Friday, February 24, 2006

Diminishing Returns

Neil Robertson combines the “Increasing Returns” theory with “The Long Tail of software” to create “The Increasing Tail”:

Becoming a runaway leader is not really about how you win the first 50% of the market, but how you conquer the second 50%. First, you have to have a platform. Second, you have to drive adoption of the first 50% of the market by seeding the market with the most popular content (or applications). But in the end, the reason users stay locked in is directly proportional to their access to content (and applications) in the tail. As I’ll hopefully show, real runaway leaders do everything they can to drive the creation of content (applications) in the tail. With much respect for both Brian and Chris’ work, I’ll call this economic string theory of sorts “The Increasing Tail”.

He also uses the theory to explain the rise of Microsoft and the current threat to them from the likes of Oracle, SAP and Salesforce.com.

It started me thinking on the future position of Indian IT Services providers, in the economic sense. The “
Law of Diminishing Returns” applies to Services, and each additional variable input unit (Human Resource, in this case) will produce less output. Also, a high investment will be needed periodically to scale the support infrastructure to keep up with the growth in numbers. As companies grow big, they become cumbersome, and addition of each resource brings in less advantage. IMHO, in the near future the focus will shift from number of resources to productivity. Right now, systems and processes are lax and the bench is large. It will progressively shrink, recruitments will be fine-tuned, and structured ways of working will emerge.

As the focus shifts, it will create lots of opportunities for people with the right skill-sets and attitudes. Start cultivating “can do” if you want to exploit these opportunities.

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