Splitting Demand from Supply in IT… and also in IT Consulting firms

I came across this very interesting article by McKinsey on reorganizing IT within enterprises. Their recommendations are interesting because they let the CIO then use very traditional forecasting and demand-supply tools to plan IT investments.

Most interstingly, however, this reminded me of an early consulting engagement where I had made similar recommendations to an IT Consulting firm on improving operations.

While enterprises may choose to consider McKinsey’s approach, the implementation and reorganization of a massive organization will take time. I think that IT Consulting / outsourcing firms could organize themselves more rapidly in a way that gives similar, if not the same, set of benefits to the enterprise.

Splitting Demand from Supply

The model was simple, and in fact some leading consulting firms such as Accenture and IBM already have organizations that are similar. However, it is important to know that the model can apply even to smaller firms ($1-2M annual revenues) with inconsistent demand from individual verticals.

This is particularly relevant to US-focused IT firms in Pakistan whose sales performance is largely disconnected from the performance to the Pakistani Unit.

We can split the core set of production engineers in outsourcing firms into two primary groups.

A Core Tier of professionals will form the permanent demand units within the business. An Execution Tier will become the supply units.

The Core Tier

The Core Tier will consist of indiviudals that are asked to focus entirely on one unique industry vertical. Their chief responsibilities will include:

• Act as relationship manager and primary contact for all implementation projects from customers in that vertical
• Be responsible for understanding the industry well enough to translate what the Customer says to what the Customer needs.
• Identify and source all the supply for the solution. Identify and manage the supply units needed to implement and deliver
• When demand from a vertical is low, participate actively in creating demand and understanding the vertical more deeply. Create frameworks and reusable solutions reduce design and implementation time ; Work with free supply units to create usable software modules that are relevant to the industry’s growing needs ; Understand and participate in industry-specific events enough to improve the turnover from the proposals you write.

The rules governing these positions were almost identical to the McKinsey recommendations (which I Quote).

• Align demand organizations with the business units
• Let demand organizations own business processes
• Give demand organizations a mandate to rationalize demand
• Empower demand organizations to manage suppliers

The Execution Tier

These can be of further two types — one set of people that are focused on a particular product or technology stack (in case business is stable enough to support that), and a smaller tier of “consultants in training” that can be rapidly switched between industries and products in order to fill capacity requirements for projects.

Being Careful

The mistake I keep seeing with IT consulting firms is that their teams are all accumulated around products, but not many people are focused on verticals or pure business analysis.

From some perspectives, this is because a lot of IT firm managers consider ‘business analysis’ as an expensive overhead, especially if their focus needs to be sustained when there is low demand for a vertical.

However, I think an IT Consulting firm with teams that are all focused on products is setting the wrong prescedent for its brand.

The team cannot provide customers industry insight, and cannot ever support the Consulting firm’s leadership in new business development. In fact, the team is likely to create the major mistakes of making “technology first” recommendations in their solutions.

It was those types of “technology first” solutions that caused the big electronics bust from poor supply-management in early 2000s “If you buy SAP, all of your business problems will be solved” went the typical slogan of early 2000s.

Getting it Right

IT Consulting always has been and will be a practice of consultancy. The work must be able to create new value for the customer, open new areas of opporunities, allow the customer to think more strategically. The work must immediately improve the business performance of the firm, and protect business intersts in the long term.

It must be based on the industry, the customer’s unique business position, the customer’s unique processes and teams, and the customer’s unique plans. The technology itself, and whether or not it is configured-to-order or built customized for the customer comes at a much later stage.

Companies who understand this, and build specific vertical specific demand units in their organizations can benefit significantly. They are able to create a highly cohesive Core team of consultants that are all active participants in the business development pipeline.

This is the type of thinking that lets the IT firm be a core team of 4-5 consultants making more than $4M / year, as opposed to a $2M 30-person company that cannot sustain itself during downturns.

This is also the type of thinking that can help reinforce a company’s credibility, which is clear in the case of Techlogix, who have been able to grow rapidly because of delivering very well on commitments, which came from them aligning their teams around types of IT solutions (EAI etc.).