The cloud experiment is over and the debate in enterprises about its benefits and risks is settled. We know it works, it’s more flexible and cheaper, and it makes it easier for IT to align with business needs. So should buyers put their applications into a cloud environment?

My advice: Don’t rearchitect your legacy applications that were designed and implemented in a legacy environment and port them over to the cloud. Organization of all sizes have been waiting for providers’ porting solutions. Unfortunately, that’s sort of like the Samuel Beckett tragicomedy play, “Waiting for Godot,” in which two characters wait days for Godot even though they don’t know where or when he might arrive. Buyers wait, thinking cloud porting solutions will arrive in the market, but it just doesn’t happen. That’s because porting is really expensive and really risky.

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I’ve blogged in the past about CSS Corp Cloud Services and Redwood Software platforms for easily migrating legacy apps to the cloud. But as we get further into the cloud story, it looks like replatforming offerings will be far rarer than we anticipated. I’m not saying they won’t exist; I’m just saying they won’t be the dominant model.

As the smoke clears from cloud experimenting and pilots, the best-practice dominant model for moving into the cloud is shaping up as follows:

  • Look for opportunities to make incremental improvements to your legacy environment. Rework legacy by increasing the level of virtualization and automation in your data center.
  • When you develop new applications, architect them for the cloud environment.

This strategy of adding virtualization and automation may get your legacy environment into a private cloud, but it doesn’t get you into the agile low-cost public cloud environment. However, it allows you to improve the efficiency and resiliency of the existing legacy environment without the huge cost and risk of rearchitecting.

The strategy also helps CIO organizations regain some of the influence and credibility they’ve lost with business units as they’ve addressed new functionalities enabling where the business is moving. It enables the organization to be more agile, better aligned and do so with lower cost, which significantly relieves the tension of having to get a huge amount of funding for a set of high-risk legacy projects.

The fact is for many legacy applications the best you can do is make incremental progress. You can move them out of dedicated hardware into virtualized hardware. And other than some potential cost savings, there is little to no business benefit from taking on the risk of reengineering them for a public infrastructure or shared environment.

We saw this same best-practice model happen with distributed computing; new applications went into distributed computing and eventually we reached a tipping point where we needed to move legacy apps. I anticipate the new functionalities, new work will similarly drive the shift from legacy to cloud.

Going forward until the tipping point occurs, put all your efforts into standing up your organization’s new environment to take full advantage of the business alignment, flexibility and cost that the cloud family offers and just make incremental changes to your legacy environment. If you wait for a huge re-platforming surge of cloud porting solutions, I believe you’ll be waiting for Godot.

In a recent blog I noted that there is a new wave of shared services activity. But don’t dismiss that news with an assumption that new starts in shared services just means taking a slice of business away from third-party service providers. Here are my tips for shifting this potential business loss to a new revenue stream.

Tip #1: Be patient

If a company has decided to go down the shared services path, your trying to convince them to use purely outsourcing is not likely to succeed. However, we know that over time companies that decide to embark on a shared services journey later decide to use third-party providers in their shared services mix, to a lesser or larger degree. So be patient. These activities take years to develop.

Tip #2: Be an ally 

Don’t be an enemy of their decision to take the shared services path. Instead, be an ally and assist them on their journey. You can help them build out their shared services approach and use that relationship to identify where they could use a third party for part of of the services.

Tip #3: Cede control

At some point a shared services unit probably will adopt a hybrid approach to services. Even so, companies moving to shared services inherently favor maintaining control; so the types of services you offer them should be designed to allow them to exercise control.

Much of the outsourcing model is about giving the provider control so the provider can operate in an efficient manner and give the customer a low price. That approach won’t work in a hybrid shared services model. Instead, take an approach along the lines of “Let us help you craft control” so you can participate going forward.

The service provider community is very fond of clever terms, and SMAC — standing for Social, Mobile, Analytics, Cloud — is a good example of that. However, if you’re a service provider looking to sell to new or existing clients, talking about SMAC may not be the most productive way to hold the conversation.

The most productive way to uncover a significant opportunity is to talk to your customers in their language about the business issues they have. Sure, they’re looking for technology answers to their issues, but very few of them use the term SMAC of their own volition.

So if you’re talking to a retailer about their out-of-stock condition, for instance, talk about the practical ways that your solution will help them identify where they’re out of stock and how you can help them prevent that from happening.

Software tools can be very powerful. But as I’ve blogged several times in recent months, decision rights and buying influence are flowing toward the business users rather than CIOs. Providers must change terminology and communication to successfully capture their attention and serve them well.

Use simple business terms to communicate what you can do for a customer. If you use clever technology terms, you’ll probably just marginalize your impact and consign yourself to the realm of being a geek.

My advice: Keep the acronym out of your sales toolkit. Don’t SMAC your customer!

Service providers often ask Everest Group for advice on how to grow their business faster. We usually find that their starting-point perspective has a pitfall. They fall for the seduction of new logos.

The problem with this growth strategy is that it’s very difficult to win a brand new customer without “privilege.”  Privilege is not a well-understood concept, but basically it requires that your company has an existing relationship with a customer. Where this is not the case your company will have to prove that it is credible, different from competitors and special. Specialness is the depth of understanding that you have in the uniqueness of the customer, an industry or a function. Obviously it’s easier to build this within an existing client base.

In most service industries, companies can grow three to four times faster in their existing client base than they can by adding new clients. Why? Because they already have a relationship, and the customers understand that the provider is “special.”

The master of this strategy is Cognizant. They are great at enlarging the “mine.” To do this, they sell more to their existing stakeholder groups, creating new mines in that client base. They are very adept at befriending and really understanding CIOs, CTOs and department managers’ needs where they already serve a client.

The first thing they do is look for a new mine in an existing customer. They first service HR, accounting or another stakeholder group and learn how best to service them. Based on the depth of understanding of industry or function they get from serving that stakeholder group, they are more credible in the open marketplace than their competitors. By growing fast and broadly in their existing client base, they build a richness of how to service clients and what each client’s real issues are. And they build real stories that make them much more credible. It’s that experience and credibility that make them special.

Cognizant also organizes its business around this methodology. For example, they put more people into their customer accounts than many other providers. Why? It’s their growth strategy:

  • They have more people at the customer location to help outsell their competition.
  • When they go to start a new mine, they can move in people who already know the customer rather than bringing in people from the outside.
  • When they go to get a new logo outside their customer base, they are able to bring in people with direct experience. And they don’t violate the existing customer’s need for consistency because they have a surplus of people in the account. So the customer doesn’t lose key people; they lose one of three key people, not the one key person.

Our advice is that your company’s growth strategy should follow the Cognizant model. Deemphasize new logos and instead focus on growing business with existing accounts. As you build depth, experience and credibility from these experiences the new logos will be much easier. Besides being a proven strategy, the good news is that your cost of sales will be lower if you adopt this strategy.

I talked recently with one of the biggest losers among service providers. They had just been through a competitive RFP process as the incumbent provider. They worked tirelessly to martial the firm’s resources to get both the external and internal sale and get executives lined up. Their sales team was engaged. There were a lot of hidden costs, plus significant travel costs and deals to be brokered. And there was some relationship strain from the customer forcing them to be more competitive in their bid.

Then came the news that they came in second — the biggest loser.

Unlike the TV program where the biggest loser is a winner and receives a reward for huge weight loss, all there is for a bidding provider that comes in second place is a chest wound in the form of several million dollars in pursuit costs with no return.

What can be done to avoid being the biggest loser? That’s a question service providers ask us, and we work with them on becoming more competitive. I think there are several ways to approach this.

1. Is your company qualified? 

First of all, if you want to win, don’t pursue situations where your company is not likely to win. That sounds like a no-brainer. But how do you know if it’s qualified? Here are some of the main aspects to consider:

  • Does your company have a preferred relationship with the customer? Does the customer already know you? Are they unhappy with the incumbent provider? (Don’t kid yourself; there’s always an incumbent.)
  • Did you help shape the problem? Or are you responding to someone else’s shaping of the problem?
  • Do you know if your bid will be compelling? Do you know if you’re high priced? So many providers bid, knowing that others have a lower price, and go through the process of trying to persuade the customer that the higher price is because they’re better. That’s hard to do. There’s a higher probability of losing in that scenario.
  • Is your company distinctive? Are your capabilities and offerings differentiated? Will the customer recognize your company’s difference and care about it? Is your company’s specialness worth a premium?

2. Do you have a surplus of opportunities?

It’s tempting to run to every RFP or opportunity, but my advice is not to do this. Your company must be very disciplined not to run toward all opportunities, no matter how much they sparkle. It’s hard to pass them up, particularly in the face of an industry experiencing slow growth.

Marvin Bower, who was the guiding influence at McKinsey from 1933 – 2003, counseled that you can’t be selective about customers unless you have a surplus of opportunities.

If you’re not sitting in the midst of a surplus, then you won’t benefit by reading the rest of this blog. Basically, your company must compete on every opportunity, so you may as well resign yourself to the fact that for an uncomfortable amount of time your company will be the biggest loser and come in second.

But if you can generate a surplus of opportunities, my advice is first to categorize your opportunities and then rig the playing field.

3. Categorize your opportunities

You need to sort your opportunities into two categories: those that you’re not likely to win and those where you realistically have a good chance to win. From the first day you begin talking with the potential or existing customer, you must be ruthless in qualifying how serious the chances of winning are. Once you recognize the opportunity is one your company is not likely to win, you need to step away.

You have to be ruthless in being willing to do this. And the sooner you make this decision the better off you’ll be.

4. Rig the playing field

My observation is that the majority of the work for the best providers comes from privileged environments where they either don’t compete or they “cheat” — that is, they make sure they compete on an unfair playing field where they get to run downhill and downwind against the competitors trying to dislodge them from opportunities.

There’s a famous sports adage attributed to several famous athletes: If you ain’t cheating, you ain’t trying. In the case of opportunity bids, the cheating isn’t bad. You simply rig the playing field so that your company appears to be special among the competitors. Perhaps you own IP, for instance. Or perhaps you have an existing relationship with the customer. The best way to cheat is to make sure the work never goes to the open market for bids. How do you do that? Make sure the customer sole sources it.

So here’s the formula for not being the biggest loser: make sure your company is distinctive and that the customer can recognize it, make sure you have a surplus of opportunities, qualify the opportunities all the way through the discussions and be disciplined in walking away from those where you don’t have a clear chance of winning and then rig the playing field.

Happy bidding!

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