Hardware Refresh and Software Upgrade

If there is one thing that distinguishes IT infrastructure services from the general IT services pool in terms of structuring the deal and the impact on (accounting) books, it is the way IT infrastructure space impacts capex decisions of CIOs. While "running the operations" draw opex budget for software services and infrastructure services, the need to refresh hardware (network gear, desktop, servers and other related gear) and upgrade software (to keep pace with OEM support or hardware compatibility) brings in the capex element which makes most long term deals interesting.

When outsourcing for infrastructure services, value being sought is not just in improving service quality, operating efficiency, running cost optimization but also to reduce and smoothen the traditional clunky outflow on account of such refresh and upgrade requirements which are mostly inevitable and a necessity in large enterprises running mission critical environments.

As different service providers come with up different models for addressing these customer imperatives, there are different approaches each provider takes. Some have their in-house financial companies which finance/lease hardware ( these service providers also want to keep such activities on a different accounting book and not let it pull down its operating margins and numbers). There are some others who do not have such options and take this as a "core value prop" pitching it as an advantage of not having any bias to any technology OEM. However with time, since the business of business is business, CIOs may like pure-play show but finally it is where the dollars are saved that they mostly end up going with as finally that's how they get their bonus worked out!

If the enterprise does not own the existing equipment, this becomes a big factor in large deals as they then do not find it attractive to add equipment to their books in the current situation. If they have the equipment on their books, already this gives them a great opportunity to build a business case to use the opportunity to outsource or change their service provider and sell their assets to the new provider.

Revenue and People Count

Look at the quarterly or annual revenue reports of offshore based IT services companies and almost all report revenues and employee count hand in hand. The unsaid association is that more the number of employees, greater the revenue. So, you read projections each year of each company targeting to hire in the upwards of 20,000 or even 30,000 or 40,000 employees each year!!!!

An interesting study would be the comparison of revenue per employee of these firms with that of their competitors who are primarily pure services non-offshore headquartered or services companies with OEM business as well. And if we want to spread the spectrum and skew the numbers further, we can include the same for software product majors. Will make for an interesting weekend study which I will do one of these days. But the relationship drawn makes one wonder where this will stop. For a $6b-$8b revenue if the employee base needs to be upwards of 150,000 employees, what happens when the firm is say $20b if there is always a linear relationship which has happened till now and firms don't seem to be talking of more value based revenue. What worked well in the past will not necessarily work in the future. As the employee base grows, focus on managing the gigantic resource pool and its aspirations will be crucial.

Increasing Remote Operations in Offshore Operations

What has probably existed for few years in the US based operations of OEM majors who are also service providers, is now catching up at offshore locations of these and other offshore players. Increasingly administrators are working from home - thanks to the improved network services which are also cheaper along with the reducing costs of a laptop and a mobile phone, not to mention the pervasiveness of chat and video conferencing.

Till 2-3 years back, such were just privileges which some of the senior folks in the offshore operations could enjoy as not everyone yet has a laptop in most offshore operations' teams which work on customer projects. Secondly, the efficiency of home networks (cost and quality) has improved several times. My home broadband has more than 99.99% uptime for the last few years I have been using it in India.

Another advantage of the home worker is the saving in office space along with reduced commute time (and cost) for the worker which motivates them to work well from home. Of course they need to ensure that they have a decent "home office" with no interruptions which is something that many struggle with as most homes are not big enough to have a study.

Other issue that many report is the inconsistent power supply in some of the cities/areas. However these days the power outages are mostly couple of hours in a stretch (as a maximum limit) which is better than the situation few years back and an air card with a laptop ensures that the worker is active even when there is no electricity for few hours at home.

So it is a win-win for the employer and employee but what about the customer? While many companies may not explicitly disclose to their clients the number of work from home workers on the account, most often the quality of service is at par with the workers working from a regular office. And most who work from home still come to the regular office once or twice a week to meet up with their supervisor and some of the face to face team meetings.

Another important "constituent" set are female employees who find it very useful to work from home in a predominantly patriarch society of most offshore countries where the woman of the house is still responsible for cooking and cleaning though it is gradually changing. Many are also able to afford domestic help with the new salaries they enjoy.

So it does  sound like a win-win-win for employer, employee and the client. Talking to some such workers - most enjoy the flexibility to handle home and work but yes they do miss the water cooler moments which technology still can't help with!