This chapter will initially take a closer look at the extent of networking in the global IT markets. Novel market research techniques are used to discover relationship centric intelligence, typically missing from traditional market analyses. This will be followed by a section on networks spanning the client/provider interface, looking at how network structures can enhance the client provider relationship. The client provider interface is often governed through formal structures and roles. This analysis provides some insight into the potential negative impacts of relying solely on this style of governance. Finally, the topic of innovation, and innovation networks, will be addressed. Injecting innovation into the IT sourcing relationship has proven somewhat elusive given the twin objectives of cost reduction through implementing standard IT infrastructures and processes, while at the same time creating new business opportunities through the innovative use of IT. The network perspective provides new insight into this conundrum and some avenues for profitable change.
TopThe Evolution Of The Global It Industry
When one reads the many accounts of the evolution of the IT industry, it is common to be following the fortunes of the major players of the time; IBM, Control Data, Hewlett Packard, Unisys, Digital Equipment, Data General, EDS, CSC, Oracle, Microsoft, SAP, Yahoo, Google, eBay and the list continues. In the early years of the industry, hardware manufacturers dominated the headlines. As hardware became more commoditised, it was the software and services firms that came to the fore, with many of the major equipment vendors disappearing or having to transform to software and service companies, as IBM so successfully did from the late 1980s. The current Internet Age has seen the emergence of the Internet Company, whose market valuations are now beginning to exceed those of their predecessor industry leading firms, as had happened in the past with the movement from hardware to software and services. Traditional market research on the IT industry is focused on revenues and market shares. While profitability is important in the fast paced IT industry, revenue growth is often seen as a leading indicator of future success.
Figure 1 provides an example of a revenue focused analysis of the global IT outsourcing industry. The charts show the value of existing outsourcing contracts as at the end of 2007, as identified from the Datamonitor IT contracts data base. As at this time there are nearly $US900 billion in outsourcing contracts in place globally. IBM Global Services was a clear market leader, followed by EDS and CSC. The distribution showing the number of contracts that each provider has for generating the revenue stated provides some insight into the strategies that they are adopting. One might infer that firms with higher average revenue/contracts, have a more targeted sales force than those with many contracts generating smaller levels of revenue.
Figure 1. Traditional market analysis for the global IT outsourcing service market
What is missing from the traditional approaches to market research is that it provides only limited insight into how each firm is achieving its results. Industry trends toward more specialisation and higher levels of partnering, suggest that new ways of analysing markets centred on relationship networks, are required. Information on alliances and joint ventures are regularly reported, but the use of this information in understanding the dynamics of the industry is rarely forthcoming. Chapter V provided an in depth example of how the network of relationships between IT vendors could constitute a tangible resource in the form of Corporate Social Capital (SC), which in turn can have a tangible impact on their overall performance. The IT market place however, includes clients as well as vendors, which collectively constitute a network which is the IT market place. The increased interconnectedness in all markets was previously addressed in reviewing “theories of the firm” in Chapter III. By viewing a market from a networks or relationship perspective, new insight is available to those looking to thrive in an increasingly networked market place.
The next section provides a market analysis of the global IT outsourcing market from a network perspective. The new insights available from this form of analysis are highlighted.
TopThe Global It Outsourcing Market From A Network Perspective
Relationships in the IT market place can take many forms, from the formal joint venture partnership, to very informal joint marketing initiatives. The research described in Chapter V identified joint venture relationships between vendors that were gleaned from the business press. These relationships were seen as serious enough to attract media attention, but also informal enough to enable them to be dismantled and new ones formed.