Home | Education & Distance Learning Articles | Article

Perpetual motion: why services and training markets never cease growing

Computer Industry Report - August 15, 1998

Old markets, like old soldiers, never die - they just fade away. But what if there were a market that never grew old? Recent IDC theory posits that services markets, unlike some distinct product markets, will experience perpetual, cyclical growth.

Product markets suffer an obvious limiting element: Theoretically, every human being could own a unit of a given product and the market then would be saturated - with all further sales dependent on life cycles, upgrades, and duplicate purchases.

In consumer products, for instance, TVs and radios have penetrated virtually every household in the United Sates. Most homes have more than one TV and radio, and years of competition have made these items commodities. These product markets will not experience strong growth unless the industry creates a paradigm shift. (e.g., Digital TVs may stimulate new demand as analog users upgrade.)

The same fate may await PCs. In the U.S. business market, PCs already outnumber desk workers, and the U.S. market overall (consumers and business) is not growing at the speed it enjoyed just two or three years ago. IDC forecasts the five-year revenue growth for the U.S. PC market to be about 6%, compounded annually. This growth rate is down two points from the five-year compounded rate IDC forecasted a year earlier.

Although the worldwide PC market has much room left to grow, price erosion created by stiff competition in the U.S. market has tightened margins and created a commodity-like atmosphere. The maturation of the worldwide PC market still may be more than five years away, but it is not outlandish to think this market will resemble the market for TVs and radios eventually.

So how do service markets differ from product markets, and what makes them so great? The simple answer is the human element, and this issue of The Gray Sheet will explain just how this element alters the traditional market maturation cycle.

FOREVER IS A LONG TIME

Economists will be quick (and right) to point out that there's no such thing as a perpetually growing market - that purchasers of services have a collective monetary limit they are able to spend. The percentage of the theoretical worldwide operating budget that corporate decision makers can spend on services is finite.

However, unlike product offerings - which reach a saturation point - services offerings constantly change to meet demand. The business model of a service provider does not change - only the content changes.

The IT training industry is a key example. Several years ago, client-server networking certification (e.g., Novell certification) was a great opportunity for training vendors. Although Novell certification programs are still in some demand, other training offerings (like Windows NT certification and HTML programming) have supplanted Novell certification training. However, the customers for IT training (usually IS managers and staff) are only human; they change jobs, receive promotions, or hire new staff. Each of these circumstances can create demand for new training to bring new employees up to speed.

Consider the following scenario: A midsize company elects to implement a client-server network on the Novell platform. The company pays to train several key members of its IS staff. The IS folks become Novell certified, implement the network, and promptly quit to take higher-paying positions with other companies that need Novell network managers. The midsize company in this example counters by promoting and training several more members of its staff. Two years later, this same company decides it needs a Web presence, so it trains its network managers in Web page development too. Depending on the complexity of the new Web page development and maintenance, the network managers may need to hire or train more people to keep up the network while they manage the midsize company's Web page.

The above is a boon for IT training and IT services companies, which continue to grow as new technologies spur demand for more IT workers. (Ironically, even older technologies are spurring demand for training and services. The Year 2000 issue - and the subsequent need for COBOL programmers - is a notable case in point.)

MAKE THE MOST OF THE FORTUITOUS SITUATION

Although the climate for IT services firms is inviting, services strategists must recognize the market's dynamics to maximize profits. If IT services firms are to effectively develop services strategies that will meet the changing needs of corporate clients, market planners must be able to project forward with a reasoned framework of future demand patterns and primary change drivers that will create the next industry opportunity.

Demand and opportunity are created by some form of change within a client organization. An explanation on the difficulties of predicting change can be drawn on a personal level by comparing the difference between banking and legal fees. In the case of banking fees, a person can look at their past banking fees and develop some basis for predicting the following year's expenditure. In the same way, corporations can look at their general cost expenditures, such as electricity and telephone, and determine what their requirements will be for the near future. Conversely, with legal fees, a person generally incurs significant legal costs only when some aspect of their life changes. Therefore, past trends and historical precedents are not necessarily a reasonable leading indicator of future activity or expenditure. Similarly, with corporations, it is difficult for IT services firms to predict what environmental changes will occur within companies and what effect these changes will have on the requirements of their clients.

What are the primary factors that drive change in an enterprise?

* Process change

* Application infrastructure change

* Architecture or platform change

These three factors that drive change lead to a fourth - and key - factor that directly correlates to the success of services organizations. IDC calls this factor "externalization of fulfillment," or more directly, the propensity of a client to spend money on third party services rather than in-house staff to meet a need.

IDC has observed that at any one point in time, process change, application infrastructure change, or architecture (platform) change will act as the dominant driver of change within the market - meaning one of the above three factors acts as the primary generator of revenue opportunity in the market. However, the dominant driver is not static in nature and will shift over time.

Figure 1 shows the model for drivers in the service market, with real examples of changes that have driven the market in the past.

WHAT HISTORY HAS TAUGHT US

Corporate America led a rush toward client-server and distributed computing (late 1980s to early 1990s). In the late 1980s and early 1990s, distributed systems and client-server computing emerged in the market to create significant changes in the architecture and platform infrastructure of firms (architecture/platform change).

As firms moved to migrate from their legacy systems to distributed computing and client-server environments, this architectural change, in turn, drove changes in the way business processes could function and in the types of application infrastructure being used by firms - and to some extent influenced firms to externalize these efforts to outside services firms. As a result, architecture/platform change became the focal point of IT services spending, drove changes in other areas, and created specific market opportunity.

Following the migration to client-server and distributed computing in the mid 1990s, business process reengineering (BPR) took the market by storm. The market crystallized under the term BPR, and corporations became increasingly interested in reengineering their enterprise (Process Change).

As market interest in reengineering organizations expanded, a large portion of overall spending in a BPR engagement could be directly linked to the specific IT applications and the types of architecture required to support the new processes. As a result, process change became the focal point of IT services spending, drove changes in other areas, and created specific revenue and growth opportunities.

By 1996, the requirement for BPR as a discrete service waned, as reengineering became a skill set that was increasingly integrated into most large-scale systems integration engagements. Reengineering capability was bundled into a new wave of enterprise investment, focused on implementation of enterprise resource planning (ERP) applications and a new concept described as package-centric reengineering. As a result, process change was no longer the focal point of most organizations.

1 2 3 Next »

If you would like to discuss any of the issues raised in this article with hundreds of other Education & Distance Learning enthusiasts from around the world, please feel free to visit the discussion forums & post a message.

Discuss this article in the discussion forums now.

Popular Education & Distance Learning Discussions From The Past

Instructional Design - Call for participants (before end july 2004) (1 posts)
by Abré Smit - Last post on: 06-13-04 02:10
PhD research project Lectures and students interested in instructional design of e-learning material are invited to participate in the following PhD research project. Topic: Core and elective skills required by Instructional Designers, to create e-learning material. Please encourage your st... (Read More)

Re: USMLE ? (1 posts)
by rodius - Last post on: 07-31-03 00:48
Im gonna be posting to alt.binaries.warez.educational On Fri, 30 May 2003 07:08:36 GMT, "Ying" wrote: >Does anyone know any news group for USMLE (US Medical License Examine) ? > ... (Read More)

Dr. Ass (5 posts)
by Budda - Last post on: 09-08-03 05:25
This is a multi-part message in MIME format. ------=_NextPart_000_0034_01C374C6.89B39460 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable I wouldn't get my panties in too tight a bunch. I am pretty sure no = wants to steal your identity. And, as... (Read More)

Re: INFIDEL SCUM WHORES WILL DIE (3 posts)
by TonyaK911 - Last post on: 08-04-03 09:39
"Jayne Kulikauskas" wrote in message news:... > "Ray Drouillard" wrote in message > news:bgk1bn$pm9td$1@ID-193109.news.uni-berlin.de... > > > > "Love Not War" wrote in message > > news:7fc9ef11.0307310044.152d10fc@posting.google.com... > > [] > > > Some of us are striving for a better wa... (Read More)

You must register before posting in the Education & Distance Learning discussion forums. It's free & only takes a few seconds. Please also remember that no advertising is allowed...
Enter The Forums Here