Archive for the ‘Technology Services World’ Category

Digging Economic Moats

November 8, 2014

Dear Reader:

So sorry it has been so long since I have posted on this blog. At TSIA, we have been very busy helping our members navigate through the current industry transformation related to technology business models.

If you missed us at our most recent conference in Vegas last month, I am posting a link to my keynote.
https://www.youtube.com/watch?v=92q360ckbsk&feature=youtu.be

In this presentation, I ask and answer the following four questions:

1. What are the attributes of highly profitable revenue?
2. Why are technology companies facing a potentially dramatic decrease in profitability?
3. Why are emerging technology as a service companies not generating profitable revenue?
4. What can be done to make technology as a service a profitable business model?

For TSIA members, this a paper that supports this presentation:

http://www.tsia.com/documents/Digging_Economic_Moats_for_XaaS_Business_Models/

Enjoy!

B4B has Begun

September 13, 2013

Sorry I have been so silent lately on this blog. I have been heads down collaborating on a new book titled B4B. The historical business models of technology providers are imploding in front of our eyes–and this is why we needed to write this book. What do the new business models look like for traditional hardware and software companies?

B4B hits the streets next month at our Technology Services World conference in Vegas.

If you are interested in reading the first chapter, visit: http://www.tsia.com/members.html

Meanwhile, the real world examples of how the concepts outlined in B4B just keep popping. Cisco has always had an economic engine centered on product revenues and margins. As we discuss in B4B, that economic engine is commoditizing. Companies like Cisco will need to transition their economic engines. And the transitions have begun:

The move reflects two stated priorities of Cisco CEO John Chambers: to bolster Cisco’s overall security business and to rapidly expand Cisco Services operation in an effort to become the world’s largest IT company. In other words, Chambers wants to transform Cisco into an IBM with networking roots.

from Cisco adds Security Practice

The problem, however, is that Cisco (or any other hardware company) doesn’t really want to become another IBM. Have you looked at IBM’s top line growth numbers lately? No, product companies like Cisco need to become something very different than what IBM is today. And that is why we wrote the book. Can’t wait for Vegas.

Eleven Things I Learned

November 9, 2012

On the last day of the recent TSW conference, I summarized the key insights I was taking away from my converesations with attendees over the three days. To watch this presentation, visit:

http://vimeo.com/52654677

Below are the insights I cover in the video.

1. Managed Services

  • Growing, profitable, but don’t call it Managed Services.
  • Limit liability? Org structure? Rev Rec? Comp Models? Financial Model?

 

2. Margin Box

  • Fixation on achieving certain margin targets for embedded service business lines. This means we walk away from customer opportunities because they don’t meet a specific target. We could be boxing ourselves in.
  • What matters: Total margin dollars (rev * margin) not margin %

3. Service Controlled R&D

  •  Service executive is given control of 5% to 15% of the product R&D budget. Focus those resources on capabilities that help customers realize value.

4. Solution Managers

  • Not product managers. Not service marketing managers. They are comped on the growth of both product and service revenues.

5. “On site is Insight”

  • Quote from Bill McDermott during his keynote. Why he believes service capabilities are so critical for product companies.

 

6. Success Science

  • You understand what makes your best customers your best customers.
  • Best customers = spend lots with you because they are being successful
  • Do you have a cohesive vision throughout the entire company concerning what makes your best customers your best customers?

7. Place Big Bets

  • Ex: Stand up a business consulting capability
  • Ex: Stand up a hosted version of your product for a customer
  • Ex: Aggressive reskilling program for services (technical to business)

8. Remove the Complexity of Services

  • For your customers
  • More importantly: for your sales force
  • Complexity look like: stove piped service capabilities, overlapping offers, death by a thousand packages

9. Starting up SaaS

  • 2 years to profitability
  • Amount you spend on sales and marketing impacts time to profitability
  • Design of the platform can dramatically impact time to profitability

 

10. Financial Model of Your Company

  1. Has to change
  2. Transition as quick as possible to the best model possible
  3. New model will not be throwing off 25 to 40 points of profit

11. Disenfranchising your team

  • Be savvy about orchestrating change
  • You have to bring the company along with you (R&D, Sales, Finance)
  • Don’t sacrifice your best people in this process

Records, Runways, and Tech

May 7, 2012

This week I am in Silicon Valley, hosting the Technology Services World conference. There are over seven hundred professionals representing 200+  technology companies at this gathering. In my opening keynote, I again warned that the business models of tech providers were on the verge of dramatic change. The new consumption based pricing models will surely force this change. And we can look to other industries to see how new consumption models disrupt legacy business models.

The Record Industry

The chart below was published by Bain consulting and it maps the revenues of record companies over the years.

When the CD was introduced, customers were given a killer advance in listening technology—and they responded by buying tons of albums. However, ever since music became available one song at a time, record company revenues have been declining. Yes, piracy is a challenge. But you have to recognize that record companies had legacy business models built on making, marketing, and selling albums. As a listener, it did not matter if you only liked two songs from that new group. You were forced to purchase the entire album. When songs were decoupled from albums and customers were given the ability to only purchase the songs they really wanted, the business model of record companies imploded. New consumption model. New business models required.

 

The Airline Industry

In the airline industry, low cost carriers have always been around, nipping at the heels of established legacy carriers. However, the rules of consumption changed for the airline industry with the advent of web sites like Expedia. Suddenly, consumers were able to see the price being offered by all carriers, side by side, to fly to a location. To compete in this model, legacy carriers like American Airlines were forced to strip out various services that were previously bundled in the cost of the ticket. In this way, American could at least stay competitive on these web sites when customers shopped for an air fare. The challenge is that American did not strip out enough cost. They still needed to charge for these services. The graph below shows how much American charges for add on services vs. low cost carrier Jet Blue. As you can see, American is charging much more for the same services.

If you look at the business model of American vs. Jet Blue, you see that American spends more money (as a percentage of revenue) on only one category: labor. Those higher labor costs drive American to charge higher rates for the same services.

Charging more for the same thing is never a winning strategy. The brutal lesson from the airline industry: Your higher labor costs are not the customer’s problem.

When Consumption Models Change

The consumption models in the technology industry are changing at a high rate of speed. In my opening keynote, I referenced the dramatic pricing move made by Adobe. Adobe software that previously cost $2,600 per user is now available for $50 a month. At some point, the Adobe management team realized they had no choice but to adopt their business model to align with the new consumption models in technology. At some point, every technology company will need to cross that same bridge. Cross that bridge, or follow the record companies and airline companies that did not truly change their business models when customers changed their pattern of consumption.

Service Country Profiles: China

October 25, 2011

Yesterday, I spoke of the need for service organizations to drive tactics that will allow their companies to sustain current margin profiles.  You can see the presentation by visiting: http://www.technologyservicesworld.com/consumption-economics.html

Today, I deliver a breakout session on a tactic that has helped high tech companies extend their current business models: serving emerging markets.

Since Las Vegas last year, TSIA has been telling member companies that “exciting” growth for technology products will not be coming from North America or Western European markets but new major markets such as Brazil, China and India. These markets represent wonderful growth opportunities for product sales. That is the good news. The bad news: How do service organizations successful sell and deliver their services in these new major markets?

Over the past six months, TSIA has been interviewing service leaders to discuss the specific challenges of selling and delivering services in Brazil, China, and India. These interviews resulted in a framework we call “Country Service Profiles.”  A graph from that framework is below.

Today, I will present this framework in my breakout session and we will spend time discussing the specific challenges of selling and delivering services in China. Again, service organizations must be at the top of their game to defend their margin dollars. Accelerating success in tough service markets like China is yet another way to defend those service margins.

Defend and Protect

October 24, 2011

Today, in the opening plenary session at TSW conference in Las Vegas, I made the argument that the high tech business models we have optimized over the past twenty years are perhaps the most profitable business models around.

Oil companies like ExxonMobil and high margin lingerie makers like Victoria Secrets clearly have profitable business models. Yet, those business models pale in comparison to the profits generated by a well oiled enterprise technology business model. In the keynote, I shared the graph below which compares the operating profits of Oracle and Cisco to those of ExxonMobil, The Limited (the parent company of Victoria Secrets), and retailer Amazon.com.

Mature tech companies are generating profits that far exceed most industries. At TSIA, we believe this business model will be changing dramatically in the next three to five years. We outlined these changes in Consumption Economics. But for now, tech companies (and their service organizations) should employ every practical tactic possible to defend the existing business models as long as possible. The profits from the current model will be sorely needed to fund the painful transitions ahead.

In the keynote, I outlined tactics that Professional Services, Education Services, and Field/Support organizations can pursue today to help defend the current margin structures of these businesses. To be clear, I am not suggesting service leaders put their head in the sand regarding the pending changes that will be impacting the industry. I am encouraging service leaders to be aggressive and creative in creating runway for the changes that will be required to occur in almost every tech business I have ever benchmarked.

The next three days in Vegas will be a fantastic opportunity to grab and gather every trick and tactic being employed in the industry. Take advantage of the opportunity! Engage with your peers. Engage with the TSIA Research staff. Engage with herd of TSIA partners in the Tech Expo. All of these folks have insight. And one of them may provide that one tidbit that helps you defend that beautiful tech business model you currently have.

Technology vs. Utility

May 3, 2011

Yesterday we kicked off Technology Services World here in Silicon Valley. As always, the opportunity to meet so many service leaders in one place is energizing. My conversations with folks yesterday spanned everything from “How do you align ten regions around the world on common service processes?” to “Our CEO can’t spell the word services—is it time for me to start looking for a new job?” And I relish every one of those exchanges.

One of the topics I put on the table during my opening keynote was the impact of utility computing on how customers are viewing our technology solutions. The term “utility computing” is not mine. The IT industry has been using it for years. Here is Wikipedia’s description:

 Utility Computing is the packaging of computing resources, such as computation, storage and services, as a metered service similar to a traditional public utility (such as electricity, water, natural gas, or telephone network). This model has the advantage of a low or no initial cost to acquire computer resources; instead, computational resources are essentially rented – turning what was previously a need to purchase products (hardware, software and network bandwidth) into a service.

This repackaging of computing services became the foundation of the shift to “On Demand” computing, Software as a Service and Cloud Computing models that further propagated the idea of computing, application and network as a service.

There was some initial skepticism about such a significant shift[1]. However, the new model of computing caught and eventually became mainstream with the publication of Nick Carr’s book “The Big Switch”.

The challenge with utility computing is not the concept of customers paying for IT capabilities “on demand.”   The challenge with utility computing is that it changes how customers view what they are consuming.

When Electricity was Technology

In the conference yesterday, I used the example of electricity. Most folks believe New York City was one of the first cities in the United States to have electricity. Actually, Madison Wisconsin beat New York City by about a month. You can go online and read the articles that were written the day the power plant went live in Madison. The articles provides all kind of gory details related to the amount of copper wire used to wire homes, the gauge of the wire, the voltage sent out to the households, etc. Because, in 1882, electricity was still considered a “technology.” Did you know that when electric doorbells were first being installed in houses, that visitors were afraid to use them? Folks were afraid they would be electrocuted by this new technology.

When it comes to electricity today, I would argue there are only two things you care about:

  1. When you turn the light switch on, the lights come on.
  2. How much is that electric bill each month?

Why? Because electricity is a utility—you expect it to be always on, always available, and relatively inexpensive to use.

From Technology to Utility

What happened to electricity is what is happening to many of our IT solutions. What once was considered a “technology” is now being considered a “utility.” And I am not simply referring to IT offerings such as storage, or CPU cycles. I am thinking of applications like email, CRM, etc.

And when an offering migrates from being viewed as a “technology” to being viewed as a “utility”, the entire business model for the company providing that offering is impacted. And this is exactly why the halls of TSW are buzzing this week…

Service Margin Trends

March 30, 2011

In Berlin next week, I will be delivering a keynote at the Technology Services Europe conference. In this keynote, I will be teasing out the patterns that are emerging in the world of technology services. But as part of that discussion, it is important that we all understand the patterns that have already clearly established themselves in technology services. One of those known patterns, is the steady increase of service margins. 

(more…)

The Bright Spot Winner

October 21, 2010

At the TSIA Star Awards luncheon, we announced the winning submission for the Bright Spots competition. For some context, we received 27 submissions. All of them great. From employees  at companies like:

  • ACI Worldwide
  • Autodesk
  • CA
  • Cisco
  • CommVault
  • Diebold
  • EMC
  • Endress+Hauser USA
  • FujiFilm Medical
  • Hitachi Data Systems
  • Motorola
  • Pitney Bowes
  • PTC
  • Red Hat
  • Symantec
  • Tellabs
  • Tektronix

The winning submission was made by Mark Molloy of Motorola, reprinted in it’s entirety below:

Those of us involved in services at a product dominated company know the story. There is no budget to promote service. It requires no promotion. It’s likely not material. It’s certainly not strategic (so much as release v5.1.3-4a). This was yet again evidenced to me when I had the audacity to distribute laminated, wallet sized service contact cards at a tech show listing our numbers, sites, and emails. I could feel the product managers shaking their heads at the flagrant waste of funds.

And then those wonderful words appeared in print from leadership…WE WILL DIFFERENTIATE OUR BRAND BY INCREASING VISIBILITY OF OUR COMPREHENSIVE SUITE OF SOFTWARE AND SERVICES.

These 16 words changed everything. Staff took note. Managers took note. And now we will help our clients (and their customers) take note. I received a call from one of the expert product marketers in the go-to-market team. She actually WANTED to take on services. She actually ASKED for the assignment. And she got it.

Her first move was to secure funds, which she got, in August! She has never looked back, and in 2 months we have developed a 360 degree marketing plan, have presence at trade shows, and have a seat at the leadership table. Yes, the marketing leadership table, catching it just right to participate in 2011 planning. And when performing a SWOT analysis (strengths, weakness, opportunities, threats), what was identified first by the team for opportunities?…SERVICES.

Bottom line – it pays to be at that table by invitation – by pull. We cannot taste the food unless present. And we, services, are the fine wine recommended with that sumptuous meal. Optional? I don’t think so.

Whatever it takes, and whenever it happens, be ready to participate. We now have budget, visibility, and a reservation for the seating. And all the hard work defining our capabilities, implementing and managing our processes, and measuring our performance is now being staged to drive value and invigorate our brand. Our product marketers feel this – we are their new “shiny object”.

Now that’s a services bright spot.

Congratulations Mark. Thanks for taking the time to write this submission during the conference. And enjoy that Ipad.

 

Follow the Bright Spots

October 19, 2010

In my opening keynote on Monday, I outlined six change management tactics services organizations can pursue to help drive “services transformation” within their companies. One key tactic is to focus on the bright spots. This is the tactic of identifying what your company has done that has resulted in some type of services success. For example, perhaps a key customer doubled their spend on services with your company in the past year. Why? What did you do differently with this customer that led to increased services spend? Or, perhaps your services team developed a new set of offerings that really is helping customers adopt your technology. What was different about these offerings? What was unique about the development process?

Following the bright spots is all about focusing on what is working. The change management research will tell you that organizations (and individuals) have a tendency to spend an inordinate amount of time focusing on what is broke. Let’s be honest—it is human nature. We love to bemoan all the things that prevent us from being successful. However, this fascination with faults is not very productive. Focusing on activities that are creating business value is productive.

TSIA is encouraging service professionals to share their bright spot stories. Go out to Technology Services Forum and share your story.

http://techservicesforum.com/

To make things interesting, we are putting an IPad on the line. The writer of the most inspiring bright spot story will be recognized at the TSIA Star Awards banquet at TSW. That person will receive an IPad.

So, take a moment, and share your story. Your peers will appreciate the inspiration.