Having established that even software that is becoming commoditized still requires skills to deploy, and that those skills are offered by the Systems Integrators to the market as IT services, one other observation about the IT market must be made. That is that the services segment of the industry is highly fragmented. The biggest SIs, the so-called Global SIs or GSIs, such as IBM, EDS and Accenture in sum account for only about 10% of the market. The vast majority of the market is made up of smaller SIs who focus on a particular region or industry. These Regional SIs or RSIs are very hard to compete against for the GSIs because they are nimble, have close relationships with their customers and know their particular niche inside and out.



This last point is particularly important, because if we harken back to the beginning of the previous piece of writing we'll remember that I believe IT is in a transition phase in which it moves closer into the core of the business, instantiating rather than just supporting business processes. These RSIs are in an excellent position to help this transition along since they understand intimately the particular challenges, dynamics and drivers of the business processes that are characteristic to their customer segment. RSIs specializing in Healthcare are familiar with the applications and systems prevalent in those customers, the challenges facing their IT departments as they try to support the business, and the processes like billing, insurance, patient records and diagnosis that are increasingly migrating to IT-hosted processes.



Services span more than IT but maintain this basic structure. Management consulting firms are the complement to IT consulting services as practised by RSIs. Like IT services, management consulting is very fragmented. The big guys like McKinsey take more share collectively than in the IT services market but still smaller firms that specialize in an industry dominate. Returning to our Healthcare example, the boutique consulting firm understands in precise detail what the critical efficiency drivers for a provider are and how patient privacy regulation and insurance processes impact those factors. Together the boutique consulting firm and the regional systems integrator are in an ideal position to capture the value from aligning IT more closely with business process.



There are two problems that keep this from happening: both have difficulty scaling without losing the laser focus that gives them their advantage; and they each barely know the other exists. The consulting firm tends to have very low IT skills and the RSI knows very little about business process and management.



Here comes the play, finally! First, start acquiring small SIs and boutique consulting firms that are the best at what they do and who strongly complement each other in a particular industry or region. Prioritize the industries and regional markets, find the #2 player in each of those markets, and acquire. As the acquisitions begin, build a small development team who assess the technology base of each SI you acquire and begin to build a stack of enterprise software using open source components. Start with Linux for the operating systems, Apache for the web server, MySQL or Postgres for the database, support PHP/Perl/Python/Ruby whatever for the execution environment, and pay close attention to the Web Services libraries and capabilities. You want your stack to make it very very easy to build Web services interfaces and to consume Web services from other locations. More on this later.



As you build your stack you want to involve the developers from your acquired SIs as much as possible, and include as many open source applications that are relevant to their customers as possible, whether they are horizontal applications like CRM and ERP or vertical industry applicatins. When the stack is ready, stipulate that whenever and whereever possible the stack will be used to develop custom capabilties, to integrate application function, to extend legacy systems' functionality, or whatever the customers' needs demands. The way in which the stack will be used is to develop the desired capability as a component that plugs into the stack and is accessed via a Web service. If performance demands, it can also have a native interface but the Web service interface is non-optional.



While this is happening, two other changes will be made to the way your acquired firms do business. One, your RSIs will develop close relationships with your boutique consultants that play in the same markets as they do. They will learn the business strategy and management consulting side of their industries, and they will educate the boutique consultants as to the technological aspects of the customer. Over time they will begin to engage customers shoulder-to-shoulder, with management consulting engagements being sold in parallel or in sequence with IT services engagements, and vice versa. Second, the engagement contracts signed with customers will stipulate that intellectual property and code developed as part of the engagement remains the property of the firm, and does not revert to being owned by the customer. Hopefully, the use of open source software represents enough savings for the customers that they will not balk at this arrangement, but if they do, more care might have to be taken to abstract the specific customer function from the generic industry function, with the customer's "proprietary" code being owned by them and the generic functional code remaining the property of the firm.



Over time more and more Web service-enable components will be in the portfolio, ready for use for the next customer engagement. This will introduce efficiencies that will allow the firm to scale by using less developer resources to code from scratch on every engagement. These components will also represent the best practises for the customer industries, built as they are from a position of intimate knowledge of the technology infrastructure and key business drivers for that industry. They in and of themselves will be very valuable, and their reliance on Web services for integration makes them consumable by any vendor who is pursuing a services-oriented technology strategy. An outbound technology licensing business can now be developed, catering to software vendors seeking to augment their platforms with industry business process knowledge and lacking the granular relationships at the industry level.



The reliance on the shared stack also means that scale can be acheived by either building an offshore services resource or partnering with an existing off-shore firm such as Wipro, Infosys or Tata. The stack can be developed on, deployed and modified without any licensing to anyone, and therefore makes a good collaborative tool with which to leverage offshore developers and integrators.



The goal of the business model is to build up to a new breed of GSI that is, under the covers, still a loosely coupled collection of small firms collaborating at an industry level to generate deep business process knowledge and building an asset-based services business for increased profitability.