Challenger’s Advantage | Sherpas in Blue Shirts

Every morning in Africa a gazelle wakes up knowing that it must outrun the fastest lion. Every lion wakes up knowing it must outrun the slowest gazelle. So when the sun comes up in Africa, you’d better be running. We see this happening in the services world — as cloud and as-a-service models move into mainstream adoption and trump labor arbitrage, everybody is running and the hunters become the hunted.

It’s clear that the services world is changing due to the new technologies and models. Historically the dominant players in one era failed to make the transition and become dominant players in the next era. Established dominant hunters do not know how to behave or succeed as game; the emergence of a super predator disrupts the natural order.

The dominant providers really struggle with making the change. They talk about it. Their senior executives recognize the need. They have structured their business to perfection to facilitate the incumbent model. It’s very difficult and very unusual for them to successfully transition to a new model. We see this time and time again.

Here’s a real-world example. I was on an airplane and headed home after a meeting with senior executives of a major IT provider. At the meeting they laid out their commitment and strategy to cloud and as-a-service models and the massive investments they made and are facilitating to make to facilitate this transition.

On the airplane I sat next to another executive from the same company. He was returning from a trip to South America where he advised clients about future technology. He spent most of the trip spouting scorn and ridiculing that the new cloud technologies are not appropriate to run enterprise-class applications and stating confidently that they would never replace or threaten the existing order.

Think of the confusion and conflict customers face when they hear dueling and contradictory positions coming from the same company. They are much more likely to adopt a provider that is completely aligned with the new models. This is why, historically, challengers succeed.

A similar situation occurred when I returned from a provider conference where top execs laid out their grand vision. But less than a week later Everest Group observed the provider working in a client account and the account team espoused exactly the opposite of what the senior leaders said.

We see similar behavior within Indian firms. They make the most money when they deliver work from a low-cost location (ideally a tier-3 city) with the most junior people (the freshers). That’s the heart of the pyramid, the heart of their factory model and it achieves the highest margin a service provider can make. Incumbent providers with factory models have high turnover as they constantly push to the next generation of junior people coming in.

They do this even though they know their customers want less turnover and more work delivered onsite at the client or at least in country as they want more customer intimacy. So their needs and commercial interests are unaligned.

We see providers’ executives making big announcements about more people delivering services in country and on site. But what their salespeople say and what the management and operations people do is the opposite.

In the above examples, providers’ employees did not buy in to the new models. And this is but one of a thousand different points of alignment that needed to happen. The incentive structure, organization structure and underlying technology enablement must change. And the hearts and minds of employees need to change.

Customers aren’t stupid. And they do change providers. We’ve seen a big jump in challenger models across the board in outsourcing. Increasingly the challenger has an advantage over the incumbent. They’d better be running.


Photo credit: Flickr

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