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.
Image: https://flic.kr/p/nCYoHR
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