Why you should and shouldn’t work in a IT Services company

Over my 20 years career journey (as of 2022), I worked with a major IT Services company, and also a highly respectable software product development company. I had the good fortune to observe the processes and culture of these companies from very close range. I have often heard arguments on why IT Service companies are good or bad for one’s career. I have equally heard arguments about why a Product company is good or bad as a career decision.

So, I decided to blog about it. Here is my take on why you should and shouldn’t work in a services organization. I am listing five reasons supporting both arguments.

I am deliberately omitting the arguments on salary. I personally believe that employees whose primary motivation is salary will not need this article. They will job hop until they tire of it and settle at the highest paying company. Whether it’s to their liking or not changes from one person to another. This article is for people trying to look beyond compensation factors (there are quite a few who think so.) Think Maslow’s Hierarchy of Needs.

Why one Should work in IT Services organization

• Exposure to a wide range of knowledge
  IT services organizations have multiple projects and clients who require the same technology. They also have multiple technology needs for the same client. With incessant focus on keeping employees billable, services companies are much more open to the idea of rotating employees across clients.
  Typically, we expect the technology processes to be constant across any organization. This is rarely the case in Service organization. Technology processes, tools, frameworks are decided based in the client’s needs rather than the company’s own vision or preference. Consequently, employees gain precious work experience to a wider variety of technologies, tools, frameworks and processes compared to a product company.
• Heightened sensitivity towards constraints and process orientation
  It is often said that work never stops. Services companies don’t just work. They work for a contract. There is a clearly defined beginning and end to contracts, protected by legally binding terminologies. As service organizations mature, their legal experiences drive the processes in the organization. Even in scenarios where the project adopts client’s technical processes, the process sensitivity is often higher. This is driven by a need to avoid mis-understandings and legal hassles. No doubt, the processes are a pain in the neck. But they exist for a very good reason. Strict adherence to a well defined process often makes a world of difference. I have seen many instances where threats of a law suit are often thwarted by virtue of adherence to the process.
  However, process adherence is not a given. It does not happen automatically nor by simply wishing it to happen. It happens only with a relentless focus on adherence and with regular checks, audits and corrective actions. Believe me, this is no easy feat. Process engineering is not just for Manufacturing alone. Services companies have elevated Process engineering to a precise science. Don’t be surprised to hear words like Process, Meta-process (Process of creating and maintaining a process), Meta-meta-processes, meta modelling etc.
  This results in heightened sensitivity towards processes for employees. Many employees (myself included) often face discomfort when changing jobs between Services org and a Product company.
• Ease of changing technology domains
  This cant be stressed enough.
  As mentioned above, services organizations have a very high focus on billability. If an employee is on bench then he does not add revenue but does contribute to organization’s expenses, there by reducing profitability. So, resourcing teams are often at a pressure to accommodate bench strength into billable projects. There is also a pressure to fill-up open positions lest they are filled-up by competition. So, managers are much more willing to accommodate requests from employees to try their hand at new technologies. Any hardworking person can gain an understanding of any technology with a reasonable effort. It is this human ability that resourcing managers often bet on.
  For employees, this is a huge blessing. It offers them a chance to enrich their skillsets without having to change companies. Even if your organization does not have any clients needing a particular technology, you can still learn the technology and find a client who needs those services. This being a revenue generation activity, your org is likely to support your efforts. A product organization has much lesser flexibility in this regard. There are valid reasons for that so, don’t be too eager to judge.
• Creativity is honed much sharper
  A services organization is replaceable with its competitor. This is a harsh truth. No company shall outsource it’s core competencies to a services organization (unless they have gone bananas). For their own long term sustenance, services company prefer standardizing the functions which are outsourced to it. People dependency is the death trap for any services company and they do all they can to avoid this.
  Consequently, employees become much more faceless than in a Product company. I am NOT saying that an individual’s contributions go unrecognized.
  What does this mean to an individual employee? He has to perform better continuously. As the functions and frameworks become more and more standardized, the employees have to keep innovating in order to prove themselves as worthy. Over time, this allows the employees to hone their creativity much sharper than their counterparts in a product company. This can be compared to a sword in a black smith’s forge. Employees go through a trial by fire and have to endure many many hammer strokes. Everyone is hardened and sharpened to their limits.
• A higher bar on performance
  This particular aspect is more noticeable as the organization grows. As the collective mind power increases, the complexity increases by orders of magnitude. Imagine a simple situation where you are deciding the restaurant for Friday team lunch. For a small team, the decision is made real quick. As the team size grows, the myriad view points can be overwhelming. In order for your team to notice your suggestion and accept it, you have to do more simply mentioning the restaurant name. Like suggesting the proximity of the restaurant, ambience, price point etc. And you can be sure that someone will come up with the same information for their choice of restaurant. Then you have to do more.
  This is a simple and humorous example. There are often more complicated situations (Technical, People and Process-oriented). Differentiating yourself and standing out from the crowd requires a much higher performance from you.
  It is often said that past performance is no guarantee of future performance. This is a brutal reality for employees in a service organization. Every appraisal cycle, the slate is wiped clean. No matter how spectacular their performance might be in the previous year, they have compete with everyone next year just the same. Consequently, the performance bar keeps going up continuously.

Why one Shouldn’t work with IT Services organization.

There cant be good without bad. They are two sides of a coin. Here are the reasons why one shouldn’t work with a services organization.

• Incessant focus on profits rather than value
  IT services organizations survive only if they add value to their clients. So, value creation is extremely important. But profits generation takes a higher priority in services compared to product organizations. By the very nature of business, services companies have to maintain bench strengths while operating on thin margins. Clients pay only for billable employees. They will not pay for the additional support functions which the employees need. For example, middle and senior management, Admin, HR, L&D and other functions (not to mention bench strength) are needed for employees but no customer will pay for those. Revenue from the billable employees has to cover all these expenses. This means, the company’s financial health is directly proportional to the profitability of billable employees. Revenue Per Employee (RPE) and Net Income Per Employee (NIPE) take much higher import in such cases compared to product companies. Value creation’s importance is not lost. But RPE and NIPE play a higher role. Product company has the flexibility to factor in these costs into their software licenses/sales pricing. If their product is creating value then customers wont mind the price. Apple proved this. Services companies can’t do this.
  This impacts employees directly. Value creation comes from Blue Ocean strategy where as cost optimization and competitiveness comes from Red Ocean strategies. (Please google those terms if you are unfamiliar with them). Employees gain satisfaction from value creation rather than cost optimization. Having to focus on cost optimization is a professional hazard in services companies.
• Inconsistent policies and procedures
  Technology companies are different from sales organizations. Risking a slight detour from our topic, Product companies can be B2B or B2C. Services companies are strictly B2B. The client might be small but is a business, nonetheless. Honestly, I am yet to come across a B2C services company. By very nature of B2B, for service organizations to create value to their clients, they have to tailor their processes to the customer’s needs. Asking the customer to change his processes is highly uncommon.
  This results in inconsistent policies and procedures for employees. Imagine some employees working for a client who is liberal with Work From Home and another who has high security requirements (I am quoting Work From Home in a pandemic free world). The employee experience changes drastically from one client to another. When an employee changes projects, there is a significant overhaul required in his life starting from office commute logistics to financial considerations.
  The above two reasons mentioned are the root cause of much grief for employees in services organizations. Being crucial and central to the nature of business, these reasons can be mitigated but cant be completely eliminated. Just like spilling blood being a constant sight which a surgeon cannot avoid, profitability and experience inconsistency is something an employee of services organization cannot avoid.
• Highly centralized decision making
  The way services organizations typically aim to solve the above mentioned problems is by centralizing decision making. To use project management terminology, services organizations are typically project structure rather than a matrix structure. This makes decision making highly centralized. It is a necessary evil that services orgs have to live with. More mature orgs have checks and balances to avoid adverse effects of centralized decision making. But such systems take time before they notice problems, try corrective actions and such results are visible.
  For employees, this time gap between noticing the problem and fixing them can be interminable. Based on individual patience levels, perceptions and pre-conceived notions, this time gap can sometimes threaten careers, sanity, mental and physical health.
• Significant lack of transparency
  This results from the centralized decision making. As decision making is centralized, Power accumulates at the top, Responsibility is delegated down the rung, and Authority dances somewhere in between. Even companies which don’t begin this way tend to become so as they mature and increase in size. It is often the case that the decision maker sitting in a remote office room often has to make decisions without a direct interaction with the people who get effected by the decision.
  For the employee, his manager is the face of the organization. If the manager is not empowered to make decisions then he perceives a lack of transparency. This is a daily reality as service organizations grow in size. It is not uncommon to hear terms like “incompetent”, “politics”, “black hole”,etc. Often times, employees mention other holes as well.
• Lack of a proper peer group
  By very nature, the churn rate of employees is very high. Even if the overall attrition rate is fairly low for the organization, the internal churn rate (i.e. number of employees moving from one client to another) is significantly high. It makes it difficult to form long lasting relationships in work place. That is not to say, long lasting professional relationships are impossible. But they take more effort than is needed for employees in a product organization.

Those are my views on the Good and the Bad of service companies. I am not adjudicating on whether services company is good or bad for your career. I merely present my take on the Good and the Bad. I will leave it to you to decide.

If you disagree with any of the opinions expressed in here, please do drop a note to me in the comments. I will be very happy to learn your thoughts on this.