skilled IT workers are not assembly line workers. Outsourcing should be for easily replaced resources.
Generalizing somewhat, there are FOUR options for a company currently in "high tech".
One - Sell hardware. Generally billed once, though often financed and perhaps with a "support package" attached
Two - Sell "software". Usually licensed with an annual "maintance" agreement in addition (speaking of enterprise software - in consumer terms this is the annual or bi-annual upgrades/updates that you have to pay for)
Three - Sell a "service" (think ASP's, telcos, ISPs - generally billed on a periodic basis - often monthly, but also quarterly or yearly plans exist).
Four - sell "consulting" or services. This is further subdivided into "project work" or "outsourcing". Projects are generally of a limited duration and for a specific purpose, outsourcing usually involves the takeing over a company's IT staff, equipment, and processes - and is generally of a very long term duration.
There are, of course, variations to all of the above - but these are a basic choices that a company today faces - and all of these are driven in tandem by corporate needs.
New software usually meant new hardware, plenty of services needs, and lots of projects and outsource contracts to go around.
However, we are still suffering from the combination of Y2K, the "dotcom bust", and diminishing returns on technology investment (or at least the PERCEPTION of diminishing returns).
Y2K caused many large corporations to move up spending - which they had planned to do in the past two-three years, to 1999 so as to put new software and systems in place in advance of Y2K. In the course of doing this major corporations also steamlined and simplified their internal systems - often reducing by 50% or more the number of applications they supported internally.
Further, many corporations standardized on fewer platforms - and reduced variation within their corporations.
In 2000 it appeared that perhaps the "Internet boom" would be the driver of future investment in a post-y2k world - and indeed many corporations spent a lot of money on Internet/e-commerce projects - however though a lot of money was spent on these projects, and some companies did see big gains - far less money was spent on Internet projects than had been spent on ERP or other similar enterprise wide projects.
Further, as a new field - most of this money was spent on consultants and projects. Some was spent on services (hosting packages, additional T1s etc) - but less spent on software packages or additional hardware.
Software companies and hardware companies alike have not, in general, offered compelling new systems that provide powerful reasons for additional investment - corporations look at the desktops and servers that they have, note that most of their systems are underutilized, and see little reason to return to regular upgrade cycles - rather they see little to be gained from expensive upgrades - and much to be said for focusing their resources on using what they already own.
So, this in turn, means that corporate internal resources are increasingly available for internal projects - reducing still further the need for outside consultants on a project basis.
What then is the solution?
First - technology is driven by providing VALUE - i.e. providing systems that help people make money (by saving them money or making people more productive). Software vendors should focus on what their tools "really" need to do - and make compelling enhancements in those areas.
Second - We may be seeing a transition from a mostly growth industry to one that will be more stable - there is still money to be made, but annual growth rates of 30+% are probably a thing of the past.
Third - companies should focus on building long term value added relationships with their customers - if you make your client money on an ongoing basis, that is generally a recipe for continued and mutually profitable business - in the "internet boom" many service/consulting firms forgot this - they made money, but their clients just lost money - now those clients are often reluctant to spend further funds with those firms (if the firms are even still around).
So what do I suggest - focus on value added, focus on building systems that customers want, and offer them in a model that both you and your customers gain value (i.e. don't price in such a manner than it is impossible for your client to make money, or conversely don't price your products, services, software, or consulting below what you need to make profit - neither route leads to long term success.
As the president and founder of a software and consulting firm started in 2000 I have observed this up close and personally - at present, my firm is focused on out consulting practice - looking at how we can continually add value to our clients - and still make money doing so.
-- Join us in Chicago May 1-4th for MeshForum -- writer, historian, tech geek, entrepreneur, internet junky since '91 --
But beyond that, thre is no such thing as a "computer tech without business knowledge". Even the lowest printer repair tech has to make decisions such as "respond to VP A's call or Executive VP B's call first?". Anc unless you are aware that although VP A is lower on the totem pole his team is working on a company-saving proposal and needs priority support, you aren't going to make the right choice.
Then there is the simple 1st-level help desk call, "Why don't the numbers on my Crystal Report add up?" That one could take from 30 seconds of mouse training to 30 hours of analyzing the business rules behind the data to resolve. The outsourced provider will either refuse to answer the question, or will miss the deeper significance.
Of course, the 1st year savings get booked and credited to the CxO who decided to outsource; the pain gets booked to the rest of the business units down the road. Oh well.
sPh
People who only know the tech are also unaware of how they can add value to a business, because they have no clue what that business does.
Tech people who also master an executive level understanding of a particular field (insurance, financial planning, transportation, medical care, manufacturing, general accounting, etc.) are worth a fortune to their companies, as are business people who master technology. Not only do such people find ways to save costs or improve income to the tune of millions, but they are also few and far between, cranking up demand for their services even higher among those companies who are shrewd enough to hire them.
Should the paper MCSE who runs your Exchange server be expected to know the business? No, I suppose not. Especially since you should probably lay him off as soon as your network administrators replace that server with a sendmail process on a spare UNIX box. But your development staff should know the company's business as well as any of the suits, if not better. I know you would probably rather pick up another programming language or some other skill that's easy to transplant between the jobs you change every two or three years (my attitude is very much the same) but sooner or later, you hit a salary ceiling as a general "hired gun" techie, and you need a deeper, more specialized knowledge of something before you are going to break past it.
Information wants to be anthropomorphized.
A big story around here involves CSC laying off a few thousand people who had been working as part of a huge ($1B) contract that involved outsourcing numerous IT functions for United Technologies Corp (UTC). Reading the press coverage, it looks like a classic outsourcing problem: The project scope widens as the competitors bid each other down. Ultimately, some lucky company finds themselves as the winner[?] of a huge obligation to supply all kinds of services for a price may not be realistic. Quite frankly, I find it hard to believe that traditional IT departments could ever waste as much money as the outsourcers claim they can save.
There is a time and place to outsource certain functions, but these comprehensive deals are for the birds. To me, the key is an exit strategy. If you don't have enough non-outsourced resources, you can never fire the outsourcers. You can expect service and price to shift from the ultra-competitive model of the intitial contract to the "gotcha" model of the renewal.
I worked for the State of Connecticut in 1998. At the time, Governor John Rowland was most anxious to outsource all of state government IT. He was already despised by the state labor unions, and this was simply the icing on the cake. Rowland campaigned very hard to convince a skeptical legislature that big money would be saved. In the end, one of the largest outsourcing proposals in history collapsed when Rowland realized that the bidders were promising savings in later years, and there was zero (or negative) savings in the early years. By the time those years arrived, the alleged "savings" would be mostly funny-money comparisions based on hypothetical pie-in-the-sky projections. If Rowland could have saved a single dollar up front, he would have happily taken the deal if for no other reason than to screw the unions. Outsourcing has been a tough sell in this area ever since. When you can't fool the politicians, who is left to fool?
You're correct that the techs shouldn't guess at requirements based on their knowledge of the business. But to imply, as I think you have, that a technical person's knowledge of a business is of no value is silly.
Say you're building an accounting application. Would you as a designer want to know that there are several Asian people on staff, and sometimes they have trouble reading English? Would you like to know that the accounts receivable employee is a woman in her 50's who won't retire for 10 years, was raised on old DOS applications, and is terrified of GUIs? What are the chances of either of these people or groups communicating that to you clearly? Do you think management knows or cares?
There's no substitute for a person on the ground, so to speak. If you plan for the techs to have 0 knowledge of the business then you have to assume that the business is 100% cognizant of itself (for the particular problem domain) and can clearly communicate that knowledge. You must know that never happens.
This isn't as much "normalization" as it is "don't take so many drugs when you're designing tables."
You'll know when the software industry matures. It is when the next release of a product introduces more new features than new bugs.
IMHO knowing the business is key. I'm a scientist working in a small high-tech manufacturing company and don't do IT for a living, but I dabble. We have one in-house IT person to handle everything from help-desk to maintaining our ERP system for ~250 people. I take care of the linux boxen and generaly act as a sounding board for the IT guy when stuff ain't working...
When stuff really hits the fan, everyone thinks that their particular issue is priority #1. One of the roles of a well-trained IT staff is to sort out those priorities and get the comapny back to business efficiently. You really need to know how the pieces are interconnected in order to do that effectively.
Another example: my wife works for a large company that recently outsourced most, but not all, of their IT staff. Now, when she has issues with the PCs in her office/lab she no longer has a single point of contact to deal with recurring problems and ends up having to explain the issue from the beginning again with the tech-of-the-day (Can you close all your apps and reboot? Is it plugged in?)... So what happens? One of the people in her group who knows something about PCs ends up being the local "mr. fix it" and ends up doing that instead of his real job.
Yet another example: She ordered a PC to drive a lab instrument since the old one died a horrible death. It took over two months for it to show up. Why? The only authorized PC for that purpose came with a "free" RAM upgrade and a 19" monitor, and even though the PC showed up within days the RAM was delayed. So the PC and, the >$100,000 piece of equipment was idled because it only had 128M of RAM and could not be delivered without the RAM upgrade. Never mind that the old PC that ran the machine had only 32M to begin with. Oh yeah, and that 19" monitor? It wouldn't fit in the equipment rack, so they ended up repurposing it as someone's desktop monitor. Of course the people in the lab knew it wan't going to fit, and mentioned this up front but the package deal could not be unbundled.
The irony of the whole thing was that it later turned out that the PC was incompatible with the data aquistion board required to drive the instrument even though it met all the manufacturer's specifications.
How did they find out? The in-house IT person from a neighboring department dropped by for something else and mentioned that they had found the same problem with their instruments. She found them an old clunker that was up to the job, and had them up and running the next day....
So, if you add up all the time wasted in dealing with these consultants that don't know what the group does or how it fits into the big picture of the company's business, do they still save money over a dedicated in-house IT staff?
You be the judge...
Balam* Vertical Integration is the practice of owning all of the aspects of your business. Rockefeller slaughtered his opposition by buying barrel manufacturing capabilities to store the oil, railroads to transport the oil, etc., all of which lowered his costs and provided a larger degree of control over the major factors immediately outside his core business of selling oil.
I'm constantly amazed at how often businesses don't seem to consider "purchasing" as a viable job title when it comes to their I.T. departments.
The fact is, when you don't assign purchasing and researching tasks to a specific member of your I.T. staff, you end up with a scattered mess of software licensing, fiascos such as the one you described with the bundled system w/19" monitor and RAM upgrade, and many other disasters.
With my previous employer, we had that issue, starting out. It was just generally understood that practically anyone in a salaried position could put in a purchase request, and then their direct manager had to "approve" the order before it was finalized. Seemed simple enough, except people in engineering would always dream up all sorts of hardware and software they "could get lots of use and productivity" out of. Of course, their boss would agree that it "sounded like a good plan" and sign for it. Then, I.T. would get stuck with all the support hassles if the thing wasn't playing nice on our network, didn't work as advertised, or what-not.
Even when we started trying to enforce a more strict policy of "only I.T. purchasing I.T. related goods" - things were still a mess. One person would prefer a certain vendor they used in the past, while another I.T. worker was trying to buy through someone else to keep up a minimum yearly purchase agreement (to lock in a discount).
Something I am seeing in my company, as a CEO and after spending the past year traveling around the midwest talking with other IT staff:
.Net applications and ship huge amounts of money to Redmond.
Java on Linux will lead the industry out of the bust, in at least one area.
1) By providing companies with business systems they can truly own themselves, and are not owned by other companies or cannot be purchased by competitors.
I mean, why pay $22 Million dollars for SAP when you can build your own system, for half the price, with Linux and Java.
Besides, your competitors can't buy what you build. What you do build will be truly an advantage.
2) You say SAP is too complex, too functionally rich to replicate? I say your are right. But most companies don't need SAP, they need a subset of SAP. They also need a system that represents a edge against thier competitors that can't be bought elsewhere.
Something you can get with a Linux and Java solution built homegrown, and probably at half the price.
3) Companies will do it. Why? Because they don't want to upgrade every 2-3 years and invest another million dollars because SAP or Microsoft says so.
The investment is also preserved over the lifetime of the hardware with the simple requirement you need a certified VM for your new target hardware and thats it.
4) Companies want to be able to upgrade when they require it, and when it makes business sense, not when Microsoft shareholders want more money.
This will make costs that are out of control right now, and outside the control of IT oragnizations, very much more controllable from year ot year.
Linux and Java delivers that promise.
In the end, Linux delivers this promise bacause it makes people the important part of this equation.
How?
Well, lots of people ask me how I make money with Linux? They don't seem to understand.
Which, for most of my competitors that wonder how I stay in business month to month, I am quite pleased they don't "Get It" as they gear up to write
Meanwhile, I am paying health insurance benefits, bonuses, and paid vacations to my staff to keep them happy at only $80 bucks an hour for software development. All that and in the state of Wisconsin for that matter. One state that taxes businesses quite brutally I am afraid. (I think we are the top 3 or probably in the #1 spot right now....)
Why? Because I don't have those costs. Which are enourmous in respect to how much I spend on software with Linux and Java for my customers...which is ZERO.
I figured out I must be saving close to $50K per year per programmer by not using Microsoft products for example on one of my customers projects.
The point is, in closing, is that IBM figured it out. More specifically, Lou Gerstner, who you can all thank, if you are a IBM shareholder. If Lou didn't see many of these things comming, almost a decade ago, IBM would be a vastly diffferent company both in size and scope right now.
But like Lou, my company makes money by competiting on the value of your organization, in the open source world, not by:
1) How many units of software I shipped.
2) How many server hardware pieces I shipped.
as the primary revenue stream.
You know what? Thats the LAST thing I think about when doing my companies overall goals and improvements list every year.
Both of the points are out moded methods of producing, manufacturing and basing the future industry of IT on. At least if we want to go from a depression like the US IT market is now experiencing, to another good times market.
What single company is doing more to insure that software and shrink wrap software remains the top reason to buy computers and the status quo remains?
Microsoft.
Microsoft is the enemy of everyone on slashdot who is currently out of work, or is looking to a better economy and better times ahead. More specifically, the 28 billion in cash Microsoft has and what it is doing with it is the real problem.
Why? Because Microsoft desperately knows, that it cannot survive very much longer simply on the desktop if it wants to maintain a monopoly market it worked so hard to legalize in the courts and in dustry.
Instead of leadership at that company that is reorganizing and retooling Microsoft for the future, like Gerstner did for IBM in the 90's, the company is using its vast financial resources to:
1) Buy off congress, judges, and lawyers to rule in thier favor on software rights and patents. I won't go into detail HOW they do this, since they already HAVE done it.
If you have been on Slashdot, and have been keeping tabs, you already know the how.
This is thier first step and it involves the DMCA, EULA's. Specifically attack Linux and free software, and slow it down.
To kill Linux, and the widespread use of software that manages information on the internet they will need something else. Since Linux is free, they can't attack it buy illegally appropriating technology, or through illegal hiring practices or just plain threatening a single entity or startup to scare investors away.
What Microsoft needs, is something equivalent to RAT poison to killoff the vast army of pengiuns.
That poison will come in the form of a harmless DRM law.
But not just any DRM, a friendly to Microsoft DRM is what they are after, and in its current stages, lawyers and judges will provide Microsoft with what it needs to kill not only Linux, but any software produced anywhere in the US that isn't licenses by Microsoft.
What Microsoft is aiming to not just secure its OS, but to secure how information is processed and used.
They won't have to develop anything innovative, they will lets the court system establish precedent and cases, to insure that all future information is only handled by DRM approved systems that make software, handle Email, or browse web pages or process information of any kind.
How?
Simple.
By making it criminal to write free software of any kind. They will do this buy buying off and creating companies that insure information cannot be tranismitted or created without the proper ownership credentials.
They will build into thier OS this requirement, and DRM laws will require that all OS's in the US do the same.
However, the algorithms that implement the DRM, will be owned and licensed by Microsoft, and only Microsoft.
If you create any program or recieve any information created by a Microsoft system, that doesn't have a DRM approved license to determine if you have ownership rights, will be illegal.
You see how this is done? It is done from the desktop, where information is created. That way, all the inroads into the server room can be reversed, and Linux or any free derivative there-of. (BSD, Unix..Macintosh etc.)
Simply because Microsoft knows that is currently the only bastion of its Kingdom not under tremendous erosion right now. This way it can deal with Linux and all competitors, from a position to strength, to dictate how much each of us will pay for DRM right to read/write or create ANY information with our computers.
Sound too incredible to believe? It already is happening, although, what I really mean to say there is already precedent.
It is pretty hard write now to transmit information globally or easily without the USE of Versign certs in a secure way. Sure, you can make your own authority for these scripts, but truth is, it is a pain and is a "so called" security risk.
So Microsoft alread has some precedent to understand how a certain kind of information, that is created can be controlled by one or two companies on such a wide and vast scale.
If you look at how they are approaching this, you can see they are setting themselves up to be the "Versign" of information rights management.
Everyone here agrees, that Verisign is a racket. You pay them for a paper trail. Sure. Tell me though for all this added security, how many equitable "Versign Approved" certs last year do you think were used to rip people off online?
Don't know? Just ask a credit card company or look at your bill the next time you get it.
We are all paying for huge fees on our credit cards just to have the priviledge to use our Credit Cards online.
Doesn't really seem like $300 bucks and all that paper is really helping people or the credit card companies....does it?
Yet Verisign maintains a monopoly. I wonder how they can do that?
Interesting issue isn't it?
It forms many of the foundations for which Microsoft is currently building an attack against everyone here on slashdot, or any user in the world that uses a computer.
Imagine a Microsoft OS that has the same requirements, perhaps in partnership with Verisign, who would make the DRM database.
It would seem Microsoft has all the advantages.
But, for all these, they have one thing against them.
That thing is time and it is a very BIG disadvantage because we are living in a depression time in our industry.
You see, the legal system is not exactly fast, even when you are paying off congressional leaders. Our court system is extremely slow.
You can pay off judges, it has been done before, but I don't think paying off one judge would get Microsoft what it needs like in the AntiTrust case. It needs much more, something almost akin to a law that says you MUST use our software.
But IT in America is showing signs it doesn't want to wait. Many of the people I talk with are ready to chuck thier Microsoft servers and explore alternatives....even on the desktop.
Especially in such hard times.
But the hope for our industry lies in Linux, and where it can take us. To remove cost barriers that many IT professionals have always come to expect or think are requirements to run a business. The hope that people finally become the primary selling and buying points in organizations instead of software and hardware licenses.
Linux is growing by leaps and bounds, and provides a hope for our industry to defeat this madness before it shows up on all our budgets, whether we like it or not because Microsoft makes it illegal to do otherwise.
That is a world I would not want to live in and with a new found hope in Linux and Open Source born of hard times indeed, I think we will avoid it.
When we finally do, a healthy industry of many diversified companies will return, and replace the monopolized, expensive and extremely value poor industry we now have.
Until then, Linux will continue to change the rules, and will offer companies in these uncertain times true value that will allow them to compete on a more sound financial basis when building IT systems as part of a company business model.
Hack
Got Geometrodynamics? Awe, too hard to figure out? Too bad.