IBM and the Science of Sourcing Services

 IBM Press published a book titled Reaching the Goal by John Arthur Ricketts. I believe this book represents the state of the art thinking on tactics to manage the sourcing of technology service engagements. This body of work is aligned with IBM’s Service Science, Management and Engineering (SSME). initiative. This is a multi-disciplinary research and academic effort that integrates aspects of established fields like computer science, operations research, engineering, management sciences, business strategy, social and cognitive sciences, and legal sciences to improve the management of service businesses. One of the ultimate goals of this emerging discipline is to help companies attain the ability to deliver complex technology solution in an “on demand” fashion. Reaching the Goal should be required reading for anyone responsible for sourcing service engagements or managing a technology professional services organization. In this post, I want to summarize some of the key observations made by Ricketts that highlight why sourcing service engagements is indeed a complex process that requires sophisticated processes.

THEORY OF CONSTRAINTS

In Reaching the Goal, Ricketts applies the “theory of constraints” (TOC)  developed by by Dr. Eliyahu M. Goldratt. The title comes from the contention that any manageable system is limited in achieving more of its goal by a very small number of constraints, and that there is always at least one constraint. The “TOC” process seeks to identify the main constraint in hte system and restructure organizational resources to address it. The framework has been successfully applied to the world of manufacturing to optimize inventories and production volumes. However, applying TOC to services is relatively new ground.

TOC AND SERVICES

In the book, Ricketts obviously advocates for the application of TOC tactics to managing the resources required to deliver service engagements. However, he does acknowledge several key differences in optimizing the production of services versus goods:

  • Service resources are reusable, where manufacturing goods are not. This reusability makes inventory management more complex because service resources become available for reuse at the end of an engagement. In manufacturing, resupply is driven by total demand. In services, resupply is driven by demand, the rate of attrition in delivery resources, and the rate engaged resources are becoming available for redeployment.
  • In manufacturing, the aggregation of physical inventories creates unwanted expenses and is avoided. In services, the creation of a “resource bench” is a critical investment to optimize overall profitability.
  • The delivery of service products involve more customization than the production of manufactured products. This variance makes it harder to find the constraint in the production process since it may shift from engagement to engagement.
  • Components required for the manufacturing a product have well defined specifications. The exact skills required to deliver a service may be harder to define and assess. This makes the process of defining buffers sizes to adequately meet market demand a more complex task for service organizations.

Despite these differences, Ricketts provides specific details on how a services organization can apply TOC tactics to optimize the sourcing of service engagements. In the process he outlines the limitations of two other common sourcing tactics. Hire-to-deal sourcing (what TPSA calls APO or “after the Purchase Order” hiring) is based on the assumption that local optimization adds up to global optimization. That if local service teams optimize their profitability, the global organization will be optimized. Ricketts explains why this is a difficult path to success. Hire-to-plan sourcing is based on the assumption sales forecasts are accurate. As Ricketts reviews, it is difficult to forecast the exact mix of service engagements that will be sold and the exact mix of skills that will be required to deliver those engagements. That is why the only component that really matters in optimizing service delivery is SKILLS. To optimize service sourcing, a services organization must clearly understand the skill sets being utilized to deliver service engagements. The image below shows three sourcing approaches. The traditional model is geographically centric. Each geography is tasked to optimize the utilization of their services delivery staff. This model has limitations according to Ricketts. Based on industry data, TPSA has been advocating the demise of this model for the past four years. Some organizations move to a practice-centric model where bookings plans are built for a specific practice. Delivery resources are optimized across geographies but within a specific practice. Ricketts outlines the limitations of this model as well. Finally, there is a model that revolves around the specific skills being demanded by the marketplace. This is the model Ricketts advocates as the most optimal. TPSA strongly agrees. This is the model that is most scalable and most profitable. However, it requires a set of practices a majority of PS organizations do not have in place. This will be the topic of my next post.

Three Sourcing Models

Three Sourcing Models

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3 Responses to “IBM and the Science of Sourcing Services”

  1. Richard Augugliaro Says:

    Thomas, eagerly looking forward to your next post where you discuss “Hire-to-Skills Demanded” resource model. The obvious question is, how do you make sure that you know which skills are demanded? Again, doesn’t that have the same problem of relying on a Sales forecast as does the “Hire-to-Plan” model?

  2. Thomas Lah Says:

    Richard:

    Your observation is spot on. I will pick this theme back up next week. Matching “demand” to “supply” is indeed the ultimate challenge in a human capital intensive business because it takes time to scale human capital up and down. However, there are processes that enable that scaling to occur more easily, which I comment on.

  3. Sourcing Services: Projects vs. Skills « Service Visions Says:

    […] Services: Projects vs. Skills By Thomas Lah In my post on The Science of Sourcing, I referenced a book by John Ricketts that applies the theory of constraints to the world of […]

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