Stand-alone application services deals on the rise; share of stand-alone AS deals will continue to remain high as digital adoption facilitates the development and subsequent maintenance of new applications
How do Amazon, Apple, and Tesla keep innovating? What do they do differently than many others do not, or cannot, do? And how many industry leaders can say their organization is truly innovative?
To get answers to these and other pressing questions, we conducted a focused research study with more than 100 application service executives – approximately 50 percent of whom were CXOs – in North America-based enterprises engaged in IT outsourcing programs. The research revealed startling insights. For example, only 30 percent of study participants felt their companies were somewhat innovative, even though all of them realized the importance of innovation and had made strategic investments in it.
And from defining it and its objectives, to funding it, to defining and institutionalizing the process to drive it, innovation has remained an elusive concept both for enterprises and service providers.
The study also busted innumerable myths associated with IT innovation. Let’s look at the top five.
But, over 75 percent of the study participants already have a highly effective mechanism to measure the impact of innovation. Linking the investment made to measurable results and desired benefits has enabled them to devise a formal approach for impact assessment.
In reality, this is the last priority for executives of best in class enterprises! A siloed disruptive idea that does not impact the business model or enhance customer experience is the least appreciated outcome, and does little to serve the purpose of innovation. Instead, transformation is the primary lever deployed by enterprises to identify disruptive innovation. Moreover, the overall approach to it and the returns derived from it are considered more significant for driving innovation than the idea itself.
Unfortunately, such sporadic investments have a probability of less than 10 percent to deliver innovative outcomes. Though used by most service providers, these are the least preferred approach to innovation from the enterprise executive’s perspective. Continuous innovation with prototyping and demonstrations/MVPs are far more likely to deliver on customers’ expectations.
Though investment is required, 65 percent of the study participants with high satisfaction with their innovation program believe in shared responsibility and co-funding. Their belief is that shared responsibility spreads the risk involved, and reduces the investment required, thereby attracting the best-in-class capabilities from both sides.
Rather, best-in-class innovative businesses embed a culture of innovation across their enterprises to encourage the concept of continuous and crowdsourced innovation.
To enable enterprises to adopt a systematized innovation approach and achieve their desired outcome, Everest Group designed a unique framework on which to base their innovation strategy. We also used the framework to identify the 14 most innovative service providers in the industry.
For more information and insights on this research, please refer to our reports, “How to innovate – A Comprehensive Guide to Innovation in Application Services,” and “Cracking the IT Innovation Code.”
In my two previous blog posts, I pointed out two factors driving demand for application services today, and that they result in greenfield and brownfield opportunities. The third factor in the app demand profile is what we at Everest Group refer to as “vanishing scope.” The objective here is to use new technologies to change the value equation (through speed or cost savings), and it can present greenfield or brownfield opportunities. Of the three, this third factor designates application services that require the most change inside an organization.
Something very significant is happening in the vanishing-scope space: We’re seeing really slow, incremental adoptions of these technology-enabled initiatives even though the potential for change is dramatic. Although people see how new technologies and approaches clearly can drive big impacts, the initiatives fail to get traction – thus the vanishing scope designation.
Because they seek to change the status quo, executives must recognize that there will be passive-aggressive resistance. There is a very different set of emotions and issues to deal with in passive-aggressive behaviors. And people tend to blame the technology for failure.
In the successful examples of successfully driving big change that we know of, the executives had to drive through that resistance and turn it around. Executives need to define the intended performance breakthrough in a very clear way and engage the organization to embrace that vision and change.
In all three factors in the demand profile driving application services today, disruptive technologies enable both greenfield and brownfield opportunities. But these new, innovative technologies often require end-to-end orientation. The opportunities for growth and for changing the way services are delivered require a different way of organizing people, ensuring and empowering the right talent and aligning them with the breakthrough performance objectives.
In my previous blog post, I discussed greenfield opportunities, an exciting area of demand for application services. Among the three factors in the demand profile for app services today, another factor is the desire to change the way services are delivered. For these “brownfield” opportunities, the approach to app demands is very different from the greenfield opportunities.
Services are already being delivered in the brownfield opportunities, but new technologies or approaches allow reshaping the way they’re delivered. Technologies and approaches in this space include agile, DevOps, automation and Artificial Intelligence (AI) or cognitive computing. They allow organizations to reconceive the existing way they do business and do it differently and better.
There are very significant app demand opportunities in the brownfield space, and the outcomes are potentially very significant. JP Morgan, for example, achieved a 700 percent improvement in software developer productivity, a 59-day reduction in time to market, and 45 percent savings in infrastructure cost.
However, unlike the greenfield demand, brownfield opportunities face an existing ecosystem and existing way of doing business. Changing the way a company does business is very difficult. There is a lot of entrenched behavior in organizations, plus incumbent vendors have to be dislodged. So the brownfield space includes moving people’s cheese and reallocating resources, which can be quite painful to do.
In my next post, I’ll discuss the third factor driving demand for application services today and how all three factors are changing organizations and app services in fundamental ways.
Three factors are reshaping the demand profile for application services, changing the services in fundamental ways. The first factor is best exemplified by digital technologies. Basically these are new technologies that create new business opportunities in enterprises. Inside of this would be cloud, mobility, social, big data and the IoT. They are made possible because of the innovations and disruptive technologies that are coming into the marketplace. There is an important aspect to these opportunities, which significantly impacts the services industry.
We can refer to this first factor of demand for application services as “greenfield” opportunities. In this space, is there is no provider incumbency and there no ecosystem is in place. Because these demand areas (cloud, mobility, big data, social and IoT) are new and never been done before, they are closely linked to a client’s business agenda driving growth. These greenfield app services are often funded and driven by the business and new money, and the sponsors are very senior-level executives within the organization.
Business units are highly involved in these app initiatives because they hold potential for market share gains or competitiveness shifts. And they’re new and exciting. It’s always more fun to work on initiatives for growth, and it’s much easier to spend greenfield money than it is to take money away from the brownfield existing ecosystem.
This source of app demand services is really exciting for CIOs and service providers because it’s using technology for what they want technology to do. In my next blog posts, I’ll discuss the other two factors in the profile demand for application services.
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