Author: Sivaram S

Lacking a Clear Path to Digital Nirvana? You’re Not Alone | Sherpas in Blue Shirts

While enterprises that correctly embrace digital stand to gain great rewards – not the least of which is survival – Everest Group research shows that the road to success is not a straight shot.

As an organization begins its digital journey, its initial investments are focused on streamlining the existing IT landscape to prepare for future digital initiatives. During this phase, enterprise IT generally focuses attention on traditional internal-to-IT success measures (cost, control, and compliance), and there is little need for redesign, nor much involvement from the broader organization. As a result, perceived barriers to adoption are few, and enterprises feel confident about the outcome of their technology investments – the journey looks clear and easy.

But just as the enterprise thinks it is on a clear path to digital nirvana, it hits a speedbump that threatens to wreck its transmission and send it spinning off the road. Once the initial streamlining work is done, the next phase requires the IT and business functions to work together to achieve digital goals, which requires significant change.

Suddenly, what seemed easy becomes much more complicated, requiring the enterprise face challenges such as:

  • Effectively measuring and demonstrating the beneficial outcomes of digital investments
  • Overcoming the inertia of redesigning long-standing business processes and changing end-user behavior
  • Addressing legacy technology challenges, a significant talent crunch, and behavioral change management

And lest you think you can find an alternative path to avoid this barrier, beware: our research indicates that nearly half – 43 percent – of North American enterprises are caught in this murky area we call the “Digital Trough.”

 

What should you do when you’ve hit the Digital Trough?

Just as failure to address problems with your car’s undercarriage can lead to erosion of your transmission, failure to address problems in the Digital Trough can lead to erosion of executive support for your digital transformation.

Here are a few strategies you can use to continue your digital adoption journey and reap the longer-term rewards of digital transformation:

  • Design a set of metrics that measure digital investments on a clear set of efficiency or growth objectives
  • Shift from a technology bolt-on view to a business process-centric view, with rigorous processes for evaluating new technologies against business efficiency or growth metrics
  • Leverage digital technologies for larger end-to-end processes to capture scope and scale benefits across the organization

The last point addresses the necessity for a pervasive approach to digital adoption (see our So You Think You’re Digital blog) as the benefits of a converged, end-to-end digital strategy significantly outweigh those of an isolated, piecemeal approach.

Once past the Digital Trough, our research suggests that the path to digital success is smoother…and well worth the trip.

To learn more about digital adoption patterns in North America, check out our just released research report, North American Digital Adoption Survey – How pervasive is your digital strategy.

Our readers are also very interested in hearing about your experiences with digital adoption. Are you suffering the impacts of the Digital Trough? Feel free to share your thoughts and comments.


Photo credit: Flickr

So You Think You’re Digital? | Sherpas in Blue Shirts

These days it seems as if every enterprise is talking about “going digital,” and service providers are adding to the noise with hyperbolic promises about digital solutions that will re-imagine the workplace as we know it. However, each stakeholder in the ecosystem, from service providers to enterprises, industry shapers to investors, is using a different definition of digital adoption. So in the interest of industry cohesion, we will attempt to bust some prominent myths surrounding digital adoption and offer a workable definition of digital.

First, a few myths

Myth 1: Standalone implementation of a single digital technology theme counts as “digital adoption”

The true power of digital adoption is realized when enterprises leverage and integrate a variety of digital technology themes across the enterprise. Putting some data in the cloud or creating a nifty mobile customer interface tool is not digital adoption.

Myth 2: Digital adoption is solely about digital marketing and/or enabling online/mobile channels

While most of the hype around digital services and solutions refers to its use in marketing, the reality is that digital is much more inclusive and pervasive. In fact, our research shows that almost half of North American enterprises are concentrating their digital investment on back- and core mid-office efficiency, rather than market-facing business processes.

Myth 3: Digital is just another name for SMAC

Another myth being perpetuated is what we call “digital-washing,” pulling a bait-and-switch with terms like SMAC (social, mobile, analytics, and cloud) or BYOD (bring your own device). Digital is much more comprehensive than any of these existing terms, encompassing an array of technologies to support and augment digital functionality that touches every aspect of back-,
mid-, and front-office business processes.

So how does Everest Group define digital?

Enterprises are spoiled for choices in adopting next-generation solutions and services. Possibly for the first time in history, enterprises are challenged not by the lack of technology, but by its overwhelming abundance.

But that abundance creates its own difficulties. Enterprises that are looking to ride the digital wave to improve operations and grab greater market share need to look at digital solutions with a more holistic view. The greatest benefits of digital solutions come from the development and implementation of a comprehensive digital strategy, not a piecemeal adoption of a particular next-generation technology for a siloed business process.

In other words, digital adoption is the converged use of emerging technology themes to drive efficiencies across back-office and core mid-office business processes, as well as to enhance competitive advantage by impacting market-facing front-office processes.

Let’s focus on two key aspects of this definition.

  1. Digital is about technology convergence: In more than one way, digital adoption perfectly represents the concept “the sum is greater than its parts.” The combination of multiple technology themes ‒ SMAC, Internet of Things (IoT), artificial intelligence (AI), etc.‒ is more powerful in resolving real business challenges than is employing each of them separately.

    In other words, enterprises achieve the true power of digital adoption when they develop strategies that leverage and link the benefits of a broad number of digital technology solutions, e.g., engaging analytics using social and mobile data stored on a cloud infrastructure.

  2. Digital adoption encompasses multiple layers of functionality and technology enablers across enterprise value chains and business processes: Our research indicates that enterprises are investing in – and, more importantly, gaining significant value from – digital technology themes across the enterprise value chain and throughout various business processes. Far more than fancy marketing gimmicks, true digital adoption touches nearly every aspect of a business, with use cases ranging from employee engagement to supply chain transformation.

Digital Adoption Definition

Finally, as the plethora of digital solutions, services, and developments indicates, the opportunities for digital adoption are ever-changing; the range of digital-enabling technologies and corresponding interfaces in the interaction layers is not a static concept, but instead is dynamic in nature. As such, the collection of available technologies across the interaction and enablement layers can change over time, creating new opportunities…and new challenges.

Have you been bitten by the digital bug? Keep your eyes on this space for findings from our soon-to-be-released report, North American Digital Adoption Survey – How pervasive is your digital strategy.

System Integrators Join the Party in the Cloud | Gaining Altitude in the Cloud

Many folks, even those who follow the technology services industry closely, attribute the cloud computing ecosystem to the public/cloud hosting service providers and SaaS/platform providers. While these two categories of service providers indeed form the backbone of the cloud universe, others also play pivotal roles in enabling cloud services. The following image illustrates the service provider categories that constitute today’s cloud ecosystem:

it providers

With the expansion of cloud services, enterprise buyers are steadily realizing that they need help not only from pure technology providers, but also from firms that serve as system integrators (SIs).

Yet, in a universe in which hosting providers (Rackspace, AWS, etc.), SaaS/platform providers (Salesforce, Workday, etc.), and cloud enablers (CISCO, VMware, etc.) deliver the core resources to enable cloud-based services, is there enough room for SIs to establish their importance?

The answer is a resounding yes. SIs are, and will continue to be, an integral part of the cloud vendor ecosystem. Here’s why:

SIs provide a roadmap for transition to cloud

SIs have inherent design and consulting capabilities, and help buyers put in place a roadmap for transition. They make the cloud integration and deployment process more seamless and customized to each buyer’s requirements.

SIs bridge the gap between cloud solution owners and the enterprise buyer community

Enterprise buyers seeking to migrate to the cloud will need a facilitator to interact with and among multiple players in the vendor ecosystem. It is the SIs who act as this bridge between cloud technology providers and the buyer community.

SIs help manage multiple large complex buyer environments

Given their multiple complex environments with varying requirements, large global enterprises really need a party to serve in the role of moderator. SIs are well equipped to take on this responsibility due to their global delivery and management capabilities.

Additionally, after setting up a cloud environment within their organizations, buyers will most likely need support from SIs to maintain and manage the new system. With increasing moves toward cloud-enabling large IT stacks rather than just specific applications or infrastructure, it is only logical that the role of SIs will become more critical for enterprise buyers that are about to take the leap of faith by transitioning to cloud services.

For more details on how IT service providers and SIs fit in the cloud ecosystem, please see Everest Group’s recently released research, Enterprise Cloud Services – PEAK Matrix Assessment and Profiles Compendium, which profiles the players on the proprietary Everest Group PEAK Matrix.

And keep watching this space for a deep-dive into providers of cloud application and infrastructure services through a series of blogs.


Photo credit: cuatrok77

There’s a US$90 Billion Dollar Party Going on – Are You Invited? Advice on Winning Upcoming Outsourcing Contract Renewal Opportunities | Sherpas in Blue Shirts

While there are increasingly fewer first generation outsourcing opportunities, a large number of IT outsourcing (ITO) and business process outsourcing (BPO) deals are coming up for renewal over the next 18 months. With US$90 billion in total contract value at stake, the renewal market provides cause for excitement or concern, depending on where your organization stands.

If you are a service provider with hefty contracts coming up for renewal through end of 2014, and have yet to agree to terms with the clients, you should be worried. Very worried. Chances are that your competitors have already formed teams of “hunters” and are circling your prized relationships, waiting to pounce. The reality is the incumbency win rate is falling from the 90s to the mid 80s, and is likely to plummet further, as buyers see renewal time as an opportunity to implement positive change:

  1. In a challenging business environment, enterprises are looking to alter contract structures to bring in stronger accountability for outcomes from service providers
  2. Buyers are increasingly open to unbundling large, sole-sourced contracts, thereby undermining relationship profitability as incumbents lose the opportunity to cross-subsidize deal components
  3. Enterprises are also using renewal time to shape and execute portfolio level strategies, as they seek to use more aggressive offshoring, leverage specialized and smaller niche players, or consolidate portfolios across a few key service providers

Following are several key components Everest Group recommends you include in your defend (your own) and attack (your competitors) contract renewal game plans:

Defense

  • Pinpoint vulnerable accounts and establish executive level connects long before the contracts come up for rebid
  • Identify competitors that may be eyeing your relationships
  • Address key concerns from clients. This can be tricky because your clients may not necessarily open up to your account managers. Having an outside-in perspective helps
  • Anticipate hearing, “There’s nothing wrong with you guys, we just decided to change our direction.” Here, you need to consider how well aligned you are with your customers. Can you walk your talk, and their walk? In certain cases, you might need to evaluate whether you want to end up cannibalizing your own revenues as the client wants to move to new operating models.

Offense

  • Identify competitors’ accounts under threat, and the clients’ key concerns
  • Pin down clients’ pain points and their associated fit with your capabilities. But note that these first two activities are challenging without having a neutral party the buyers can open up to
  • Generate focus within the sales organization. Have dedicated sales teams going after specific accounts, armed with messages that are likely to resonate, and are aligned with the prospects’ thinking
  • Beware of inheriting the poisoned chalice! There are certain accounts you want to avoid (and that your competitors will be happy to let loose)

It is unlikely that you will need just a pure offense or defense game plan. You might have to fight tooth and nail to retain certain relationships, but if you go about it the right way, there are large opportunities for incremental shifts in market share.

Let the US$90 billion dollar party games begin!

For drill-down data and insights into outsourcing transaction trends by function, geography, industry, and service provider type, and implications for key stakeholders (both buyers and suppliers), please see Everest Group’s newly released report, “Impending Contract Renewals: A Futuristic View of the Renewals Market Place.”

Key Considerations before Shifting to Output-based Pricing in Application Outsourcing Contracts | Sherpas in Blue Shirts

Input-based pricing has traditionally been the preferred engagement model for buyers of application outsourcing (AO) services. Their penchant for input-based pricing is indicative of their ability to own more risk. However, when lightning struck in the form of the economic downturn, buyers began revisiting their engagement models to derive the best value from their IT contracts, and in 2009, we saw a surge in output-based pricing contracts for AO services. But the choppy shift was short-lived, and by 2011, buyers opted to play it safe and stick with tested input-based pricing contracts:

AO deal share by pricing model

AO deal share by pricing model

 

 

 

 

 

 

 

 

Although their motivation for moving to output-based pricing was driven by cost and quality aspirations, buyers quickly found the shift was far from easy, and fraught with challenges.

The difficulties with output-based pricing – then and now – include:

Complexity: The setup involved with an output-based pricing model is considerably more complex, as these contracts require transactions to be defined unambiguously and measured over multiple time periods.

Volume uncertainty: Buyers need to be able to predict future volumes to a reasonable level of accuracy, and overall transaction volumes must be sufficiently high for service providers to derive equitable scale benefits.

Process scope: Service providers must have a good understanding of the process in order to price transactions effectively. Additionally, output-based pricing is not suited for processes that are heavily reliant on people skills, e.g., development of cutting-edge technology apps.

Organizational change: The concept of internal charging in a buyer organization may require expectation settings and change management. Further, as benchmarking data may not always be readily available, a significant data collection effort is required during the contract negotiation phase.

Before transitioning to an output-based pricing model, buyers must ask themselves the following questions:

  • What is really important to me?

What is driving my aspiration to shift to output-based pricing? Is it innovation, or leverage, or cost savings? IT contracts should always be drafted in-line with a buyer’s primary motivation.

  • How do I define consumption units?

What resource unit should I use for billing? The choice of resource unit reflects organizational context and trade-offs. For example, when pricing a helpdesk offering, a US$/ticket and US$/user supported have distinct and varying impacts on productivity improvements.

  • How do I manage demand variation?

How can I help control over-staffing or under utilization of resources? Baseline pricing and banded pricing are often used mechanisms for services that are subject to demand variation. For a successful transition, buyers must – as cited above – be able to forecast future volumes with a sound degree of accuracy.

Buyers must also carefully consider when to transition to output-based pricing for AO services. In an application maintenance outsourcing contract, output-based pricing is viable if the environment is mature and stable, and good baseline data is available on staffing, costs, and service metrics such as notice tickets, bug fixes, enhancements, etc. In an application development outsourcing contract, output-based pricing is suitable when the requirements and specifications are clearly defined and agreed.

If your organization has made the pricing model jump, what experiences – good, bad, or ugly – with the transition to output-based pricing can you share with your peers?

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