Even before the much-publicized company takeovers recently, IT service providers were critically reassessing their roles and positions in the market. The customers’ learning curves and increased effectiveness along with the clearly strengthened trend towards the outsourcing of IT and process commodities are redefining the rules of the game. Those who wish to survive and succeed as independently operating providers are going to have to obtain a much deeper understanding of the customers’ requirements along with a significantly more professional interface with them – and at the same time they must be able to develop branch-specific offers which optimize their own business model’s inherent profitability through the mastering of complexity on modular and dynamic production platforms.

For many years the efficient provision of IT applications to support flexible business processes has been one of the central tasks for every IT department, whatever the size of the enterprise organization. Due to the increasing standardization of basic IT technologies and the domination of the market by integrated software suites the potential to improve efficiency, particularly in terms of costs through appropriate standardization and purchasing behavior in IT applications, could be exhausted. A result of this has been that the main emphasis of the IT function is generally on costs and efficiency – manifested in annual ‘cost-cutting rounds’. In order to guarantee the long term maintenance of the quality of business support a way out of the IT cost and efficiency trap has been identified: the mechanisms of the ‚external’ markets should provide security that the in situ transformation of originally internal IT departments into commercial „professional service providers" succeeds. Numerous IT service providers exist because of this paradigm, and now see themselves as more-or-less autonomous units facing tough challenges from the market alongside increasing expectations from their old and new customers (see figure).




Even large, well-established providers are suffering under the influence of the massive competitive pressure in an aggressive, almost stagnating, consumer market (CAGR<2.5% in 2005) which is characterized by drastic price cuts – in project business, up to 30% lower billing rates per day within the last two years – against a background of rolling performance benchmarks showing constantly rising customer expectations in terms of delivery speed and quality. The demand for instant access to services charged by use („on-demand") is increasing the need for dynamism along the entire performance chain. Even before the present well-publicized wave of takeovers the IT service providers had started to review their roles, positions and options critically. ‚Internal’ IT service providers, which are closely connected to one organization, are in the particularly difficult position of trying to find a rare balance between the standardized IT services available as commodities on the open market and the key customer’s strategic IT integration projects. In more and more cases this sandwich position is leading to the sale of the provider, now even to purchasers who are also serving competitors in the company’s own markets. How can this tightrope act be mastered?
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