Let’s Focus on Business Outcome – Part II

I received number of comments, few on-line and more offline, about my previous blog. As a reminder I had written about one of the trends, that I believe will shape the future of IT industry in next decade or so. “Customers will demand that IT providers should deliver ‘business outcomes’ and not just a software”.

Few readers asked me to clarify some of the points I had raised earlier. Specifically about the definition of ‘Outcome’ and whether I thought ‘Outcome Based Pricing’ was the only way to get there.

Outcome … to me, is a business outcome.

E.g. I was involved in a project for one of the leading Telecom Company from UK. The project was about creating a better integration point for their network inventory management software, with the CRM application … but that’s on the activity side. What the Telco actually wanted was to reduce their ‘new broadband provisioning time’ from 3+ weeks to 5 days, and at the same time improve the provisioning accuracy to 80%+ (from 60%). In this case, the Telco had to break the business problem (of reducing broadband provisioning timeline) into various smaller sub-projects, each to be delivered by an independent agency, and finally hoping that everything will be integrated in a manner that will allow the business problem to be solved. These sub-projects operated in silo and made it very difficult to realize business benefits. Leaning from this, the Telco has now started stating the main business objective while outsourcing work to various vendors. Commercially, the contracts have not yet moved to ‘outcome based’ … but I do see some movement in the thinking, expectations and execution of newer projects. And eventually it may result into commercially binding the IT vendors to business outcomes. At minimum, it will mean lot more collaboration between all the vendors and various parts of customer organization.

Having said so, I urge you to not take this argument too far. One of the readers of my blog, was skeptical as to how IT can be held responsible if they developed a software product, and it eventually did not sell well in the market. And I partially agree with him; IT alone cannot be held responsible … but the problem is in thinking otherwise. (Assuming that IT has NO responsibility towards lack of product sale, is an equally incorrect argument) IT can do a lot to ensure the eventual business success, and there is nothing wrong in customers expecting that IT has it’s skin in the game.

To come back to the original concern: I would add a clarification in my prediction … that IT and it’s Customer should collaboratively define what would be the business outcome for each project.

The second concern, raised by some readers, was about ‘Outcome Based Pricing’.

Outcome based pricing, is not the only way to deliver business outcomes. But it surely is the binding way. I do believe that this is a Day-2 thing. Day-1 is going to be more around creating the enablers for the outcome based pricing. Depending on what the expected business outcome might be, customers may even struggle to quantify the outcome in $ terms. And if so, the project cost cannot be easily linked to business outcomes. So while I think there are going to be projects where commercial engagement will be outcome based, there are going to be many more, where the commercial engagement will continue to be FP or Risk/Reward etc.

As mentioned in Part I of this blog … I will surely put my views on the enablers, baby steps, methods and process tweaks needed to move towards ‘Outcome Based Delivery’. Meanwhile, if you have suggestions, comments, please do let me know.

After a long silence – Let’s Focus on Business Outcome

Last time I wrote a blog was in August 2010.  It has really been a long time. I got busy with multiple things (and I am using that as an excuse here J); traveled more than 50k miles in India and US; and got little older … well at-least older by a year.

During this silence period, several months back, I was asked to give a keynote talk at a student event in one of the leading engineering colleges in Pune. I chose to speak on changing IT trends, and what it means for students.

One of the key IT trends that I talked about, was : “Customers are demanding that IT providers should deliver ‘business outcomes’ and not just a software”.

Amongst everything that will shape Indian IT industry in next decade, I believe this trend, this demand from customers, and how IT companies react to this demand, will be amongst the front-runner trends. Successful IT companies would be those which can meet and exceed this expectation, and those companies that can not meet this expectation will most likely not be in business by 2020 (or their businesses will be shrinking and marginalized).

What are the customers really expecting? While almost everyone has heard these ‘expectation’ before … everyone has their own way of interpreting it. Let me give you my interpretation:

·      Project is not complete … till it delivers the ‘business goal’. This means, IT providers can not walk away after the software is written and tested; not even after the software goes live; and IT companies can not limit their post-production responsibility to ‘bug fixing’. As a side effect, companies that specialize in only ‘software’ will find themselves working for larger end-to-end IT providers (having ability to commit to ‘business outcome’ based projects).

·      Customers will pay for business outcomes … Outcome Based Pricing will become mainstream. Most common commercial model today is still T&M. And 90% of the work done by all large Indian IT companies is under T&M (Time and Material) or FP (Fixed Price) contracts. Commercial models will mature from T&M to FP to Transaction based pricing to Risk & Reward to Outcome based Pricing. IT companies will have to learn to have skin in the game (and participate in customer’s success or failure)

·      Focus on Outcomes and not merely on software delivery activities. Which is not to say that software development and delivery processes are not important. Rather they are extremely important, but delivery process is merely a vehicle to get where we want to … and workarounds OR technologically sub-optimal solutions OR suggesting manual process vs automated one, might be OK, if its better aligned with achieving business outcomes.

·      Business Analysts and Project Managers on IT projects will have to understand customer’s business very intimately. At-least they will have to understand the business drivers behind the project extremely well and will have to stay focused on achieving those business drivers (moving away from traditional project management focus of Cost, Schedule and Quality; and traditional business analyst focus of translating business language into ‘requirements’ that can be consumed by developers). Reasonable understanding of business domain will be necessary for BAs and PMs.

And to achieve all of this, IT companies will have to change the fundamental mindsets, process frameworks, tools and methods to meet these expectations. If you are in the IT industry right now, it’s a chance to be proactively part of a change that will shape the future. If you are a student and hoping to join IT industry in future, it’s your chance to focus yourself on upgrading your skills to meet these expectations. Either way, it’s important that we pay attention to Voice of Customer … and pay attention now.

Do you agree?

I will try to put my thoughts on what we (IT companies and IT professionals) will need to do for meeting these expectations, in one of my upcoming blogs.