E-commerce service keiretsu

As users develop strategic sourcing partnerships, they should be aware of the service keiretsu model as a viable alternative to one-stop shops.
Posted December 1, 1999
By

Stan Lepeak



Global 2000 organizations seeking assistance for electronic commerce efforts face no shortages of candidate service providers. Indeed, there are literally hundreds of e-commerce service firms from which to choose. This is in sharp contrast to the sourcing market of the early 1990s when an end user could typically list major providers such as IBM Corp., Computer Sciences Corp. (CSC), and Electronic Data Systems Corp. (EDS), on the back of the proverbial napkin. Quantity does not always equate to quality, however, and the diverse selection's flip side is end-user confusion over which firms have what skills. Given skills shortages, the competitive landscape, time-to-market demands, and rapidly changing technology, though, organizations' e-business success will in part depend on their ability to make sourcing a strategic competency. One component of this is to identify the appropriate providers and provisioning models for specific types of services.

There are two major provider groups. On the one hand, there are new-age creative and/or technical Web boutiques such as USWeb/CKS, Scient Corp., Viant Corp., Proxicom Inc., Cysive Inc., and Inventa Corp. On the other hand, there are more traditional systems integrators like Andersen Consulting, Cambridge Technology Partners Inc., CSC, EDS, IBM, and Sapient Corp.

The goal of many service providers, such as AppNet Inc., IBM, iXL Inc., and USWeb/CKS, is to build a single, integrated practice that can offer a full range of e-commerce services, from strategy through design, development, implementation, integration, and operations. While one-stop shopping offers an easier/simpler approach from the client's perspective, it is rarely the preferred route.


Over the next two to three years, leading traditional service firms will increasingly pursue partnerships, be they formal or even dot-com spin-outs, as a key means of extending their capabilities.
Furthermore, a one-stop services shop looks good on paper and currently to Wall Street as the winning model long term, but there are numerous inherent problems constructing an integrated service practice within a single organization, especially via acquisition. Challenges include the general difficulty related to acquisition integration and the specific problems associated with mixing large and small firms' staffs and cultures as well as blending creative, technical, and business-process skill sets. It doesn't matter whether the firm is assembled via acquisition, roll-up, or organic growth.

An alternative to one-stop shopping and growth via diversified acquisition is the service keiretsu model, which is basically a prepackaged but loose partnership between partners with complementary service offerings (see "The service keiretsu").

Just as collaborative capabilities and the ability to integrate into competitive partnerships will define successful 21st century end-user organizations so too will they, though to a lesser degree, define successful tier-one service firms Over the next two to three years, leading traditional service firms will increasingly pursue partnerships, be they formal or even dot-com "spin-outs" (e.g., splitting out a new, separate operating unit), as a key means to extend their capabilities. The KPMG/Qwest joint venture and the proposed $1 billion Cisco Systems Inc. investment in KPMG Consulting are two recent examples.

Comparing and contrasting the options

Acquisitions will still prove alluring, especially to publicly traded firms with access to equity, but partnerships will become more prevalent. Partnerships will also prove a viable means of gaining the horizontal process and vertical industry knowledge necessary to deliver competitive e-commerce solutions. By 2003/2004, multiple, competing service keiretsus--complemented by specialized boutiques--will exist among tier-one service firms, aligned both by industry competencies as well as by geography.

The service "keiretsu"
META Group defines a service keiretsu as a prepackaged but loose partnership between associates with complementary service offerings, for example, systems integration and operations/hosting. Formal contractual arrangements exist, but typically are not exclusive. All service offerings--including marketing, channel, support, and specific deliverables--are coordinated, but the firms themselves are loosely coupled, with partners inserted in a "plug-and-play" fashion as market demands dictate.

While the partnership model offers flexibility, there are obvious challenges such as lack of coordination, overlapping offerings between participants, conflicts of interest, and general confusion to these arrangements.

Source: META Group Inc.
There are few service keiretsus in place today. IBM Global Services touts a long Web boutique partner list, but most relationships are only on paper with little meaningful integration. The KPMG/Qwest partnership is interesting not only in the full range of e-business services it provides, but also because it illustrates the spin-out model's value to service firms. What will drive the keiretsu model is the inherently diverse skill sets--such as process, creative, technical/integration, and operational--required to deliver successful e-commerce initiatives. Also, as problems with the roll-up model and integrating diverse acquisitions become more apparent over the next two to three years, the partnership model will gain more appeal from both the provider and the client perspective.

While the service keiretsu model has appeal, it does not imply that one-stop shops cannot necessarily provide quality services. The key is the degree to which they have successfully integrated acquisitions and diverse skill sets. USWeb/CKS (a roll-up of over 40 firms over the past three years), for example, has done as good a job as could be reasonably expected integrating its numerous and diverse acquisitions. The firm is not a single, tightly integrated organization.

The bottom line is that end users should remain skeptical of one-stop shop's and roll-up's integrated capabilities, especially when diverse processes and e-commerce skills are required. While the service keiretsu model offers an alternative longer term, in most situations today, clients currently must pursue project-based partnerships that require additional self-management and must dedicate the adequate and skilled resources needed to succeed with this approach. Organizations should be in the process of developing strategic sourcing partnerships, however, and in doing so should look with favor on the keiretsu model over the one-stop or pure best-of-breed model. //

Stan Lepeak is vice president, Electronic Business Strategies (EBS) Service, at META Group Inc., in Stamford, CT. He is a recognized authority on business and IT process externalization, 21st century organizational models, knowledge management (process, technology, best practices), and the IT professional services industry. Lepeak can be reached at Stan_Lepeak@metagroup.com.








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