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Consequences For Customers From Current Services Industry Disruption

Consequences For Customers From Current Services Industry Disruption

Posted by On April 26, 2018 In Thought Leadership

The services industry is in disruption, pivoting from highly profitable but mature labor arbitrage factories to a rapidly growing, immature new market based on automation and software-defined market with digital platforms generating value. Most large companies have outsourced numerous IT and business process functions and now depend on the supply chain of services. However, I’m forecasting a services industry consolidation and substantial change in the supply base. Enterprises should seriously consider the impact and risks this market consolidation means for their business.

The pivot’s disruption sets up a very interesting dynamic in the services market: service providers are buffeted by contrary investor theses, and customers find themselves caught on the horns of a dilemma. Let’s look closer at the scenarios in this market. I believe stakeholders’ value-creation motivations are instructive as to how industry consolidation will happen and the risks that will flow through to enterprise customers.

Scenario #1

Stakeholders in this scenario focus on consolidating the labor arbitrage space to achieve increased efficiencies and greater scale. By forcing the service providers to purchase each other, the acquirers gain scale and pricing power.

 The risk this scenario introduces to enterprise customers is that the service providers effectively will stop investing in digital offerings and thus won’t be the right partners to move customers to digital operating environments. Furthermore, these providers are likely to pull resources out of support to maximize profits. We’ve seen this happen in the past. It introduces risk into the supply base. With fewer resources, more mistakes happen, and it creates more fragility to the services.

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