One of the most popular trends in healthy living has been the "eat local" campaign. Global and processed food solutions make today's food economists worry—there are massive trade-offs in quality for the benefits in cost and convenience.
Oddly enough, there is a similar debate raging in the services world of today.
Thomas Friedman (author, The World is Flat) captured one side of the debate best when he wrote of a world where ubiquitous access to Internet and computing skills meant that companies could outsource anything to the cheapest markets.
Increasingly though, companies have started to see the other side of the debate. Books such as The World is Curved have started to explore the notion that "local competencies and skills" make a big difference.
That said, let me propose something of a hybrid theory—which is what I think is actually happening in the world today.
On the one hand, certain commodity services—standard and repeatable coding tasks connected with product enablement or other back office tasks that don't require customer interaction—truly are moving offshore and should do so. In the old days, there was immense frustration from clients—and great benefit to the system integrators—when they had to pay exorbitant rates for routine services. Moving these commodity services offshore is virtuous. There is little contact with the customer and there truly is no reason for it to be performed on site.
On the other hand, there is another set of services that truly starts to get at the core relationship between company and customer, where the culture of the company and its commitment to its customers is most truly expressed. These interactions are true gold for the company as you can learn valuable things from your customers about how they use your product and how they want to use the product. Mastering these interactions is core to an effective retention strategy and are outsourced at great peril.
Years ago, David Brooks, the renowned New York Times columnist, referred to the services teams in companies as "the camels of innovation." These individuals would travel anywhere to bring the distinctive human element to the deployment of a company's technology. Over the past several years, we have seen these services teams become more and more important and we have watched technology product companies revolutionize their views of value added services on their core offerings, transforming them into a must have on a global scale.
It began with IBM, but has continued with HP, Dell, Xerox and Fujitsu, as these technology product companies have seen the need for services teams to help customers see the truly special value of their products. Today, it is not just the behemoths that have services teams to help deploy technology. Almost every technology firm of any size sees the strategic need for a services team to aid deployment and gain the all important customer loyalty, not to mention adding valuable revenue in a challenging economy.
At a recent Technology Services Industry Association (www.tsia.com) conference I attended, JB Wood and Thomas Lah, leaders of the association elegantly made the point that the technology business—both hardware and software—has become a services business. Here is some data they created and presented at the conference reflecting the share of services revenue as a percentage of total revenue of the leading software and hardware companies.
The notion that our economy is becoming more and more dominated by services is not new, but the way in which this development is expressing itself surely is. The human element is becoming the most important element in a company's presentation to its customers. It is becoming very hard to differentiate on a product alone—rather, it is the way the customer experiences it that has become the dominant factor. Human talent, rather than being devalued in a highly mechanized world, is being elevated.
The implications of this are profound for how the modern enterprise must manage itself today. Gone are the days when Enterprise Resource Planning systems ruled the roost and the key competence was effective manufacture and delivery of products. In those bygone days, services were an afterthought.
SAP made its name by understanding that the global supply chain revolution in production required a whole new way for companies to interact with supply chains and inventory. Now, we are seeing the need for a whole new approach to managing the global enterprise.
New Services Resource Planning systems are required. Simply put, people cannot be treated as a collection of interchangeable parts. The global coordination of a services business requires a discipline even more subtle and intense than ERP. It involves not only managing a roster of professionals with varying skills, but forecasting when you'll need those skills and where and for how long. It means managing projects on time and on budget, and billing for and recognizing the revenue they bring in the most efficient manner. It means catering to the road warriors that make up that same services business so that they can be most effective, no matter where they are in the world.
Finally, a new system of managing people is required. Communication across the enterprise means that collaboration will replace top-down, command and control directives. In one address, Cisco CEO John Chambers noted that he was awfully good at the command and control part of managing a business, but it was the collaboration and distributed management that required constant innovation and work.
In today's world, the core challenge facing all of us who run a business that includes services—which is increasingly all of us—is to develop those core competencies and systems which will allow us to provide highly localized services in a global economy.
Talent matters and customers recognize the difference on-site services make as they navigate the difficult waters of product installation and deployment. It is no surprise that the most dynamic area of tech M&A is driven by product-focused companies acquiring services businesses—look for that dynamic to continue.
The implications in systems, training and management are only just beginning.