In today's era of IT services consolidation, some small to medium-sized companies are proudly delivering 20 percent to 50 percent annual growth. Unfortunately, the vast majority of firms have experienced two consecutive years of fee erosion, commoditization, client defection and company identity crises. Nirell & Associates completed research in August 2003 to discover where the growth opportunities exist in the IT services industry so that more companies will be able to capitalize on them. Here is a summary of our findings.
The study
Our three-month study uncovered the major gaps between the top-performing and bottom-performing companies. Our interviews with dozens of CEOs across North America were designed to achieve three goals:
1. Identify the most common barriers to IT services company expansion;
2. Learn what investments will positively affect their 2004 growth; and
3. Compare their operating model and priorities against their peers.
We spoke with companies across six major sectors of the IT services market, including hardware and software support, business and process consultants, IT outsourcing firms, integrators and BPOs (business process outsourcing). BPOs had, by far, the most rapid growth rates of any other sector. The majority of our interviews focused on small to medium-sized organizations (50-500 employees).
We compared and integrated our findings with IT research firms and trade groups such as ITSMA, AFSMI, Gartner Group and the New Client Marketing Institute.
Frustrations and hype
When we spoke with CEOs, three common frustrations surfaced:
1. "Our target market does not understand what we do." (one-third of respondents)
2. "Today's economic downturn is creating fewer inbound leads and longer sales cycles." Several CEOs in the bottom-performing category mentioned that their companies are experiencing 18-24 month selling cycles.
3. Profitability is eroding due to the commoditization of IT services.
In spite of the media focus on outsourcing and vendor-managed services (VMS), only two of the CEOs we interviewed attributed profit erosion to offshore development. One recent survey of the largest IT services firms by Specifics Inc. revealed that less than 10 percent of all outsourcing revenues are generated offshore. As of this writing, it is highly possible that offshore development may be more hype than current reality.
The impact
When it comes to market awareness, we found that the 80/20 rule applies. IBM Global Services has become the "Kleenex brand" in IT Services. One branding study claims that IBM GS now has a threefold brand equity lead over other firms. This makes it increasingly more critical for small to medium-sized firms to create and communicate unique positioning statements.
We also learned that the companies who designed their business around a time and materials model are experiencing the greatest profit erosion. These firms told us that billing rates have declined by 15 percent to 20 percent. Companies who position themselves as problem-solvers, trusted advisers or BPOs did not report any concern with their profitability.
The top performers' five secrets
How can you best capitalize on the lessons we learned from the successful companies? The top performers who participated in our study invest consistently in these five areas:
Attracting, hiring and retaining great people. These companies ensure that leadership development and self-management are part of the fabric of their company.
Positioning their company clearly within a specific, well-defined niche.
Creating a lead generation machine. One company sponsors small-scale CIO breakfasts with great success, and has scaled back on printing brochures.
Standardizing on a world-class sales process and sales "machine." Top performing CEOs knew they were on the right path when they found themselves less involved in closing sales, and more time using their CRM automation tools to coach team members from the sidelines.
Investing in client account management models. One of our participants saw their services revenue from Microsoft grow from $2 million to $11 million within two years and attribute their success to their commitment to formal account planning.
Scott Testa, CEO of MindBridge in Norristown, Penn., has the commitment to building a winning team in spite of the economy and the competition. "We have become part of the '200 rule' with CIOs. On the average, CIOs receive 200 e-mail, direct mail and phone messages each day." He continues, "This is the time to grow and invest in marketing and hiring -- when we come out of this economy, we can turn on the light bulb again."
You don't need to be an IT services firm to learn from these secrets. In light of these findings, ask yourself these questions. Is your company ready to be a "top performer" in 2004? What initiatives will your company be willing to let go? How will you surround yourself and your team with a top-performer operating environment?
Nirell, president of Nirell & Associates, leads the Top Performer Program for leaders who want to accelerate growth. In addition to having more than 20 years of experience in software, consulting and sales, Lisa has served on three boards of directors. For more information, visit www.nirell.com.
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