- Enterprise IT As-A-Service™
- Strategic Sourcing
- Business Transformation
- Service Optimization
- Service Provider Consulting
As the services industry begins moving into the as-a-service era customers look for providers that change their traditional services to make them elastic or consumption based. We at Everest Group have spent some time studying this, and we believe there are three key ways to change take-or-pay (fixed costs oriented) services and make them elastic (pay as used). One or even a combination of all three ways are present in the services model that customers now demand.
Customers benefit from a provider sharing its capacity among multiple clients. AWS and Salesforce are classic examples of this elastic type of service. They redeploy servers or capacity when not in use to other customers and therefore achieve an extremely high utilization rate. In fact, arguably, AWS has over 100 percent utilization rate because it can charge customers for capacity when they’re not using it, yet can use that capacity for other clients. The model is much like an airline selling more seats than its actual capacity.
Repeatable process automation (RPA) or robotics spins up a virtual robot to do the work and then shut it down again. This fundamentally aligns a customer’s costs with usage and thus makes the service elastic.
The third way customers can have elastic services is to change their purchasing so that they only buy services as they use them. An example of this would be changing the way a customer acquires software, switching from enterprise licenses to consumption-based licenses where the customer pays for the software only as they use it. A note of caution here for customers: Although this makes the service elastic to you, there may be a stranded cost to your provider, and that cost may be embedded at a higher cost to you in your cost structure. So be careful about overly using the purchasing mechanism to make a component of your IT service stack be elastic.
Although customers can use these three methods separately, it is also beneficial to look for service providers that use a combination of all three methods to make a material difference to an entire service line to make the service far more flexible and consumption based to meet your needs.
We have not uncovered other mechanisms to make a provider’s service line elastic, but we are very interested to know if you have discovered another way to achieve elastic services. Please post your comment and share your experience.
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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:
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:
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
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.
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.
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.
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.
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.
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.
I’ve blogged extensively on how the industrialized arbitrage market is maturing rapidly. One of the many frustrating aspects of a maturing services market is that a dominant portion of procurements for larger opportunities come through RFPs. These RFPs require sophisticated and elaborate responses with large deal teams and solutioning teams working at the provider’s expense to create a compelling response. This cost is growing, and what’s worse is that it’s not unusual for providers to lose 66 percent of these costly bids.
In the large-deal segment, it’s not uncommon for service providers to spend $1 million – and in some cases as much as $10 million – to respond to the RFPs. These costs are often disseminated through the service provider and not easily recognized; they are borne by the individual delivery teams and therefore can creep up or grow unmonitored by the service provider. When viewed objectively, the costs amount to a substantial amount of money.
At Everest Group, we’ve done a significant amount of work on competitiveness and improving providers’ win rates. For world-class performers, the win rate is around 33 percent of their opportunities – which means that they lose 66 percent. Let’s take the low end of this range as an example. If it costs $2 million to respond to an RFP and solutioning for a winning bid, it costs $6 million for a deal the provider doesn’t win.
These unreimbursed “dead deal” costs are an increasing drag on providers’ profitability and are a significant contributor to service providers’ growing cost of sales.
The implications of this are very significant for service providers seeking to maintain their growth by bidding for larger transactions.
Yes, there are numerous solutions. One is for providers to pursue only the opportunities that they have a realistic chance of winning.
Can the industry shift away from these dead deal costs, instead giving solutioning free to the client in the RFP response?
Effectively, the provider would move to a more consultative structure in which the highest value is not given away in a free solution but is paid by the client in consulting services.
These are intriguing thoughts. This structure would be difficult to accomplish – but well worth the journey if it can be changed.
“Google is not an unconventional company. We do not intend to become one,” said Larry Page, co-founder of Google, in his original founders letter in 2004, when Google went public. He reiterated that last week, when, on August 10, Google announced a new operating structure, creating the new entity Alphabet, with Google as a wholly-owned subsidiary.
Much has since been said about the company, its leadership, its transition, and its people. However, the more I read about Google (or should I say Alphabet now) and its reorganization, the more I am inclined to draw parallels between the internet behemoth and service providers, both Indian-heritage and multinationals. The way I see it, here are a few lessons service provides could take from the reorganization:
Most, if not all, large organizations seek to carve out subsidiaries or focused business units to reorganize themselves. These units, with their respective heads, are then entrusted with the responsibility to scale the business. With “digital” being an almost-abused cliché, it is not difficult to hear about service providers hiving off separate digital business units. This unit or subsidiary is like a “child” of the “parent” service provider, which retains control of the child.
Google defied the norm. Rather than creating a specialized business unit, it created an entirely new holding structure, effectively making Google, previously the parent, the child, and creating Alphabet as the parent. This umbrella organization now retains control, with the child (Google) getting a tunnel-vision focus.
Lesson for service providers: Service providers that have attained enormous scale and that are at a stage where they can cause industry turbulence by their initiatives would do well to consider possibilities beyond the conventional norms and innovate even at that scale.
Simplicity and control:
When an organization grows too large, it becomes a management challenge to control it. Simplification becomes a necessity. By breaking down its business units into multiple, independent, and accountable entities, Google has created an operating structure that is much like a conglomerate.
Seems simple enough, right? The challenge, however, is that the leadership of such an enterprise has to relinquish control of at least some of its units. By entrusting Mr. Pichai with the responsibility of running the world’s largest internet-based engine, Mr. Page has relinquished control of the company he co-founded. Surely, founders ceding control has to be personally challenging; however, the need to look beyond itself into something grander has clearly worked well for Google so far.
Lesson for service providers: Management of colossal corporations should hand over control of highly functional cash cows to their number-twos and invest their time on pursuing grander ambitions. When the senior leadership (or the board) is loath to relinquish control, it indicates either a lack of faith in its next-generation leaders or an obsessive need to retain control or both, all of which culminate in lack of relevance and eventual obsolescence.
Culture of radical innovation:
The mention of Google always has the word innovation lurking around and for good reason. Google has always been known to be innovative in the way it perceives and solves problems. When it seemed to reach its comfort zone, it stirred the pot vigorously and conveyed its discomfort with status quo or even incremental changes.
Lesson for service providers: Service providers should embrace such an outlook towards change and not be hesitant to adopt a radical approach. If a US$66 billion enterprise with one primary revenue source can do it, so can a much nimbler service provider with lesser risk exposure and higher market stability.
Google has illustrated that moonshot vision and out-of-this-world ideas are not a necessity to become what it is. Pursuing what they believed were smart ideas and chasing them with relentless passion has given us products that have almost become a necessity.
Often, during our interactions with service providers, we discuss their vision and philosophy about next-generation technologies and services. We seldom see those being relentlessly pursued, as the ideas fall victim to the next flavor of the day, management changes, or “change of strategic direction.”
Lesson for service providers: The trick lies in being fast and nimble so that the idea is commercialized before the market moves on, and also relentless, so that innovators aren’t distracted by the whirlpool of daily business.
Last but not the least nicety of Google’s restructuring is its ability to placate its investors. While the same can be said of many other firms, it is Google’s call to action and time to market that stand out. By creating a more accountable structure, Google alleviated a lot of investor concerns, which had been growing owing to the company’s cash-burning yet low-yielding moonshots.
Lesson for service providers: If your initiatives, especially in the digital landscape, do not resonate with your investors, it is time to reconsider those. Service providers should create a more accountable structure for their digital initiatives and appease both customers and investors.