In the 60 years before the year 2000 the profits of the S&P 500 as a percentage of US GDP were in steady decline, much as the Marxist economists predicted would happen as capitalism chased itself to the bottom, (see graph). But in the last 20 years, in what with hindsight might just be a drawn out blip, they have recovered.
Much as I’d like to attribute this improvement to better performance management solutions, it’s undoubtedly got more to do with the weakening power of the labor force and the erosion of their share of the pie; lower interest rates and a steady decline in the corporate tax rate. It may also have something to do with older, lower margin industries dropping out of the index to be replaced with higher margin, hi-tech companies. But let’s just pick up on just one of these factors; the reduced amount that employees take from the corporate pot*.
Most companies have avidly pursued strategies to reduce labor input costs – let’s face it, it’s a case of do or die. Flexible scheduling over the working day; an increase in part-time working; shared services, reduced pension benefits; delayering; automation and the off-shoring of both manufacturing and support services to lower cost geographies are now part of corporate life no matter whether we like them or not.
Although few have pointed it out so far, it seems to me that cloud computing undoubtedly has a place on the above list in that it will mean less people in corporate IT managing and maintaining on-premise systems as these activities are consolidated by cloud vendors in lower cost geographies or by corporates in their own private clouds. Likewise, consulting organizations will not escape its impact either as companies are attracted by less costly, out-of-the-box cloud solutions rather than tailored implementations that run to many hundreds if not thousands of days with commensurate levels of fees. Guess some of them will soon morph into cloud consulting experts and find a new niche to fill in the new order.
So while the obvious attraction of cloud computing will surely lead to its wider adoption, we shouldn’t expect IT departments and consultants to champion the cause. Am I right in assuming they have a lot to lose?
* My personal view is the erosion of the employee’s take from the corporate pot is now so negatively impacting consumer demand that there needs to be some correction to restore global growth.