IT Services Markets Crumble Driving in Detroit’s Rut - Tony Greenberg - MediaBizBloggers

My bold proposition of two months ago – that the U.S. IT services industry can follow the same ditch-bound trajectory as the U.S. auto industry -- drew both agreement and skepticism. Today we move on from thesis to proof by drawing 4 comparisons:

1. Consolidation – an early enabler rather than driver of failure, it creates an atmosphere where mistakes are magnified. The auto industry survived as an oligopoly for several decades – from dominance in the 50s to competitive shocks in the 70s / 80s to humiliating bailouts by 2010.  Will IT services have the same runway in a more fast-changing environment?

2. Misalignment of incentives for quality and innovation tied to scale – as companies get larger, they focus more on cost cutting than creative destruction and product innovation. The US auto industry was behind even in hybrids – much less true revolution like flying cars. Large providers and may do well in 10Gbps upgrades and labor arbitrage (i.e. cost-cutting), but fall behind in high density data centers, cloud computing, or software to supplant 80% of sysadmin work (i.e. true revolutions in what’s delivered).

3. Calculated failure – whereas early service issues ultimately come from an inability to effectively predict and remedy problems, later ones are deliberate tradeoffs of service quality for cost. In the car industry, this callous calculus was called out by Ralph Nader at the launch of his career. In IT, it turns the “make it right” fund of smaller striving firms into the “hide the onerous auto-renewal and SLA exemption” legal fund for the post-IPO cost conscious vendor.

4. A shielded class of workers – unions for Detroit, salespeople for IT services – create a significant financial overhead and contribute internal pressure towards conservatism. So not only do we fail to get innovation or good service, but we only see a fraction of the savings that result from the process.

Is this the beginning of the demise of an industry so critical to our gross national product and evolving state? Or do you see a path for us as buyers, sellers and influencers to reverse this trend? Read more and share your opinions here.

Tony Greenberg is the chairman of RampRate, an IT Sourcing Advisory purchasing billions in cloud services, data centers, telecom and IT Outsourcing for firms like Microsoft, Sony, Newscorp, Hearst, and dozens of emerging startups, making matches between firms that need some really cold space, massive computing power and near infinite bandwidth and companies that can do so reliably, cheaply, and effectively. Tony can be reached at tony.greenberg@ramprate.com.

Read all Tony's MediaBizBloggers commentaries at Only Time Buys Trust - MediaBizBloggers.

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