Monday’s Musings: Can IT Services Firms Shift the Balance of Power To Create Choice for the Customer?
Current Model Lopsided Towards the Large ISV’s
Rapid enterprise apps vendor consolidation over the past 5 years leave end user enterprises with fewer vendor choices and less competition. The impact to services firms is a continued and increased dependency on the fortune and “good will” of the software vendor by IT Services firms. However, ISV’s now have the upper hand as IT services firms focus on becoming the “best” partners of the ISV’s, not the other way around. Case in point: the investment IT services firms are making in training and staffing for upgrades, partner solution certifications, and in some cases co-development. This flow of activity and investment typically has been one way:
- Requires investment expense by the IT services firm
- Includes forfeiture of intellectual property rights
- Provides no exclusive guarantees of go to market rights for any time period.
My question to the service vendors: does this have to be the way moving forward?
IT Services Firms Must Respond or Face An Increasingly Dominant ISV’s
Rapid changes in business models, work force dynamics, geopolitical, and economic concerns, and technology advancements challenge IT Services firms to transform existing business models. As IT Services leaders respond, they must determine which strategies will reduce the dependency on large ISV vendors while advancing market mind share. IT services firms during this historical point in time have the opportunity to shift the balance of power in their favor. Seven critical strategies will include:
- Earn the role as a strategic adviser. Win on thought leadership, innovation, and relevance.
- Dominate a category. Focus on micro specialization pivot points such as industries, geos, market size, and roles.
- Build and delivery vendor agnostic IP. Use the power of the cloud (i.e. SaaS, PaaS, and Cloud infrastructure) to deliver solutions without being dependent on any one ISV.
- Lead your own solution centric ecosystem. Stop building someone else’s ecosystem and focus on who your best partners are, not vice versa.
- Deliver on the failed promises of enterprise apps. Earn trust and relevance by focusing on lowering ownership costs, increasing flexibility through better integration, and extending functionality without the legacy packaged apps overhead.
- Win over customers with 3rd party maintenance. Like the stifling of software innovation in the 70’s and 80’s by hardware vendors requiring captive maintenance, software vendors today are stifling business process innovation with captive maintenance. Have customers pressure vendors into offering third party options.
- Leverage social media to generate brand awareness. Build community and user generated content leveraging today’s Web 2.0 tools.
The bottom line - IT services providers must win or end user customers will lose.
Continued domination by an ever shrinking base of ISV’s means that consumers will see reduced choice and market competition. As SaaS development and delivery costs lower the barrier of entry for new competitors, expect new vendors and choices to emerge. Should the IT services providers make the transformation, the system integrators will be able to deliver unique IP and provide business process/transformation in the cloud like the service bureaus of the 1990’s.
Your POV.
Do you think services firms have the discipline and skill to make the transition? You can post here or send me a private email to rwang0@gmail.com.
Copyright © 2008 R Wang. All rights reserved.
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| Tags: , 3rd party maintenance, Apps Strategy, BPO, business process outsourcing, business process transformation, cloud computing, ecosystems, Enterprise apps strategy, ERP, ISV's, IT services firms, market, Monday's Musings, PaaS, R "Ray" Wang;, SaaS, social media, solution centric ecosystems, Third Party Maintenance, Trends, vendor strategy, | Categories: 3rd party maintenance, Apps Strategy, BPO, ERP, Enterprise Software, Enterprise apps strategy, IT Services, IT services firms, Monday's Musings, PaaS, R "Ray" Wang;, SaaS, Software Ecosystems, Trends, business process, business process outsourcing, business process transformation, cloud computing, ecosystems, enterprise applications, enterprise apps, solution centric ecosystem, vendor strategy
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I’m new to your blog and think its good stuff – I’m very supportive of your general view on SaaS/Cloud computing and can see the opportunity for some interesting industry changes; if the big guys don’t dominate the “Manifesto” too much that is. I’ve been in IT for 40 years this year (now semi-retired) and have come across the problems you describe a couple of times, first in the late 70’s and then again in the early 1990’s; and have pushed many of the solutions that Dale suggests, but I suspect he’s done that too.
You mentioned the “service bureaus”, I recall from the 70’s and 80’s, it was a cheap way of gaining access to ERP (we called it MRP2 in those days) but you still had the ISV costs and were often held to ransom by both vendors. Innovation was almost non-existent, take the standard solution or go elsewhere. I sincerely hope the SaaS/Cloud business model does not head that way, their clients will still want to differentiate to create a strategic advantage..
I’m a former IT services person and know that some of the larger consultancies, Out-sorcerers and SI’s are always looking for the next big fee generator and will always jump on the roundabout once its starts moving. But remember they see large ERP clients as the same source of ‘legacy revenue’ as the software vendors do and will not want to destabilise their relationships; being well connected at SAP or Oracle is often the only way to get access to new clients.
Dale is also right about 3rd party software maintenance. But I know the major outsourcers, as well as a couple of Indian companies, will take on a client’s bespoke applications maintenance, as will Fujitsu Australia. Fujitsu have their own ERP product and could be really innovative if they wanted to; if they email me I’ll let them know how.
Perhaps 3rd party maintenance is just a short step from there, but again Dale points out a risky one. An Open Source ERP product might be a tempting solution, for an innovative ‘implementation partner’ to base a service offering around, but I wonder how long it would survive.
Interesting issue, the ISV’s have a great deal of market power, diluting it might be possible, perhaps if sufficient CIO’s could act in a coordinated group they might make an impact. After all the ISV’s constantly tell us they listen to the voice of the client.
Agree wholeheartedly with the sentiment here.
In terms of specifics:
Point 1 is appropriate for many, but not all (see below)
Point 2 I can vouch for 100% from my days as an SAP partner manager
Point 3 I am not sure about, basically because it is far too early for the cloud play
Point 4 is the real imperative; provides an opportunity to control and differentiate
Point 5 is being done by better ones already, but good prompt for those that aren’t
Point 6 is easier said than done, particularly in relation to big ISV solutions
Point 7 is a bit ambiguous (see below)
So, the ones I would emphasise to a service provider for immediate action if they are not already on them are 2, 4 and 5, with 1 for some. With regard to the latter, there are lots of service providers (most?) who stand no chance of becoming ‘strategic’, but can still take more control in a specific domain.
The market is not ready for 3 yet (especially for core apps), so the ROI for moving in this direction is questionable if you are looking for a shorter term impact. For richer SPs who can afford to invest, this might be an option for the longer term, but don’t they then run the risk of the resulting ‘canned solution’ offerings becoming indistinguishable from ISV propositions as ISVs move into SaaS themselves?
Regarding point 7 (social media), the building of online communities is nothing new and something many ISVs have exploited to the full over the past 20 years. There has been nothing to stop service providers doing the same thing, so if the call to action is ‘build and facilitate communities’, then this fits with the ecosystem concept that has already been called out. I think this is more a culture and attitude thing, however, and the evolution of social media in the mechanical sense (widespread use of blogs, wikis, etc) is a bit of a red-herring in this context. Whether you build communities through extranets, discussion groups, bulletin boards and other traditional mechanisms, or by utilising blogs, wikis, Twitter, and the like, is irrelevant. Indeed, the overwhelming majority of established large scale communities are based on the traditional approach, and when blogs, etc have been introduced, we have started to see a degree of fragmentation.
Anyway, great post Ray, and great call to action in general for SPs.