Escaping The Commoditisation War
Published on 08 August 13
Diwakar Menon
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A recent article in the Economic Times by the CEO of a leading IT Services provider claimed that Indian IT services organisations did not innovate and relied very heavily on cost arbitrage. What he implied, and which I believe too, was that the IT services offerings was headed towards, if not already, a commoditised set of services.
To understand commoditisation, let us ask ourselves as to how we as providers of services are perceived in the eyes of our customers. Are they able to distinguish our service from our competitors?Arewe seen as an enabler of solutionsor do we respond to proposals? Do we get challenged on price as the bottom line of all discussions? Having seen the growth and growth of the Software Testing industry, I can see how some of our solutions are now way out of tune with customer demands and expectations. In our hunger for volume, we have broken down the offerings into development or test factories, standard processes, and relied heavily on the “my-price-is-lesser-than-yours†kind of distinction. More importantly, we have driven innovation inwards - in the execution & delivery, and not outward - in the solving of the customer’s problem. So begging to differ from the CEO, we have innovated alright, in being able to deliver with a wide base at the pyramid (thus managing costs), in standardising our offerings to be able to delivered by varied skills within teams, by projecting our management of the global delivery model and its governance, by implementing processes like CMMI, TMMI, etc.
What we notice is that the rest of the providers are doing exactly the same. Take a look at some of the websites of people offering testing services - they more or less talk the same thing - build your Centerof Excellence; create automation labs; cutting edge processes - and the same mantra repeated for cloud test labs; mobility test labs etc.Analyst reports suggest that given the over-crowdedness, vendor service offerings are more or less similar - with size and reach - being key differentiators!
Just another indicator of the fact that we havemoved towards a commoditisation of our services or gotten into the zone of moving towards commoditised services.
In economic terms, there is no distinguishing factor for the service other than PRICE. There is a certain sameness of service; minimalistic differentiation based on how well you have optimised internally; and a focus on price - and most importantly - the inability to articulate true value.
Don’t get me wrong here, commoditisation isin’t such a bad thing. There is a service that is being provided at a certain price point, which one is able to sustain - however, that price point will soon be under threat or the (lack of) distinguishing characteristics of it will soon be under threat. So how does one escape that?
One of the most difficult, but a game changer, is the value of the service. If you are able to articulate the true value - which means that the service you (and only you) can provide will allow the customer to meet his business targets - whether it means meeting the launch date, gaining market share, gaining brand share etc. Hypothetically, If you had been a vendor to Apple when it was preparing to launch the iPhones; and was desperate to meet a launch date, and you were asked to test it; what would you price that service at? If you were sure of the value the service provided; backed your execution capabilities - would you price it as a Time &Material service; a Fixed Price service or base it on sales / rejects of iPhones and the cost incurred by Apple to fix them - thus unlocking the value of your service to Apple. Another way of looking at it is the way we project software testing as a service. We continue to see it as an end-of-development activity. If we did project it as a start of deployment activity, where the stakes are still higher - we are projecting its value differently! If so, then would you re-strategise your testing when you viewed it from this perspective? Would you be able to enhance the service to include other business elements - like training for BPO?
A big black hole in the software testing services is that of being a credence service provider. As an ex-CEO explained to me the other day, you could be an eye-surgeon, specialising in the operations on the left eye, and only w.r.t retinal surgeries, and only certain types of conditions (for which there is obviously a market) - the value of the surgeon for these types of operations would be immense. A bit like Underwriter Laboratories, which puts its stamp on, say, electrical equipment. You trust the equipment, which means you trust that UL has done its job. Unfortunately, there are no clear credence service providers in IT. Will there arise one? Not sure - but it is worth aiming for. Indian IT services organisations have a depth in domain they highly under-utilise. This depth could be put to good use to be THE credence provider in this space.
Another aspect, and going down a well-trodden path, is customer centricity. Nothing can be less emphasised. Even if you are not a credence provider for goods world-wide, if your customer thinks of you that way, then that’s the way to go! Which means, aligning your sales team, your delivery management, your test teams to the customer’s business need. If you don’t talk your customer’s language, you lose. If you understood the problem, and were keen to solve it, you won.
Lastly, be the standard, be the brand. We need to evolve to that standard that says,“if you talk mobile testing - our 5 step process will certify you against mobile fraudâ€. It could be areas that are unexplored at the moment (from a testing perspective, and in the Indian IT context), areas like Sustainability, Mobility, Accessibility are a few.
To implement these, one can summarise these strategies into 3 bundles -
Extending your services to different segments or markets (so Accessibility testing as applied to the Banking sector - will probably have its own rules & regulations); Enhancing your offerings, by bundling. 2+2 is no longer 4, the customer expects it to be 5. So if you are talking Performance testing, it means bundling it with Usability. I am not sure there are many people out there who would appreciate a fantastically responsive site that is a bummer to navigate!
Lastly, innovation from a business perspective.Innovation is probably about seeing your testing services in a different light. Getting out of the engineering mindset and viewing it from the business mindset. The ability to look on testing as a start of deployment activity - which can lead to possibilities around can I then manage your business processes; can I then train your staff; can I then take on the entire IT services, now that I know it, and help you reduce your costs?So there are ways to beat the commoditisation, it’s a matter of which end of the innovation cycle we need to be stuck in - the business or the delivery!
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