Wednesday, June 22, 2016

The Eco-System Effect

There aren’t many companies that aren’t obsessively focused on strategies for growth.  Regardless of the industry, even the most wildly successful businesses need to feed the monster by delivering consistent and high levels of top-line expansion.

One manager early in my career told me, “Growth solves all problems, and hides most sins.”  I didn’t fully appreciate the substance of that wisdom when I first heard it, but I see it applied in practice today.

I’ve observed an interesting common recipe for identifying and acting upon new ways to expand services revenues.  I call it the Services Eco-System Effect.

I spend a good percentage of my time on this topic – helping companies of various sorts figure out ways to expand faster than they might on their own.  It’s a privilege for me to work on such a sensitive and urgent topic, with some really great companies.

When I enter into a situation where senior leadership has elected to call an intervention by having an outsider review the growth strategy, it’s often because the tried-and-true techniques of the past aren’t yielding the expected results.  A new play is required, and positions on the playing field need to be realigned.

It is most common for companies to be looking inward for ways to drive improvement in their sales effectiveness.  Some of the more common points of emphasis include:

·         Challenging demand generation models, often focusing on digital marketing, brand promotion, and progressive techniques for getting noticed by the prospective customers in their target markets.
·         Enhancing the influencer community, with promotions of rankings or assessments by analysts serving as the credentials for new opportunities.
·         Refinement of the channel network, looking to align incentives for representatives to carry the proposition more prominently.
·         Modifying the sales coverage, compensation, rewards, and recognition programs, with hopes that the sales force needs some refreshed incentive to work harder.
·         More purposeful application of market development funding to enhance positioning.
·         Investing in sales techniques and training to help the feet on the street to engage more effectively.
·         Refining the account management practices to allow for greater cross-sell and up-sell within existing customers.

Most sales leaders know how to assess and enhance their organizations in these ways.  So, while modest improvements are possible through an internal intervention, I’ve found the greatest improvement opportunities by helping to think externally.

While this might sound trite, the most common missing dimension that I encounter is near-sightedness in terms of service application.  Most companies that describe their business models as being “B-to-B” are short-changing their proposition. 

I like to provoke new ways of thinking about the business by asserting that all businesses are “B-to-B-to-B” or “B-to-B-to-C”.  Every business has customers.  And, they have suppliers, partners, and a network of business partners.  That’s the Eco-System to which I refer.

My operating thesis is that growth in B-to-B services is accelerated by a refreshed positioning of relevance within the Eco-Systems that exist within every industry segment.  Often, this entails converting a product offering into a services offering – selling the hole, not the drill bit.

Just about every situation I’ve seen over the past several years has been constrained by thinking of B-to-B in isolation.  Conversely, if a salesforce positions its offerings as central to the economic network of its targeted customers, an entirely new universe of opportunity emerges.

The idea is that each business in the "ecosystem" affects and is affected by the others, creating a constantly evolving relationship in which each business must be flexible and adaptable in order to survive, as in a biological ecosystem.

Too often, businesses tend to constrict the value proposition of their offerings to the domain of the buyer, and ignore the benefits of a network effect within an Eco-System that exists around shared objectives, dependencies, and relationships.  Do your buyers really need to own your product, or might they capture greater value through the beneficial effect of your product delivered as a service?

The answer to the question around future sources of material growth may not come from tweaks to the internal protocols for selling discrete products.  The answer may come from a repositioning into new propositions for relevancy to the Eco-Systems of your customers, often through services. 

Peter Allen has many years of operating experience as a top executive and strategic advisor for companies of all shapes and sizes, with focus on technology-enabled business services. He is now Senior Advisor for Alvarez & Marsal, and Chief Evangelist at Peter Allen & Partners.

Wednesday, June 8, 2016

The Fading Allure of Pure Play Services

In the long history of IT outsourcing, there was a prominent strategy among many IT Services companies to position themselves as “pure play” services firms.  This was meant to counter-act the competitive alternative offered by companies that were simultaneously product manufacturers and services companies.  See: IBM, HP, Xerox, Fujitsu, etc.

The paradox here is that product companies tended to think that they need to have a services arm in order to optimize the sales/service channel to the market.  Yet, that services arm tended to command lower profit margins than the product business lines, and risked having the provider being seen as biased with respect to servicing products that are not part of the manufactured portfolio.

Pure Services companies, on the other hand, promote their objectivity.  They promise to serve multiple product families brinigng efficiency through leverage of process and scale.  Some even advocate agnosticism in terms of the products being serviced.

In my experience, the win rate for large IT Outsourcing contracts wasn’t materially different among the pure play contenders versus the product-plus-services providers.  None the less, it was a healthy point of competitive debate in the selection process.

The question I am increasing asked is this: “What does it mean to be ‘pure play’ in the era of ‘As A Service’, and will there be a shift towards favoring a pure play proposition?”

I had the pleasure recently to experience a sales pitch to a banking IT executive in which an IT services provider was touting its objectivity and independence with respect to the cloud infrastructure offerings it was suggesting to serve as the foundation for a rather ambitious transformation.  The central assertion was that the bank should not be beholden to any particular technology suite, but would be better-served by selecting a service provider that was firmly established for services, and not selling products.

The bank executive listened for only a few moments before he interrupted the pitch to say, “You guys don’t get it.  We don’t care what products are under the covers.  Independence doesn’t matter when we are buying outcomes.”

The meeting ended abruptly, as the service provider’s script was now turned on its head.

Based on the interactions I am seeing in the market, enterprises are increasing leaning towards buying/subscribing to turn-key services solutions that unify the various component parts into holistic offerings.  The actual product underpinnings are less relevant than the committed level of features, functionality, and service integration.

The effect of this shift in buying tendency means that there is a third breed of service option.  We have the emergence of service contenders who are removing the complexity relating to underlying components of a technology stack and bringing well-engineered services solutions to the table.  Commonly labeled “Business Process as a Service” or some variant thereof, these are platform-oriented “As A Service” stacks that present a new proposition when considered alongside the traditional product and pure-play service alternatives.

So, the answer to the question of what it means to be pure play in an “As A Service” world is that companies must compete on the basis of built-for-purpose functionality, as opposed to general-purpose run/operate.  Independence has diminishing relevance.

Recent M&A within the industry that is shifting non-differentiated service capabilities among companies is considerably less interesting and less relevant than the development and scaled deployment of BPaaS platforms, regardless of the heritage of the provider.

Call yourself pure play if you like, but the market won’t care unless the play is built “As A Service.”

Peter Allen applies many years of operating experience as a top executive and strategic advisor for companies of all shapes and sizes, with focus on technology-enabled business services. He is now Chief Evangelist at Peter Allen & Partners and Senior Advisor for Alvarez & Marsal.