The collapse of 2e2 – a classic case of up like a rocket and done like a stick – was one of those occasional industry news-quakes that will no doubt make an interesting MBA case study, and to be sure, be the subject of a thesis and dissertation or two.
One of the big things that was reported was that 2e2 had “breached its banking covenants”.
Covenant . n. a mutual agreement…an engagement entered between God and a person or people…Chambers 20th Century dictionary
“Breaching convenants” is a phrase that tickles me as a somewhat odd mix of ordinary commerce with a flavour of the biblical, and a slight smell of pretension. Makes me think of some others …What about:
- Did you hear Gwynnie’s canticles at the Oscars…
- You must heed the the Digital Security commandments…
- I am looking forward to hearing the epistles from Corporate Communications…
- Health and Safety officials took down witness testaments after the accident…
I think these are probably all examples of “paradoxical heterologisms”, but don’t quote me on that!
So we shall see if time brings any more useful diagnoses of the underlying issues around the “borrow-to-buy” model. Difficult enough to do when you make scads of profit, but even harder to execute in the low margin sectors of the IT Services market.
Anyway, having been silent on my blog for quite some months, the event triggered me to dig out a couple of pictures that have been lurking in my capacious back pocket for some time (well since about 2008, in fact).
The diagram below is one of those hardy perennial consulting charts depicting the “Extended Enterprise” network organisation model which underlies most outsourcing:
There are undoubtedly many good reasons to outsource various activities in a business, and structurally, it creates something looking like this, across a number of clients for an outsourcing company:
The outsourced component for the clients is provided here, I posit, by a chunk of critical infrastructure belonging to the Service Provider.
As in the case of 2e2 with its Patni helpdesk relationship, some service providers deliver chunks of their service offering by outsourced from another.
As also with CSC in times past, where the man that turned up to service your PCs arrived in an SCC van – no, not a spelling mistake, just a supply chain decision, and a bit of margin on margin…
So you end up with a variant thus for a sub-contracted helpdesk, for example:
And of course, it gets much more complicated than that..
So it can create quite some tidal waves when one of the jigsaw parts falls out of bed (or otherwise mixes its metaphors).
Alas poor 2e2, we knew you well ! Gone but not forgotten…