Theory of Everything – A Philosophy of IT Services

Here on entbp.com we have intended to share the insights of 3 combined careers in the IT services arena. We started with our insights on what motivates consumers of IT services (perhaps all services) with our blog on “The Four Horsemen of Outsourcing”. We discussed the “Lifecycle” of outsourcing which is a lifecycle for the procurement of any IT service. And then we started into details on both.

In both cases, the focus on outsourcing enables us to draw distinctions about IT services that are abundantly apparent in an outsourcing transaction, but which are less so in smaller transactions that may not assume the name “outsourcing”. Outsourcing stretches the subject by enabling, in large scale, a view to areas of discussion that are not readily apparent in far smaller engagements. For example, Dave’s discussion on process definition is relevant to any IT service procurement. But, when shrunk to the level of a break/fix exchange, process becomes simple. Deployment becomes a calendar entry. That is not the case for a $500M+ USD outsourcing transaction which will span a number of years.

In general terms, IT services enjoy some major characterizations of which we have chosen to bring only 2 to the table. In our model, there are 5 primary characteristics with an interesting set of secondary characteristics that appear from the intersection of 2 or more of the primaries. The primary characteristics are

1. The (Outsourcing) Lifecycle
2. The 4 Horsemen (of Outsourcing)
3. The IT Service Vendor Types
4. The Innovation Phase/Type (of Service)
5. The IT Services Industry Economic Phase

The Primary Characteristics

The Lifecycle

The Lifecycle acknowledges the fact that often the acquisition of IT services is cyclical with nuanced changes in each cycle. There is an original starting point but this point is triggered by an original need voiced by the buyer. Larger transactions that occur over relatively long periods, like outsourcing, should be aligned to strategic decisions, while small service purchases are often tactical but still nonetheless reoccurring. Eventually, the time may come to exit the cycle entirely.

The 4 Horsemen

The Horsemen describe, at a coarse level, the major motivations for buying IT services. They provide a framework for a composition of 17 specific motivations that drive IT service consumers to buy.  These motivations often appear in groups but almost always have a primary motivation along with 2 or 3 secondary motivations. As a consumer, you are best informed if you know your full motivations for buying. As a seller of IT services, you are far more likely to have a qualified set of opportunities if you know the motivations driving your prospects.

The IT Service Vendor Types

Amongst our team, we often debate the vendor types – how many there are, their major characteristics, etc. But over time we have come to settle on a short list that rarely varies. I advocate 6 types, while Ian and Dave are happy with 5; but sometimes there is a 6^th that is not the 6^th I would select. In any case, what we have is a definition of the IT services provider marketplace that is rational enough to model. Each type behaves differently in the context of innovation phase, Horseman, life cycle segment, etc. Knowing these types therefore enables the buyer some ability to predict the set of providers they may want to work with and under what conditions and terms. We will elaborate in another post but our basic set that we all agree on include major, minor, boutique, commodity, and utility. You might be surprised that we do not elaborate along such boundaries such as application developer, cloud provider, etc. Read the post (once we post it) and provide your own comments on our logic.

The Innovation Phases

Simon Wardley offers a dimension for the forms of capital that reflected that maturation of IT products over time. This dimension is fundamental to his brilliant mapping technique. Our inside discussions have wrestled with that dimension of IT products and services, and we recognize that innovation is a primary characteristic of the IT marketplace (and probably others). The continuum this dimension describes is a solid view of what you must have to meet strategic objectives in large IT services transactions. They also support a clear idea of what you should buy in smaller, tactical purchases. For this reason, it is a natural partner with the Horsemen as a tool to guiding practical actions in the IT marketplace.

However, we have decided on an adjustment to Simon’s model that tends to assist our model of the IT services marketplace. Simon offers 4 types of innovation. We will describe in our post on “The Breakdown of Innovation” how we split Simon’s 4^th “stage of evolution” into two based on one key characteristic – who owns the means of service production.

Find more from Simon in his work on Medium.

The IT Services Industry Economic Phase

This characteristic of our model is less subject to hard definition – yet! But over the 40 years, maybe 60, of the IT services market, larger, national and global economic cycles have generated interesting behaviors within the IT Service Vendor Types and The 4 Horsemen. Economists and most large IT service vendors will tell you that IT outsourcing specifically is counter cyclical in its fortunes. In other words, if a national economy is on the back side of a growth period and now headed into some period of contraction or recession, more companies are likely to look to outsourcing for cost savings. IT Outsourcing providers then see a rise in fortunes and their behaviors change.

While possible to generalize, there are several nuances that are now in play in the economy. One is that much of the IT services marketplace is now global. Another is that different IT Service Vendor Types do better finding their fortunes in different phases of an economic cycle. For example, large IT outsourcing vendors are, to our observation, counter cyclical, but that cycle is aligned to large consumers of IT. They find their best business when the large companies need the Financial Horseman most – during an economic contraction. But, smaller providers, find their best business when the mid- to small-IT service buyer is driven by the Capability or Geo-Temporal Horsemen and the growth they support. Smaller consumers are driven by the rising fortunes of big industry buying and their own growth to either support clients as a supplier or keep up as a competitor.

The net of this is that an economic phase driven by normal cycles or triggered by international or national disruption will have predictable consequences for vendors. Over the last 40 years they have become predictable enough in their response that you can use the economic phase as a guide to who to buy from and what conditions to consider in the process. For example, if you are buying from a major IT service provider while the economy is dropping watch for higher pricing and longer transition periods.

Secondary Characteristics

As a team, we often discuss how our model is enriched by elaborating on the secondary characteristics that result from the intersection of the primaries. Examples from the economic phase and the vendor type were described above. Our intent is to take these various characteristics up in our blog over time. If you have something specific you would like us to discuss, let us know with a comment.

Finally

Finally, the three of us have developed key evaluation tools that help guide you as the buyer of IT services through the definition of your place in the Lifecycle, the key motivations driving your decisions, evaluating the vendor type(s) that can fit your procurement, and then color that entire set of internal decisions in the context of the IT service innovation phase and the economic cycle. Feel free to contact us for more information.