It is sometimes instructive and illuminating to slice an industry vertically rather than horizontally and look as a sector at an activity performed by most if not all of the companies in the chosen market. Every company with more than a handful of employees has a personnel department of some kind, and some of them farm personnel activities out to third party specialists. If you take the personnel activities of the whole of British industry as an industry sector, you suddenly realise that you are looking at an activity that accounts for billions of pounds of business annually, ranking ahead of many industry sectors that most people would assume were much larger. AFSM International, the US body for executives and professionals in the computer and microprocessor – controlled equipment servicing business has been taking just such a look at the industry in which its members are practitioners, and the numbers are fairly startling. For the past seven years or so, third party maintenance has been regarded as an increasingly attractive activity, but is still a tiny industry except in the field of microcomputers where many of the people selling the things cannot afford to offer maintenance themselves. The reason it is still tiny is because it is still the norm for the company that supplies a computer system to maintain the thing as well. Bigger than IBM But add all those service dep-artments together and you find that you are looking at a very big industry indeed, AFSM International suggests. Its latest estimates suggest that the US high-tech service industry will turn over $50,000m in 1989 – and that is looking simply at companies and departments servicing computers and similar microprocessor – controlled equipment. And, says AFSM, it contines to grow at an annual compounded growth rate of 10%, so that it could be bigger than IBM itself in a few years. A comparison with government statistics for both manufacturing and service industries shows that the high-tech service industry is in the top quarter of all industries. High-tech services is not as large, in terms of the value of shipments, as industrial electronics equipment or aircraft, both of which report total shipments valued $66,000m, AFSM notes. But compared with other well-known giants the high-tech service industry is well ahead. Drinks – Americans put away a lot Budweiser and a helluva lot of Coke – trails in at $44,900m, and as for consumer electronics, that’s a mere $22,000m-a-year business in the US. Even the staples of life represented by the food industry registers only $25,200m, not far ahead of photographic products at $19,800m. Rapacious lawyers How does high-tech service rate against other service industries? There will be little surprise that those rapacious American lawyers pip it to the post, with legal services representing $52,300m, but engineering services at $45,400m, and education services at $26,700m are left trailing. The industry body, clearly unhappy that it has so little visibility, asks why such a large an industry relatively unknown, answering its question by pointing out that high-tech service is relatively new, a result of the growing dependence on computers and microprocessor controlled equipment – and that the Association itself is barely 15 years old. Another reason, it says, is that high-tech service cuts across standard industry classifications: as traditional companies such as Eastman Kodak and Abbott Laboratories expanded beyond their original photographic and medical fields, service began to play a more important role in their operations. Today, both companies are leaders in the high-tech service field but they are still included in their original industry groupings. The Association also reckons that the public perception of high tech service is still a man in dirty overalls carrying an oil can whereas its members – the likes of IBM, DEC, Xerox, AT&T, Siemens, Philips and RCA – routinely use remote diagnostics, both nationally and worldwide. IBM’s maintenance business accounts for about 18% of its total information services business –
and substantially more than that in profits. At Eastman Kodak, service revenues represent about 8% of information services, while at Xerox, service is 31% (no, despite what experience may suggest, it’s not just that its photocopiers keep going wrong, it’s also that regular calls have to be made to read the machines’ meters to see how many copies have been made since the last call and decide the usage charge, and there’s toner to be delivered regularly – all of which has to be paid for by somebody, and somebody is of course the customer). For Philips NV, maintenance is about 15% of total information services business, for Groupe Bull, it is 10%, and for Matsushita Electric, it is 11%, although Japanese companies expect their customers to throw all but their most expensive pieces of equipment away and buy new ones – and set their service rates so high that the customer thinks twice about getting their kit repaired. The estimated annual growth rate is between 10% and 14% annually and there is no sign of the high-tech service market slowing down, asserts the Association. Information society As we move inexorably to the predicted information society, the importance of high-tech service will become even greater, it says, adding hopefully, in time, it could take its place as one of the world’s basic industries, very much as steel, automobiles and ships were not too long ago. Problem for its members is that if it keeps shouting its mouth off about how large and profitable the business is, there will be a surge of new entrants into the third party maintenance business, where demand is already increasing as the number of mixed hardware sites grow. At present, it is only in the MS-DOS microcomputer business that companies routinely have machines from anything up to a dozen or more suppliers, but the surge in the Unix market means that mixed vendor sites are going to rise rapidly up the performance spectrum, and since any major manufacturer has to have its own maintenance operation, manufacturers will be forced to follow the lead of NCR Corp and followed by the likes of Control Data and Xerox in the US, and turn their proprietary maintenance department over to third party operation as well. Even IBM has taken modest steps to open its maintenance operations up to third party equipment – only at the personal computer end of the business as yet, and is likely to have to extend the policy right up to plug-compatible disk and tape drives on its mainframes. And as competition increases, and scarce engineers are able to demand ever higher salaries, those handsome profit margins are going to come under a deal of pressure.
