- Enterprise IT As-A-Service™
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- Service Provider Consulting
“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.
Last week both Serco and Capita announced their interim results. Not only did the two companies show a widening gap in terms of financial performance, but they also highlighted diverging business strategies.
Firstly, their financial performance in H2 2014 to date was very different:
Secondly, the strategic directions of the two companies are diverging:
Interestingly, both companies have also announced changes to their boards:
Serco’s tale of woe began in 2013 when the British government discovered that it had been overcharged by Serco for offender tagging services to the Ministry of Justice (MoJ). The company is still recovering from the fallout more than a year after the issue first came to light, and having repaid more than £68 million of fees and gone through several reviews and management changes. It is ironic that Serco’s new board has chosen to focus on B2G services only, given that the troubles began in a government contract. That said, front line government services is and has always been at the core of the company’s business.
Serco has suffered from failures of governance and risk management. As it rebuilds itself, it will seek to enhance these significantly. In terms of business strategy, it will target growing opportunities in the government sector, as the pressures from aging populations and rising demand for services pushes governments to outsource more. Serco will seek to differentiate itself with its international approach, as part of which it will give its businesses a portfolio of services to go to market within specific regions of the world, to share experience and expertise.
Capita boasts of robust financial and governance structures and highly selective approach to opportunities that it pursues. Robust governance is highly needed given Capita’s aggressive acquisition strategy that has seen it take over more than a dozen companies a year for many years. Even with robust governance problems can still occur. For example, in its eagerness to win more government clients, in 2012 Capita acquired Applied Language Solutions (ALS), which had been awarded responsibility for courts interpreter services in England and Wales. For a while service delivery was less than smooth leading to the MoJ withholding fees in some instances and bad publicity in the press. Overall though Capita has benefited from many niche and strategic acquisitions that it has fully internalized, and which have largely created value and revenue.
There are lessons to be learnt from the performance of the giants of UK outsourcing. Today, one thing that is common to both is the belief that bid and governance structures have to be robust and maintained at all times.
The state of today’s enterprise mobile apps industry is akin to the dark side of a jungle: a dense forest and tangled vegetation, inhabited by hundreds of largely unfamiliar animals and plants that rely on its delicate ecosystem to survive, perhaps to thrive. This is creating frustration among stakeholders including the CIO, CFO, CMO, and CEO, who believe they might have over-invested in mobility initiatives.
However, this is far from the truth. Mobile apps have a long way to go in enterprise. Yet, to avoid the earlier pitfalls, enterprises and technology providers need to be fully aware of the following dangers in the mobile apps jungle:
Business process transformation: Few enterprises or technology providers even consider that enforcing mobile access to an existing business process may be a poor idea. Making the end-user consume the same business process albeit through a different, perhaps “cooler,” app is not true mobility. User interest will not last if the business process is itself unsuitable for mobile. At the same time, not all business processes require this change. Enterprises must be selective in changing business processes while undertaking the mobility journey. Consultants, vendors, and others with vested interests will always extol the virtue of business process transformation for mobility, but enterprises should be very wary of this aggressive spiel.
Line of business collaboration: In their desire to be the first movers, many line of business managers are creating all kinds of mobile apps with little collaboration with other business units. Given the increasing influence of non-CIO budget centers to approve technology funding, the tried and tested processes of application development are being compromised under a convenient, self-pleasing argument that mobile apps do not require a structured or “traditional” approach.
Will this ad-hoc development blow up in our faces? I think it will. Can we prevent this? Unfortunately not. Business users are happy getting the needed application functionality on mobile devices, yet no one is thinking about the mobile application lifecycle. A long-term technology adoption framework is an unthinkable thought for these budget owners. They do not believe collaboration is their mandate or their responsibility. Their KPIs are linked to business outcomes, not to channelizing or seamlessly introducing mobile technology, and thus they will rarely ever have an incentive to create the needed structure.
Cost of mobility: Enterprises and technology providers need to understand that while business agility, flexibility, and access is all good, the cost of these should not outweigh the rewards. Therefore, enterprise mobility should be viewed in its entirety to understand whether the incremental business has come at a greater cost of management and complexity. Yet the existing mechanisms across enterprises, where different unconnected lines of businesses are creating their noodly soups of mobile apps, does not engender great confidence that they will take a view of the broader picture any time soon.
So what can enterprises do to quash the mobile apps jungle’s beastly flora and fauna?
If you are undertaking an enterprise mobile application initiative and want to share your experiences and perspectives, please comment below or reach out to me directly at firstname.lastname@example.org.
Cloud-based services are distinctly different from traditional outsourcing not only because of the obvious cost and agility benefits but also because they fuel the need for a different kind of management of the services. From a management perspective the governance is transformational because it allows the governance team to change their focus on how they manage the services.
The distinction between managing cloud-based services and traditional outsourced services is critical to the outcomes and value achieved from the service.
In traditional outsourcing, the customer has a lot of say, particularly up front, in terms of designing the solution. The solution often starts with taking over what the customer currently has and then moves into a transformation journey. The customer is responsible for defining how the service components fit together and also is responsible for managing the use of those components.
But this tends to lead customers to overbuy. For example, in infrastructure the customer tends to buy more service space and more storage than is needed at any particular point in time just to ensure coverage for peak usage times and volume growth. Because it is cumbersome to contractually change the volumes, the customer ends up buying usage in step changes with the net result of overbuying.
But the real issue is how much time and effort it takes to manage this traditional kind of service. The governing cost in time and effort can overshadow the benefits of the service.
In contrast, the fundamentals of cloud-based or next-generation services are usage-based pricing combined with bundling. The customer buys bundled services rather than discrete components, and this impacts service management. For example, in traditional outsourced services, the customer manages how much capacity is needed for storage, how many licenses to purchase, etc. In the newer service models, the customer manages a few metrics around usage rather than managing the components that allow utilizing the service. The newer models enable customers to avoid the trap of overbuying.
But more importantly, cloud-based and next-gen service models profoundly change the governance aspect in the following ways:
The real issue of simplicity in governing cloud-based and next-gen services carries both good and bad news. The good news is that the simplification of management tasks means the customer will need a smaller management team. The bad news: The team will need a different set of skills. Instead of skills in managing vendors, purchasing, and invoice tracking, the governance team needs skills in change management, project management and business transformation.
At CloudConnect 2012, Everest Group’s Marvin Newell moderated a lively panel discussion on next generation IT governance. The panelists included Thomas Barton, Global Enterprise Architect at Novartis Pharmaceuticals; Jeromy Carriere, Chief Architect at X.commerce; and Erik Sebesta, Chief Architect and Technology Officer at CloudTP.
The panel focused on the governance concept of holding on loosely but not letting go. Though executive buy-in is important for cost-efficient and holistic migration to the cloud, the business unit knows operations and needs the best.
In the third CloudConnect video interview of the series, Erik Sebesta answers the question: How does one balance the decision-making between the executive team and the business unit?
In case you missed the first blog, this is the second video interview of a series we taped at CloudConnect 2012 in Santa Clara. Everest Group’s Scott Bils chaired the Organizational Readiness track and enlisted an impressive lineup of speakers.
Watch the first video, featuring Francesco Paola of Cloudscaling.
Watch the second video, featuring Simon Wardley of the Leading Edge Forum.
Watch the last video, featuring Clayton Pippenger of Quest.