If the IT industry isn?t dreaming up new acronyms to flummox us, there?s a fair chance it?s dabbling in neologisms ? the dark art of new words or descriptions. By now, most of us are on weary nodding terms with old descriptive dogs such as paradigm shift and interoperability. But hold on to your hats and stand by for the likes of partnershaft, co-opetition and disintermediarisation.
As with a lot of the grammatical mongrels the industry gives birth to, the last three descriptions are attempts at black hum- our. What they attempt to send up in this instance, though, is not the fact that a customer is being screwed beneath the lexicon, but that the different parts of the industry are shafting each other with a vengeance.
What has brought about this state of play and the need for some new descriptive handles is doubtless the fact that the industry, after years of a recession, is back on a roll. But the old lines of demarcation have fundamentally changed. No longer are the likes of IBM and ICL just manufacturers, they are also systems integrators and consultants ? treading on the toes of CSC, Hoskyns and EDS et al.
No longer are old business management firms such as Andersens, KPMG and Coopers & Lybrand confined to advising clients on which IT suppliers to opt for ? now they?re actively acquiring parts of the industry themselves. The upshot is a free skirmish in outsourcing, systems integration and consultancy. If back-stabbing rivals have to work together, call it co-opetition. If you have to ditch a bit of commercial baggage to secure a contract, that?s just partnershafting for you.
Computer manufacturers or distributors wanting to jettison the middlemen (the Vars) also have a new bit of parlance. Deal direct with the customer and explain it away as disintermediarisation. After a while, the phrase will be so natural you?ll be able to say it in your sleep. But watch out, disintermediarisation works both ways.
As might be expected, the Americans can be blamed for much of this scenario. It is their aggressive consultancies, integrators and FM specialists which dominate the UK scene. But then as the UK leads Europe out of the recession, it is hardly surprising that it should find itself at the centre of the US IT industry?s attention.
Indeed, according to market analyst firm Spikes Cavell, the UK now ranks alongside Germany when it comes to spending on IT, with some $12 billion spent this year by top companies, compared with just $2 billion in Italy or $406 million in Spain.
In fact, of the top 100 largest European spenders on IT, a quarter were housed in Blighty, including the likes of BT, Barclays and Royal Dutch Petroleum. Add to this the government?s wholesale contracting out of Whitehall IT divisions, privatisation of the utilities, competitive tendering, and the private finance initiative, and market opportunities in the UK seem endless.
The scale of US domination of UK public sector deals alone has been cause for concern. So much so that recently, Labour MP Angela Eagle was tabling a series of Commons questions about what contracts EDS, specifically, has in Whitehall. In short, no one really knew ? not even the individual departments ? apart from the fact that the DSS had contracted out a large part of its computer services to EDS in a deal thought to be worth ?hundreds of millions?, and that the Ministry of Defence had at least 150 contacts with Ross Perot?s old outfit valued in excess of #50 million.
Whatever the truth, such IT consultancies command huge chunks of business. All of which begs the question: how do the UK?s indigenous resellers, swimming at the bottom of the pond, get a nibble of the fatter worms? As it happens, many of them are doing nicely, providing they have something to offer over and above just selling tin or bog standard Windows or Unix applications.
Those involved in implementing key suites such as SAP?s R/3 package have a head start, often seizing advantage of the fact that there just are not enough implentation skills to go around, especially with large-scale projects. But resellers operating in the decision support arena can also carve lucrative niches out of working with prime contractors. One such company is Micro Strategy, whose MD, Stewart Holness, believes that more than two-thirds of his business already comes this way.
Recent deals include putting in the decision support software for Woolworths UK in a project overseen by Canadian mega consultancy Systems House, and doing much the same for Channel 4 and WH Smith under the respective consultancy-cum-integration auspices of Data Sciences (now part of IBM) and ICL.
But, he reveals, any channel members hoping to go down this path would be well advised to do their homework first. The key, he says, is to understand the forces at play. For a start, traditional computer manufacturers such as IBM, ICL and NCR no longer expect to sell their own technology automatically when the chance to win a systems integration or consultancy deal comes long. As a consequence, he contends, they are among the UK and Northern Europe?s most active companies in this sphere.
Whereas previously, IBM?s sales emphasis may have been segmented along AS/400, RS/ 6000 and mainframe lines, the greater focus today is on vertical industry segments such as retail, financial and general commercial ? which is where consultancy opportunities reside and where decision support specialists like Micro Strategy are likely to be called in at the outset.
Holness says: ?These days, big computer manufacturers like IBM are acting much more in a classic Logica, CSC, systems integrator role. When sales teams go into a pitch they?re no longer concerned so much with selling their technology, but finding out what type of solution the client wants.
?Obviously, if they can sell their own kit they will ? but that?s not their first call.? One Var adds: ?Both IBM and ICL are more active and easier to do business with these days, compared with a few years ago. The arrogance has gone and they?re out to seize opportunity in all its guises. If that means partnering with a much smaller outfit, then so be it.?
Meanwhile, what the traditional manufacturers are also doing is realigning their distribution channels in acknowledgement that most IT solutions are now network-centric. This has led, for example, to UK-based distributor Azlan handling nearly two-thirds of the networking products that IBM allows through the channel in Europe, reversing a previous practice where Big Blue usually sold its products direct to corporates.
It means that when a big IBM integration project comes along, Vars specialising in networking can more easily get their mitts on the right products, confident they can pitch on a level playing field. More crucially, it signals how IBM ? like other manufacturers ? is divesting itself of its traditional ?one-stop shop? hardware role, and concentrating on consultancy and integration where it believes the real money is.
But climbing into bed with the traditional hardware vendors as they migrate to consultancy and systems integration is merely one way for resellers to get a piece of the cake. Though the big half dozen or so consultancies like Andersen, Ernst & Young and KPMG might be quietly buying up niche chunks of the IT industry, they nevertheless have to remain as much at arm?s length as possible if they?re to convince clients their advice is impartial.
Rumours may persist about Andersen taking a stake in SAP, for instance ? and certainly where Andersen advises clients SAP seems to follow. But otherwise the consultancies make their wedge out of advising what to buy, not out of supplying the technology per se. All of which has a knock-on benefit for systems integrators such as CSC, Logica and Data Sciences which frequently need to fall back on specialist Vars if they are to push through a solution within an agreed time frame.
Business process re-engineering (BPR) is the happy hunting ground of many consultants who not only restructure the financial strategy of a client company but gear it to a particular IT solution. Much of UK manufacturing is currently going through the BPR mill, and the trick for resellers is to find out who the nominated systems integrator is likely to be and then ascertain if they can provide part of the new IT jigsaw.
Getting wind of big public sector projects is much easier, of course. EU competitive tendering rules make reading the European Journal and its list of invites to tender a must for consultancies and integrators alike, though if they have to rely on this they are probably removed from the mainstream players anyway.
Far better is the bush telegraph. And that means, at Var level, keeping an ear close to the stomping ground of the big players, especially established system integrators which nowadays ? like consultants ? fly the kite of a new business restructuring idea to a client and then, when asked who could implement the technology, put themselves forward. Surprise!
But, reveals Holness: ?Without a shadow of a doubt the bulk of this kind of work feeding down to Vars and solution providers generally comes from systems integrators and traditional manufacturers. By and large, the big six consultancies are still deemed to offer impartial advice. They?ll recommend a prime solution or integrator, but they won?t be overly concerned with the nitty gritty of subcontracting.?
So where does the humble Var start? One option is to appoint a specific staffer to manage the partner relationship, be it with a hardware outfit like ICL or an integrator like Logica. A good place to head hunt for this is among vendors such as Oracle or Informix that are used to working across different hardware platforms, or an outfit involved in groupware ? Lotus being but one example, despite its acquisition by IBM.
But, as with the Roman god Janus, the ability to gaze simultaneously in opposite directions pays dividends. Look to your customers and try to ascertain who influences their core business and IT procurement decisions, counsels Holness.
There?s a fair chance the existing hardware makers and integrators still carry the most weight, irrespective of the ?androids? ? as Andersen executives are fondly known ? and their ilk loitering in the wings. One danger of the blurring of distinctions between the various industry sectors, of course, is that end clients can be confused as to who is wearing what hat at any one time.
PC dealers, for instance, have been known to give kickbacks ? commissions ? to system integrators which specify their kit on a project, though this starts to raise the spectre of anti-competitive tendering. The opposite scenario might be where a reseller, doubling as a consultant, specifies hardware that in the natural course of things he would expect to get a margin on. Is he a consultant or a dealer? Throw in the situation where a reseller?s executives have been specifically trained in implementing a complex application and are ideally placed to integrate it, and the duty of providing customers with impartial advice is at risk of crumbling to dust.
All this, of course, still paints a picture of the Var community living off the crumbs from the major players? tables, be they consultants, integrators or traditional hardware vendors. But, according to Spikes Cavell, the reseller community itself is no longer content with crumbs, and at the behest of customers demanding ever lower prices, is also fast moving into the overcrowded markets of consultancy, outsourcing and systems integration.
Spikes Cavell research operations director Andrew Roberts says: ?Resellers and box-shifters are starting to think ?hang on, this is ground we need as well?.? And it?s the clients who are driving them towards it. While there will always be a market, he says, for resellers peddling hardware and applications to customers who know exactly their IT needs, there is at the same time a genuine desire by the Var community to handle more of the IT procurement process ? ?resellers are no longer content to be just doers. They want to manage a client?s buying process,? he says.
But this is a recipe for a bloodbath between all the rival parties, admits Roberts. ?It will all obviously have to shake out. There will always be room for niche players, but otherwise the bulk of resellers have recognised they need to adapt to the changing market conditions.?
Possibly one of the more active areas that resellers can pitch into is in outsourcing. Not the multimillion pound facilities management contracts hogged by the likes of EDS and CSC, but the smaller end such as managed desktop services. It?s a level of business that traditional hardware vendors are also looking at. Unisys, for instance, clinched a deal with a large City institution to not only manage its army of PCs, but handle the procurement process too. Such deals help Unisys shake off its legacy image of being primarily a mainframe supplier, but that?s not to say Vars can?t get in on the act too.
But, warns Andrew Roberts, if resellers go down this path they should be braced for a cultural change and be prepared to free up suitable staff to manage the relationship: ?Box-shifters are different animals compared with those involved in supply management,? he contends. The good news, though, is that if resellers want to cash in on a larger outfit?s FM deal, preferably by undercutting them, they?ll probably find the client amenable to listening.
A recent survey carried out by Morgan Chambers ? a consultancy firm which advises on outsource contractors ? discovered that most IT managers feel manacled to their suppliers and would happily give them the elbow if they could figure out how. But the big fear was disruption of business. So much so that only a tenth of those canvassed were prepared to replace their supplier. The greatest dissatisfaction was in local government, although three-quarters of IT managers in banking and finance would just as readily kiss their existing FM contractor goodbye
Michele Pipon, a former IT manager at Guinness brewery and now with Morgan Chambers says: ?When it comes to outsourcing, a lot of companies are like rabbits caught in car headlights. They don?t know which way to turn.?
What that means for resellers hoping to get a share of the FM action is that the seeds of discontent are already there. What prospective customers are crying out for, it seems, is some reassurance and TLC, as they say in the lonely heart ads.
One of the Achilles? heels of the larger outsourcing outfits is the exorbitant fees they charge for their advice, with some top consultants costing #3,000 a day or more. Contract supply managers are not normally in this pay league, but it?s a point worth bearing in mind for any reseller bidding against one of the bigger FM providers.
For the consultants from the Andersen or Coopers & Lybrand type of organisation, the fees can be just as exorbitant, again providing room for manoeuvre for any resellers seeking to re-establish their identities along the lines of impartial IT advisers, as opposed to solution implementors. ?A lot of large customers have this view of consultants along the lines of ?well, we do have to get them in because we know they?ll provide us with the best perspective on buying IT. But we also know they?re going to fleece us with their fees?,? Roberts points out.
Another irritant for these customers, suggests Roberts, is the way such consultants push them towards opting for a single vendor on the basis that it manages the supply risk better. It might take the worry out of co-ordinating, say, a migration strategy to Windows NT, but is it the most cost effective for the client? Dealers that can guarantee a multivendor strategy at lower costs might at least get a foot in the door of consultancy.
?Existing consultants and systems integrators really have a cost perception disadvantage at the moment, and as the industry flattens out, resellers are in an incredibly strong position to seize new bits of business. All they have to do is prove themselves,?says Roberts.
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