Hourly billing arrangements are typical on IT projects. However, open-ended billing can create an incentive for consultants to work lots of hours, potentially increasing project duration and cost beyond what may strictly be required. In fact, unbounded billing arrangements are often a real contributor to the failures described in this blog. As a result, customers are demanding lower consulting and implementation costs, forcing service vendors to rethink how they price and deliver their offerings.
ITworld.com describes how IBM is restructuring some of its services to meet the demands of this changing world. From the article:
The vendor is due to begin rolling out the first two of what it terms “service products” worldwide on Tuesday. The standardized offerings are designed to be used by any IBM customer anywhere, a very different approach from the company’s previous focus on providing customized, one-off services to individual users.
“This will enable us to access the market in a new way,” Laurence Guihard-Joly, vice president of IBM’s newly formed Integrated Communications Services (ICS) unit, said. “Our strategy is to get to the next level in services, to be brand-driven in the way our systems technology and software already are.”
Even with highly complex projects, Guihard-Joly believes about 80 percent of a customer’s services needs could be met by IBM’s new building block approach.
“The key challenge is going to be training their own staff to think in a new way….”
My translation: Customers are no longer willing to pay the big bucks unless it’s absolutely necessary. IBM is worried about customer defections, so they are moving to bring consulting costs in line with customer expectations.
If you’re an IT consulting company or an enterprise software vendor, better start thinking about productized services if you want to remain competitive. It’s a new game out there and success belongs to innovative, fast-moving vendors.
Note: I found this interesting article via the CIO web-blog.