IT services business started and evolved as a cost-reduction offering. First, offshoring offers a direct drop in costs to customers. Then greater productivity - doing more with less resources - offers greater cost savings with time. It's funny how most IT deal reviews by leaders hover around ON-OFF (onsite-offshore) ratio and YoY (year-on-year) productivity, while trying to hit an attractive price at an acceptable margin. Often, it's people with limited understanding of technology trying to buy and sell technology services.
These ratios, of course, are just high-level indicators of solution optimality, and benchmarks like 90-95% offshore headcount and 50-60% productivity-gains over 5 years are hard to push further. It's all in excel after all.
Seeking higher productivity has helped shape IT services with efficient processes, tools, and mechanisms, including automation and AI. But the pursuit is endless. Every new large deal, you are still asked - how will you bring your team to half its size in 5 years? There are no real, rather complete, answers. There's some experience, at times. There's automation. There are tools. There's AI. There's God. There's - 'we'll figure out when we get there'. Mostly, there's leap of faith compelled by fear: if we don't offer this, somebody else will, and the deal will be theirs; we have to take the risk... a calculated risk.
Peeling layers, you start looking for people mix - the pyramid. More the junior people, lower the cost - that's one lever you can pull. What about skill? - we'll train them - let's assume for now; and there's AI.
Once you've totally beaten this chain iteratively to its bare minimum cost configuration: # of people - ON-OFF ratio - Pyramid - Productivity - # of people - ON-OFF ratio - Pyramid - Productivity - ... You'd now turn to other costs - infrastructure, shifts, cabs, management, overheads, nickels, dimes, chillar!
For at least a decade now, IT service providers have recognized this need to get out of the cost play and move to value play. Mostly through talking, without really investing in genuine capabilities. So, outcomes have been only in pockets. The problem, I think, is in the nature of the buyer-supplier relationship - the relation is designed to be transactional, and both parties enter with short-term motivations.
And that probably explains why GCCs are emerging as a stronger value creation model.
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