By Jeffrey M. Kaplan
Jun 11, 2018 8:36 AM PT
In the old information technology world, systems integration and consulting companies flourished, helping enterprises of all sizes across nearly every industry pull together a plethora of proprietary systems from a wide array of software and technology vendors.
Despite the promises of the cloud, not much has changed. While there may be fewer pure-play proprietary systems and applications, the need to customize software solutions and integrate disparate databases has continued to grow.
So, it’s not surprising that the demand for IT services — including upfront consulting, systems integration and software development skills — also has escalated.
Spending on IT services worldwide in 2018 is expected to surpass US$1 trillion, a healthy 5.5 percent jump from a year ago, according to Statista.
Of course, a lot of the growth has been driven by a combination of rising customer expectations and intensifying competition in every sector. IT services are in demand to help organizations not only continuously update their current software and systems to keep pace with market forces, but also to pursue their unique digital transformation objectives.
Yet, there are several important differences in today’s IT services requirements that set them apart from the demands and offerings of the past. The most important differences are due to changing customer preferences.
First, when the systems integration services market emerged in the 1980s, enterprises accepted that coping with the challenges of conflicting proprietary technology and software was a necessary evil of doing business. In today’s world of open source software and application programming interfaces, organizations expect their vendors to offer solutions that can interoperate with one another.
Although making this a reality is still a challenge, the perceived value-add of “simple” systems integration services has been diminished. As a consequence, systems integrators have to offer a new set of value-added services.
Second, corporate decisions-makers no longer are willing to hand over their entire IT operation to a third-party in a multiyear outsourcing deal, as they did during the 1990s and first part of this century.
Corporate executives now view their IT operations as strategic assets that shouldn’t be trusted to others. Further, they have discovered that the outsourcers seldom were able to fulfill their promise of being able “to manage the IT mess for less.” Consequently, the outsourcers no longer can rely on long-term contracts to generate large-scale profits.
Finally, there has been a change in customer attitudes regarding the benefits of working with IT services companies that can deliver software- and technology-enabled, repeatable solutions. In the past, corporate executives were a bit schizophrenic about this idea. On one hand, they preferred to work with IT service and professional services firms that could demonstrate deep domain expertise and a track record of success in specific industries or disciplines.
On the other hand, they were apprehensive about acquiring a productized solution from the IT services and professional services firm that was built to address a similar set of common issues facing the client organization’s peers. Now, smart corporate and IT executives are more willing to reap the benefits of an IT service provider’s past experiences and intellectual property.
These changing attitudes helped to breed a new generation of cloud-centric professional services firms over the past 10 years — including Appirio, Blueolf and Cloud Sherpas. This more agile group of companies focused on shorter-duration projects aimed at helping their clients capitalize on the latest Software as a Service, Platform as a Service and Infrastructure as a Service innovations and alternatives. They also found various ways to productize some of their repeatable solutions and found a more receptive audience for them among their customers.
The rapid deployment methodologies of these firms, along with the success of their software product development efforts, made them an acquisition target by the bigger, more established and global IT services companies. Cloud Sherpas was acquired by Accenture. Bluewolf became a part of IBM. Appirio was bought by Wipro.
Among these firms, Appirio attracted its first round of venture funding more than a decade ago, based on the promise that it ultimately would become a software and services company. While it found much of its success providing people-based services, Appirio’s software solutions gained enough traction to demonstrate that it could fulfill its original vision.
I recently chatted with Appirio’s new leader within Wipro, who said that the demand for productized solutions has been continuing to grow in three areas: in horizontal application white spaces, among industry-specific vertical markets, and for a new set of DevOps tools that make the entire software development process easier and more effective.
With the first generation of cloud-centric professional services firms now sitting within global IT services companies, you should watch for two new trends within this sector of the industry: first, how the larger IT services companies transform their operations and recalibrate their mix of software and services; and second, how the next generation of IT/cloud consulting companies set their own course to redefine the way software is developed and services are delivered.
The opinions expressed in this article are those of the author and do not necessarily reflect the views of ECT News Network.