Once upon a time it was the three letter acronyms, most notably CSC, EDS and IBM, that dominated Australia's IT services landscape.
It was these outsourcing giants that had first bite of the cherry, effectively stitching up the biggest whole-of-government contracts this country has ever seen.
But that was the late 1990s and this is 2005. Today, the single biggest trend shaping the IT services market is multi-sourcing or selective sourcing which has replaced the mega, big-bang deals that were once so prevalent. A key feature of selective sourcing is that it allows providers to do what they are good at by focusing on core capabilities. Under this regime customers can focus on buying the best, not the biggest.
In the IT services game, providers cannot compete on price alone.
The prevailing themes now are shorter contracts and multi-vendor relationships. And the rising stars of this new environment are the second-tier players and new entrants. In this special report Computerworld rates the old and the new.
The Big Six
Australia's largest organizations and government agencies are rewriting the services landscape by breaking up mega contracts and sourcing them to multiple providers. This means that the big six outsourcing providers in Australia - IBM, CSC, EDS, Fujitsu, Unisys and Hewlett-Packard - are being forced to make a few changes of their own if they want to compete.
CIOs are ditching mammoth, inflexible outsourcing deals that fail to adapt to changing business requirements.
One of the biggest casualties of multi-sourcing has been EDS. Two of its largest deals are currently being retendered, including its $5 billion arrangement with the Commonwealth Bank and its $900 million-a-year deal with the South Australian government.
Size is no longer a differentiator and as Frost & Sullivan analyst James Turner explains, the 'big boys' cannot compete on price alone.
"The problem with these monolithic companies cutting their prices to the thinnest margins is that when the customer asks for extra work there are no resources available; the provider then has to charge like a wounded bull for something the customer thinks is pretty straight forward," Turner said.
"The service provider then has to go through the torturous process of change of scope discussions."
One option available to the Big Six is to cut operating costs and EDS has been doing this.
As Accenture partner Douglas Sneddon says, "I wouldn't write EDS off in any space just yet, because they have done a lot of good work to turn the company around."
Another large provider that is busy cost cutting to compete is Unisys which was forced to cut 3500 jobs after reporting a net loss of $US54.3 million in Q3.
Only a year ago the company posted third-quarter net income of $25.2 million.
Another way for the big providers to effectively compete is to include offshoring in all their offerings.
Frost & Sullivan's Turner said some of the bigger players will not tender for work without pushing offshoring possibilities to keep costs down.
And while the likes of EDS and CSC are struggling to keep a firm grip on some of their bigger contracts, others are battling different challenges.
For example, some industry observers claim Hewlett-Packard (HP) has been missing in action, engaging in very few deals because the company is still preoccupied with transitioning after the Compaq merger.
But two of the larger players still experiencing growth in this changing climate are IBM and Fujitsu.
For the past three years IBM's services business has accounted for nearly half the company's total revenue, reaching $46.2 billion in 2004.
In fact, the IBM Global Services unit earns more than twice the annual revenue of its closest rival.
New entrant, new paradigm
Made up of a mix of former CSC and EDS executives, four-year-old IT services firm Plutonic Zoo is presenting customers with a whole new services paradigm.
The company embraces selective sourcing because, as the company's commercial managing director Victor Konijn points out, "It's not fair to ask one player to be good at everything and it's not fair for a vendor to say they do everything."
Konijn said there is a greater need for impartiality and trust in the IT services market.
"Most companies are shaped by alliances and partnerships. We don't have alliances, because it is the only way to be truly impartial," he said.
"Vendors will sell a solution based on their partnerships and the skills of their team to ensure they are billable; this compromises value."
Konijn said Plutonic Zoo prefers to listen to the client's need before assembling a team together or pitching a specific solution.
"We don't have an agenda to push, we don't steer clients towards a specific product set based on any alliance or partnership," he said.
"IBM has IBM technology to push just as HP has HP technology to push. As a result there isn't a lot of trust in the marketplace; customers know providers often have a set agenda before even hearing about their problems."
Also at the bigger companies, he said executives are pushed into unsuitable engagements.
"You might get told to read up on a project the night before because the next day you have to be the expert," he said.
Plutonic Zoo's approach is obviously working as the company has built a solid customer base in less than four years.
Customers include a number of federal and state government departments including DICTA, IAG, QBE, Australian Stock Exchange and Harvey World Travel.
Rising stars
Selective sourcing has created a boon for second-tier players and new entrants to the market. Interestingly, many of these so-called rising stars are home-grown.
Probably the most well known home-grown player is Volante, which employs 900 staff and has revenues of $400 million a year. It is Australia's largest, wholly owned services company.
Another company moving quickly is ASG Group, which made it into the top 10 of Deloitte's Technology Fast 50 after achieving 791 percent revenue growth over three years. The company has just inked a massive 10-year-deal with the Western Australian government. Another local services firm to make Deloitte's top 50 is UXC which has revenues exceeding $240 million and an annual growth rate of 28 percent.
(Additional reporting by Michael Crawford.)