Building the IT Consulting Practice / Edition 1 available in Paperback
Building the IT Consulting Practice / Edition 1
- ISBN-10:
- 0787955159
- ISBN-13:
- 9780787955151
- Pub. Date:
- 10/14/2002
- Publisher:
- Wiley
Building the IT Consulting Practice / Edition 1
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Overview
Product Details
| ISBN-13: | 9780787955151 |
|---|---|
| Publisher: | Wiley |
| Publication date: | 10/14/2002 |
| Pages: | 256 |
| Product dimensions: | 8.21(w) x 9.69(h) x 1.02(d) |
About the Author
Visit Rick's website at www.consulting-strategies.com or contact him at rick@consulting-strategies.com.
Read an Excerpt
Building the IT Consulting Practice
By Rick Freedman
John Wiley & Sons
ISBN: 0-7879-5515-9Chapter One
What Is the IT Consulting Business?THE SIZE AND SHAPE OF THE BUSINESS
In 1943, Thomas Watson, Sr., the patriarch of the International Business Machines Corporation, made one of the most wrongheaded predictions in business history. "I think there is a world market," said Mr. Watson, "for maybe five computers." As with all unprecedented developments, the computer's path to value and profit was not obvious. It took Watson's son, Thomas Watson, Jr., to see the potential of the computer as a business device, and, over his father's vigorous opposition, to transform the former Computing-Tabulating-Recording Company into IBM, the giant that stood astride the computing universe for decades.
Now, half a century later, what is the state of the information technology industry, especially the services portion in which we are interested? According to a report by the respected investment analysis firm Cherry Tree & Company, the IT industry accounted for 13 percent of the total U.S. gross domestic product in 1996. That percentage translated to about a trillion dollars in revenue that year, and that amount has grown significantly since then. Information technology today is a larger industry than healthcare in the United States. That's a far cry from Mr. Watson's five computers!
Of course, for those of us in the IT services industry, it's great that the use of computer hardware andsoftware is huge and growing. Rather than looking at the entire IT universe, however, it will be more instructive for us to take a targeted peek at the results in the services segment. IT services, according to the Cherry Tree report, generated $545 billion in 1996, and made up 7 percent of the total domestic product that year. Cherry Tree dissected our industry a bit further by categorizing the types of services that IT firms provide, as follows:
Project based services such as IT consulting, systems integration, and project management;
Operations management services such as IT hardware and software management, and business process management (for example, call center operation), network management, and IT staffing and recruiting services;
Maintenance services such as hardware repair and maintenance and software maintenance;
Support and training services for IT personnel and end users; and
Business process utility services, such as credit card processing, payroll services, and order fulfillment.
If we examine this report further, we can get a flavor for the size and scope of these IT service business segments. Looking only at publicly traded companies, Cherry Tree represents the 1996 earnings for these segments in Table 1.1.
As a great number of firms are privately held, it seems clear that these numbers are but a fraction of the total activity in our field. The $21 billion generated in the project-based segment was earned by just forty-one firms! Anyone in this business knows that there are hundreds and perhaps thousands of smaller, local firms that offer these services, whose revenues didn't make it to this analysis. Nonetheless, these numbers are impressive. It should be clear that, with over $100 billion dollars of revenue, and with over $228 billion in market value, the IT services business is healthy and displays the revenue potential to attract ambitious entrepreneurs.
One interesting statistic that emerges from Cherry Tree's findings is their contention that 79 percent of all IT services are performed by internal IT organizations. As most IT services firms have discovered, the internal IT team is often our most potent competitor! The flip side to this statistic is the clear message that, as more companies accept the concept of IT as a utility rather than a core competency, there is a tremendous potential for growth in our business. Growth in the IT services sector averaged 12 percent through 2001, as compared to average GDP growth of about 5 percent. Interestingly, this figure works out to account for almost 20 percent of all economic growth in the United States during that period. As evidenced by the major economic dislocations caused by the downturn in technology spending in late 2000 and early 2001, IT has become the main engine of growth in the U.S. economy. When IT sneezes, the overall economy catches pneumonia.
If we look at the individual segments a bit more closely, we can see that certain components of the IT services business have even brighter growth prospects. According to this report, the consulting and project segments of the business will sustain growth of over 14.5 percent, and Internet/intranet services will grow at over 100 percent. While the bursting of the Internet bubble will likely put a crimp in these projections, it's nonetheless clear that there is real opportunity here for those who can come to market with a competitive advantage.
These types of aggregate financial projections are interesting for the investor and industry commentator, but what do they tell those of us who need to build and run IT services firms? There are, in fact, other reports and surveys that may be better able to help us gain the knowledge and make the critical decisions that will determine our success in the marketplace. Rather than looking at these collective industry numbers, let's now examine a report that takes a more close-up look at the IT services activity in a particular region.
THE RANGE OF SERVICE POSSIBILITIES
In 1999, the Information Technology Association of America commissioned Purdue University and the consulting firm of Sina & Royce to perform a survey of IT consulting firms in the Chicago area. This survey was done to fill a gap in the publicly available information about the IT services business. As we saw in the Cherry Tree report, the performance of the large firms are all on the record. These firms are publicly traded and so must report to the SEC and the investment community regularly. Their business strategies, their successes, and their challenges are regularly scrutinized by the business press. The next tier of firms-from the "two guys in a garage" programming shops to the vertically focused middle-market firms-are much less visible. What are their strategies for differentiating themselves? How do they go to market? How do they turn a profit? Are there any discernable trends or traits that can help us understand these mid-market players?
The ITAA study set out to examine middle-tier IT services firms in the Chicago metropolitan area. Chicago was selected as a representative city. By searching the web, and sorting through associations, mailing lists, and the Yellow Pages, the survey team was able to identify 430 firms in the Chicago metropolitan area that fit their definition of an IT services firm. The study team gathered extensive market evidence about middle-tier IT consulting firms, asking questions about sales and marketing effectiveness, about recruiting and retaining talented IT teams, and about the services and products they sell. Additionally, they conducted in-depth interviews with executives of fifty-five of these firms. The study team then analyzed the results of these surveys and interviews and prepared some overall findings about firm performance, sales effectiveness, services development, employee dynamics, and future directions.
This study produced some very illuminating results. The team's definition of what constitutes an IT services firm was itself interesting. The team determined that any professional services firm that expressed an "interest in IT as part of its service delivery" model was an IT services firm! This broad criterion illustrates the difficulty of deciding exactly who fits in our industry. The criterion for firm size was similarly broad-any firm with more than twenty and fewer than one thousand consultants was included. The study team also devised a scheme for segmenting the firms it surveyed. Rather than grouping firms by the type of technology they address or the markets they target, they categorized them by their size and by the maturity of their delivery processes. They formulated three categories: small practitioners, boutique specialists, and emerging expansionists. In the small practitioners category they put firms with an average workforce of about thirty consultants. These firms, they found, typically had informal and flexible project processes and competed based on their customer intimacy. Boutique specialist firms were found to compete based on deep, single-technology expertise, to be more likely to have some established standards and processes, and typically had about seventy consultants delivering services to clients. Finally, the emerging expansionists were typically multi-location shops running multiple lines of practice, and they had developed beyond process toward structured methodologies. They usually had more than one hundred consultants on staff.
Once we go beyond these surface categories, however, the picture becomes more complex. The firms surveyed displayed many different organizational models. Some were wholly owned subsidiaries of larger consulting firms. Some were publicly traded entities. Some were partnerships. Many were privately held corporations. When asked how they developed new business, some replied that that was the responsibility of the partners. Some had a "rainmaker" model, in which specific partners or executives focused exclusively on business development. Some had dedicated sales teams. Some relied on alliances with vendors to generate new business. Many used combinations of these business generation models.
The complexity extended beyond the organizational issues. When polled about specific problems and concerns, the responses indicated that these firms were struggling to construct winning business models. Only 60 percent said that they were effective at generating growth in their businesses. Less than 15 percent rated themselves "excellent" at marketing, and only 23 percent said they were meeting their marketing objectives. Only a third of respondents said their sales efforts were as good as their competitors were, and 20 percent still used price as their main differentiator in the sales cycle. Seventy-one percent said that their use of alliances and partnerships to drive sales needed to improve. Half said they couldn't recruit the technical staff they needed, and 45 percent said once they recruited them they couldn't keep them. Forty percent said that they had doubts about the profitability of their relationships with some of their clients, and the same number expressed concerns about the profit potential of one of their lines of business.
The results of this survey illustrate some of the key concepts we'll explore in this book. The IT consulting firm is different from other professional services firms. The structure, organization, and processes in the legal profession, the medical office, or the accounting firm are fairly well-established. Not so in IT consulting. The simple act of finding and hiring staff offers challenges in our business that have no corollary in these other types of professional firms. Methods for marketing and delivering our services are still being defined. Management practices are being invented as we go along, and many managers aren't clear about the measurements that should be applied. In short, this survey, and my experience working with IT services firms, indicate that there are still a lot of open questions about the most effective ways to build and sustain an IT consulting firm.
Based on my experience and a careful review of analysis regarding the IT services business, I would segment our business into three categories:
Outsourced IT Services;
Consulting and System Integration; and
Custom Application Development.
These categories are not the only dividing lines in the IT services business, of course. Like the larger professional service firm universe in which they live, IT services firms are positioned all along a spectrum from the large global firms that provide a complete range of services to clients across industries and regions, to the small local technical specialists providing highly targeted services to a specific industry. There's an old adage in the professional services industry, "Big firms like to work with big firms." This is true not only because of the perceived cultural fit between large corporate entities, but also because there is a clear economy of scale in working with a firm that can create and implement global IT strategies appropriate to a global enterprise. These economies of scale accrue mostly on the client side, however, as the global enterprise still must be serviced from local offices, with the accompanying costs and resource utilization. Still, despite the lack of compelling economies of scale for the service firm, the marketing message of working with one firm globally for all your IT service needs, the so-called "one-stop shop" approach, with the reduction in management bandwidth for the client that this implies, creates a distinct competitive advantage that small firms struggle to overcome. This is one reason why many smaller firms decide that, even though the Fortune 500 is "where the money is," the costs of competing in these firms make them an unattractive target.
At the other end of the spectrum are the local boutique shops that specialize in one particular business model, technology, or industry. Specialists by business model include those firms that have decided that their best competitive advantage lies in offering hardware maintenance contracts, for instance, or website development. These firms attempt to build a defensible competitive niche by focusing on a piece of their clients' overall IT needs and striving to fill those needs at the best value. Technology specialists focus on a particular technical area, from database design to customer relationship management software implementation, and develop depth of experience and expertise in that area in order to compete. Vertical industry specialists target a specific industry, from healthcare to restaurant management, and continuously improve their expertise in the application of IT to that industry's needs, building superior domain expertise as their competitive advantage. Obviously, many winning business models in IT services are a hybrid of these approaches, such as the Microsoft-focused healthcare application development house. I present this spectrum as a model to help guide our conversation.
So we've seen that there is a wide range of possible business models in the IT services industry and just as broad a variety of sizes and market focuses. Now that we've named and defined the business models that make up our industry, let's go back to our original intent. How does knowing these categories help the entrepreneur and manager build an IT consulting practice? Obviously, the firm leaders need to make decisions about where their core competencies lie, and where they wish to compete.
Continues...
Excerpted from Building the IT Consulting Practice by Rick Freedman Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Acknowledgments.Preface.
ONE: What Is the IT Consulting Business?
The Size and Shape of the Business.
The Range of Service Possibilities.
Common Elements.
TWO: The Structure of the Practice.
Sole Proprietor.
Partnership.
Corporation.
Elements in Common.
Putting It All Together.
Interview with Ken Taormina.
THREE: The Basic Financial Model.
Utilization.
Rate.
Fee Capacity.
Measuring Performance.
FOUR: Vision and Mission.
Broad or Deep?
Strategic Planning.
The Planning Process.
The Vision Thing.
From Products to Services.
The Lessons of Migration.
FIVE: Process and Methodology.
A Sales Planning Process.
A Proposal Process.
A Scope of Work Standard.
A Stakeholder Participation Process.
A Risk Analysis Process.
A Project Planning Process.
A Status Reporting Process.
A Set of Solution-Specific Toolkits.
A Change Management Process.
An Issues Management Process.
A Post-Project Review to Assess Customer Satisfaction and Gather Lessons.
Interview with Malcolm Frank.
SIX: Sales and Marketing.
Challenges.
The Four R's of Service Marketing.
Selling the Intangible.
Interview with Andrew Bibby.
SEVEN: Organizational Culture.
Recruiting for Attitude and Motivation.
Ethics and Professional Responsibility.
Accountability.
Open Book Management.
Coaching and Mentoring.
Atmosphere.
EIGHT: Consultant Development.
Technical Training.
Project Skills Development.
Communication and Advisory Skills Development.
Business Skills Development.
Project Assignments.
Mentoring.
NINE: Growing and Improving the Firm.
Growing the Firm.
Improving the Firm.
TEN: Conclusion.
Bibliography.
About the Author.
Index.
What People are Saying About This
"Rick Freedman's soup-to-nuts guide to building an IT business should be on every consultant's bookshelf. Whether you are a solo practitioner or running a corporation, you'l'l find exactly the practical wisdom you need to make your IT consulting business thrive."
— C. J. Hayden, author, Get Clients Now!
"Rick delivers a comprehensive roadmap for successfully structuring, managing, and measuring the IT services organization. His focus on the human, technical, and business elements provides a framework for anyone managing or building a services."
— Rich Echevarria, general manager, Intel Solution Services, Worldwide
"There is something here for every IT consultant. Too many IT consulting firms focus solely on the technology. This book describes the operational factors that are critical to increasing consulting professionalism. Understanding and executing on the imperatives in this book will help to increase quality and efficiency, and drive greater project success. Consultants and their customers alike can use these best practices to increase project value."
— Jeff Vilimek, principal consultant, Microsoft Consulting Services
"Building the IT Consulting Practice is a must-read for any consulting professional responsible for the management, development, and delivery of IT consulting services. The author's masterful use of case studies, interviews, and 'best practice' techniques reinforces the topics with great clarity. With a span of coverage from marketing to methodology, this book serves as a great reference for IT consultancies at any stage of their development."
— Scott Monaghan, U.S. Manager of Service Development, VERITAS Software Corporation
"Rick Freedman has compiled a thoughtful and encyclopedic profile of the prototypical IT consulting firm. The book is full of sensible advice for any human-capital-intensive organization."
— Tom DeMarco, author, Slack: Getting Past Burnout, Busywork, and the Myth of Total Efficiency and Peopleware: Productive Projects and Teams
"Success with clients is based on adding value along a number of dimensions, not just providing technical expertise. Rick Freedman understands this better than any IT consultant I have ever met, and he has set out an invaluable roadmap for building a thriving practice that acquires clients with ease and keeps them for life."
— Andrew Sobel, author, Clients for Life and Making Rain