According to CIO Magazine, “Companies worldwide are growth-oriented as never before. Their strategic priorities have shifted decisively over the past three years from controlling costs to pursuing new opportunities for revenue growth. To achieve such growth in the face of stiff global competition, business leaders also demand that their firms operate with much greater agility. They rely heavily on technology and the IT function to enable them to meet these objectives.”

For those in the services business, we are seeing the above phenomenon come to life right in front of our very eyes. This shift in priorities has begged the question of our own strategic focus for our services practices. It forces us to challenge whether we should be offering more commoditized or specialized services. It is fair to say that the majority of service practices offer “everything to everyone” and while they do operate within a sphere of competency, there is typically not a focused effort to specialize in a smaller number of skills, in a more specialized manner. Services leaders need to ask themselves “what business model for my services business can ensure I meet the current need for agility in the marketplace.” There are really three business models that are most pronounced; specialized, heterogeneous; commoditized. While we may not want to call our business model by one of these names, it is important to clearly identify where the focus should lie, since this drives many other considerations within a services business. Those considerations would include:

1. Access to Talent
2. Price Pressures
3. Competition
4. Client Expectations
5. Quality of Services

I.  Access to Talent - This becomes the “buy versus build” debate that we hear our clients commonly refer to but for a services business it relates to our ability to find talent in the marketplace with readily accessible skills. Let’s take on-demand computing as an example. This is an area that few have vast experience in both explaining and executing in the marketplace due to its relatively recent entry into the market over the last 6-8 years. As such, if you wanted your business to specialize in developing a strategy for on-demand computing in a legacy IT shop, you would have to likely comb the marketplace heavily to find the appropriate talent and further would likely have to pay a premium once you identified that talent.  If the talent is not readily accessible, it is always possible to train the talent you need, but you would have to retain an expert to perform knowledge transfer, and you would still face the challenge from your clients of “where you have done this before”. This is likely the most important consideration since without saleable talent, you do not have a business model at all.

II.  Price Pressures - Typically in the heterogenous (mix of specialized and commoditized skills) business model, which is most pronounced in services organizations today, we would assume we can withstand the pricing pressures that obviously come with the commoditized services offered. This is becoming less true. These pricing pressures commonly come from both organic growth in the domestic market as well as the explosive growth in the off shore market. Both sources of growth have not slowed over the past 5 years, and while few new services organizations come into the marketplace with a specialized business model, they tend to be dilutive to current pricing, as firms use this as a competitive tact to gain market share. While the above quote from CIO Magazine tends to discount pricing as a key factor in IT buying decisions today, that only has validity if service firms compete on value. It is fair to say that competing on value as an art form in today’s market is aspired to by most, and achieved by few. Therefore, unless a firm can clearly articulate that their value far outstrips their competitors, despite a higher price, I would challenge their ability to win the business. When determining your future business model, this consideration is typically what actually inspires the initial discussion since margins continue to erode, as pricing falls and cost of talent continues to rise. That said, you must ensure that the pricing expectations of your new business model is sustainable. If you are assuming that you can “heavily discount your way through the market”, it is fair to say your pricing model is not sustainable, therefore your business model is not as well.

III.  Competition - Clearly if your competitors are offering specialized services that lead to greater business agility at a greater price point, you may find yourself tempted to follow suit. That said, shifting a current business model to respond to your competition may not be as easy as just having the desire. It is like changing the tires going 90 miles per hour. Specialized services by their nature tend to mean a smaller market demand for those services, with less frequency and potentially longer sales cycle (cost to sell), therefore it is important for you to assess if the supply in the market comes close to meeting the demand and if so, you could be creating specialized services that would not be subsumed for some time to come.

IV.  Client Expectations - Have you trained your clients to think that it is better if they have “one throat to choke” and that can be yours? If so, how could you transform to a specialized services model and now insist that your client may need multiple sources for their services, and many throats to choke? If a transformation is to occur to a specialized business model, it would be key to have a formal partner ecosystem established as part of the transformation that could ally the fears and lack of confidence that could occur when you specialize your services. It is entirely possible to still be the “one throat to choke” but only if you have complimentary services pre established with another premier provider that you are willing to manage. This will be key to a true transformation to a specialized business model.

V. Quality of Services - While the above considerations have been presented in an order of priority, this is clearly a key to whatever business model you determine can meet the objectives you have established. It is fair to say that the specialized services model also comes with greater risk for a variety of reasons. Additionally, since there tends to be fewer specialized skills in respective areas, if this is your business model and a project or person on a project begins to falter, finding another ready asset to recover, could be very difficult. Conversely, in a commoditized model, you would tend to have a ready pool of talent to draw upon should you run into a problem. While there is nothing like success to breed success, there is nothing that will tank a services business quicker that a highly visible failure. As such, regardless of the business model you determine works best for you, it must come with a well documented, well tracked process for measuring, monitoring and rectifying any faltering in the quality of services that are being offered. This becomes extremely challenging in the specialized services model.

The above considerations are merely intended to begin the discussion regarding what business model your services organization should adapt/adopt. There are great business cases that prove all five of the above considerations can be managed well in a specialized, heterogeneous and commoditized model. The first step though is to ask yourself, “Is my business model able to meet the changing demands in IT today (as espoused by CIO magazine above)”? We see many organizations that are answering that question with a resounding NO, they need to take a hard look at their considerations herein to decide what lies ahead for their services business.