Nearly 2 million U.S. computing jobs are forecasted to shift offshore over the next 10 years, but don't expect Inflow Inc. to add to the exodus. The Denver operator of 13 computer data centers is responding to labor-cost pressures by dramatically reducing the work required to host Web sites and other applications for more than 800 corporate customers. The company uses software designed to automatically set up servers and patch program glitches in a fraction of the time it would take to do so manually. The result: At any given time, only two or three people are running 20,000-square-foot facilities packed to the rafters with humming equipment.
This helps explain how the seven-year-old company survived the tech wreck and is on track to increase revenues by 31%, to $63 million, this year. Thanks to its highly automated operations, Inflow has reduced its operators in each data center by 45% in the past three years. "We're able to bring on additional business without adding employees," says Inflow Chief Executive Art Zeile.
While doing a lot of work in low-wage countries is a necessity for most tech-services outfits, it's not the only way to trim labor costs. Smart companies are coming up with creative ways of automating their operations, reusing valuable technology, and streamlining business processes. In this most labor-intensive part of the tech industry, they're reducing the number of bodies they need for everything they do -- whether it's operating data centers, consulting, writing software, or running their clients' customer-service and accounting operations. The changes not only make them more efficient, they result in more effective services. "You get better processes and a higher-quality product at the end of the day," says analyst Dana Stiffler of AMR Research Inc.
It's working for the industry's top companies. Accenture (ACN ), No. 9 on the Info Tech 100, and IBM (IBM ), No. 10, are creating precooked packages of software and services for various industries, so less customization has to be done for individual clients. India-based Wipro Technologies (WIT ), No. 62, is automating the software-writing process and has even created programs to translate six European languages into English with 99% accuracy. No need for an army of translators. And Netherlands-based Getronics Inc. does more with fewer people in the desktop-support business. Using software tools that diagnose PC problems and automatically dispatch fixes and updates, it resolves most issues remotely over the network. That can reduce by up to 50% the number of "house calls" techies need to make.
Services companies are under intense pressure to coax more productivity out of their staffs. After growing only 3% per year for the past two years, the $520 billion worldwide industry seems poised for a rebound. Bernstein Research expects the market to grow an average of 6.6% over the next five years. Yet, because competition is fierce and customers still hold pricing power, tech-services companies must cut labor costs to gain market share and improve their margins.
Longer term, these new labor-saving techniques are part of the evolution of services into a more mature industry. Some academics and tech-services companies even aim to create a new intellectual discipline -- a science of services that merges business management, computer science, and sociology. The idea is that IT professionals can study subpar business operations, come up with better ways of doing things, and -- without an army of helpers -- use a combination of technology and brain power to jazz up the client's financial performance.
This work requires new skills. Until now, most IT professionals were trained either in computer science or business management. The business consultant typically focused on strategy and left technical decisions to the software or network architects. Now companies and colleges are teaching people to understand both business and technology. The new breed of consultant has the skills to quickly complete routine tasks with reusable software programs, standardized work processes, or cookie-cutter services. Then "the humans can apply more of their creativity to the piece that only humans can do," says David F. McQueeney, a vice-president for technology at IBM Global Services.
This transition is well under way inside the top tech-services companies. In fact, there's no turning back. In the old days, consulting outfits billed by the hour. They'd get more money if they had to call in 20 more consultants to design a supply-chain management system. Now they're penalized if they assign more people to a job. That's because, these days, only about 20% of consulting contracts are billed by the hour, compared with 85% four years ago, according to market researcher IDC. The majority are performance-based deals. Tech companies get paid based on their customers' achieving specified improvements in efficiency, cost-cutting, or revenue growth. The customer pays the same price whether it takes 10 people or 100 to do the job.
Mix and Match
That shift has services companies scrambling to come up with ways to get more bang out of the intricate systems they create for clients. IBM Global Services, for instance, worked with British insurance company Norwich Union to create a pilot program, called Pay As You Drive, for monitoring individual car owners so their insurance rates can be based on how they actually use their cars. Devices in the cars monitor where they are and how fast they're going, then transmit the info wirelessly to Norwich's server computers -- which evaluate risk and send out bills. This is complex stuff, and IBM might not make a profit if it was a one-off deal. So now it's peddling much of that technology to a number of insurance and automobile companies.
Writing software traditionally has been a productivity sinkhole for services outfits. Now, rather than starting from scratch with each new project, companies are using Web technologies to package complex pieces of software into reusable components -- like so many Lego pieces. Project leaders can pull the pieces they need from online libraries, mix and match to produce a desired set of functions, and get their work done with much less effort. India-based Infosys Technologies Ltd., No. 27, has created a library of reusable software modules that reduces the time it takes to get a project done -- and the staffing -- by 10%.
Even business processes themselves can be packaged and used over and over again. This is crucial in the fast-growing corner of the services world called business-process outsourcing. When companies take over human resources, customer service, and accounting for their clients, they routinely promise that they can do the same work for 25% to 40% less money. But they can't just cut staff, because service levels would plummet. In response, Affiliated Computer Services Inc. (ACS ), No. 86, has automated tasks from T&E approvals to hiring and firing employees. Instead of having to alert several departments that an employee has been let go, a manager can with a single click on the computer notify the HR department, payroll, security, and tech support. "A manager can say 'You're fired' and it's done," says ACS Chief Executive Jeffrey A. Rich.
The trick for services outfits is to automate their operations without alienating their customers. Inflow, the datacenter company, has held a customer-satisfaction rating of 9 (on a scale of 1 to 10) over the past four years, according to market researcher CSM Inc. Compare that with a tech-industry average of 7.8. The challenge for the rest of the industry is to do as well -- even while taking the sweat out of services.
By Steve Hamm, with Spencer E. Ante in New York, Andy Reinhardt in Paris, and Manjeet Kripalani in Bombay