I feel that I have just witnessed history. Well, maybe not the type of “Capital H” History that one normally thinks of, like the fall of the Berlin Wall or the Red Sox 2004 World Series victory, but at least a “small h” history.
This month, I attended two IT analyst conferences. For those who do not typically attend these events, some vendors, such as Hewlett-Packard (March 9 and 10, 2010), hold them annually. Others, like Dell (March 24, 2010), schedule them only occasionally. But regardless of the frequency, these events are typically intended to provide previews of the vendor’s new strategic initiatives. The vendors typically preview such big new initiatives with industry analysts to assess reactions and tune their presentations before taking them to audiences (like financial analysts and especially customers) that vote with dollars, rather than reports.
Two things were historic about the HP and Dell conferences:
- Both companies emphasized big, corporate-wide focuses around delivering business solutions that are tailored to the needs of specific industries; and
- Both highlighted dramatically expanded roles for their services organizations in delivering new types of business (in addition to traditional IT) services and increasingly, in leading the respective company’s solutions-based go-to-market efforts.
Why are these announcements so historic? Because both HP and Dell have traditionally been product-focused companies that presented broad, technology-focused horizontal value propositions that are applicable to customers across all types of industries. They have traditionally led their marketing programs and sales efforts primarily on the basis of the strengths of their products, their price-performance and the ways in which these products, combined with related technology services, would improve customer IT environments.
Don’t get me wrong. Both companies will generally retain their traditional IT solution-based go-to-market and business models. Both will continue to rely primarily on horizontal value propositions and product-led sales.
However, both companies have recently made major acquisitions of big business and IT service companies. HP completed its acquisition of EDS 18 months ago and Dell just closed its acquisition of Perot Systems in November 2009. These acquisitions, and the new directions they are enabling, represent huge turning points not only for the vendors themselves, but for the IT industry as a whole.
The reasons? Both HP and Dell had been notable holdouts in an industry that has, over the last five years, steadily migrated from:
- Value propositions that emphasized the IT value of their offerings, to propositions that emphasized the value these solutions can deliver to the business;
- Horizontal marketing and go-to-market models that emphasized the value the vendor’s IT solutions could offer to all companies, toward more vertical, industry-focused models that identify business needs that are specific to individual industries and portray vendor-specific points of view as to how the vendor can address these needs; and from
- A product-led sales model that focused almost extensively on technical sales to the customer’s IT organization, to more of a services-led sales model in which more business-value-focused account managers engage as closely with the customers’ business executives, as with their IT executives.
Both companies used their March analyst briefings to highlight the growing roles of their services organizations (Dell, in fact, launched its conference with a presentation by its top services executive) and their growing focus on business-based, industry-focused value propositions (HP, for the first time, dedicated one of its keynotes to solving industry problems and Dell repeatedly emphasized Perot’s particular focus on healthcare).
The Services-based Future of the IT Industry
HP and especially Dell’s migrations from their traditional product-based, IT-focused, technical value propositions to more business-based, services-led models provide a validation that the IT industry is maturing, that value propositions must be increasingly targeted and that vendors must increasingly focus their sales efforts on business executives who lead profit centers, rather than on IT executives who lead increasingly financially-constrained cost centers.
While customers increasingly squeeze IT department budgets and impose shorter and tighter return requirements on IT projects, vendors will have to focus their efforts on those line-of-business executives who can marshal required discretionary funds required to fund projects that address pressing business problem and promise to yield demonstrable, measurable business value.
Although there will certainly continue to be huge, cross-industry, horizontal transformations of IT infrastructures, such as migrations to cloud-based infrastructures and service delivery, services-based software and, increasingly, mobile wireless clients, most companies have already made their big IT investments and have already achieved most of the “easy” gains associated with automation. Product—especially hardware—revenue gains will become increasingly difficult to come by and services will play increasingly critical roles in growing vendor’s revenues, smoothing revenue streams and increasing margins.
These services organizations will play increasingly critical roles not only in delivering on IT vendors’ value propositions, but also in leading vendors’ engagement with—and promoting the value of—these vendors’ solutions to their customers. They will be increasingly aligned around four primary centers of gravity:
- Industry-focused business services, some of which may be billed separately, but more of which will play demand-creation roles, as by being integrated into vendor marketing organizations (to identify pain points, develop points of view and work with product teams to develop business solutions) and sales teams (to lead engagements with customer business executives and budget holders);
- IT consulting services to architect and deliver solutions and manage transformations of customer environments;
- Support services to maintain customer environments, ensure customer satisfaction, identify new sales opportunities and provide profitable, annuity revenue streams; and
- Managed/outsourcing services which will increasingly integrate and subsume the roles of all three of the previous services organizations and increasingly become the primary design center, customer engagement arm (for both go-to-market and ongoing support), delivery vehicle and revenue/profit engine for virtually all IT companies.
I will discuss the prospects for and implications of these changes in HP in a forthcoming blog, tentatively named, “HP Goes Vertical”.
The IT Industry’s Changing Talent Requirements
The transformation of IT vendors from products-focused technology companies to business-solutions services companies will fundamentally change their requirements for people. Sure, IT companies will continue to require all of the same skills that they currently employ. But, unless they grow very quickly, they will need fewer of these people and more—in many cases, many more—new people with different skills.
I will discuss these new talent needs, at least from the perspective of HP, in another forthcoming blog, tentatively titled, “Addressing HP’s Industry Solutions Talent Gap”. In brief, however, these new-generation IT companies will require fewer technology specialists across virtually all parts of their organizations—product engineering, IT consulting, support, and especially marketing and sales.
Although all of these vendors will certainly require some IT specialists in all of these areas, they will have rapidly growing needs for people who truly understand their customer’s business needs.
They will, for example, need people who understand enough about these needs to identify the markets for and lead the development of business solutions. They will have particular needs for new types of consultative account executives and salespeople—people who understand enough about their customer’s specific industry and business needs to ask penetrating questions designed to uncover the customers’ deepest, and in some cases least well recognized or articulated pain points. They must, however, also understand enough about IT and the vendor’s product line to demonstrate which, if any of the vendor’s solutions are best suited to addressing that pain and to restate the customers’ need in a way that leads them to recognize the suitability of the vendor’s solution to their need.
These vendors will also need people who can delve into these needs much more deeply than account executives can or should do for themselves. They will, for example, need business and business process consultants. Not necessarily the type of senior consultants that are the hallmark of the management strategy firms, but those with a deep sensitivity to the needs of business and at least a few years of experience in analyzing and architecting business solutions.
These consultants would certainly support marketing and sales in their demand creation roles and in some cases, serve as the vendor’s primary contact to line-of-business executives. The consultants would also:
- Serve as intermediaries between customers and product/solution design engineers;
- Architect business solutions to address customer needs; and
- Ensure that the ultimate solution actually delivers the business benefits that have been contracted for.
But while IT vendors will certainly have much greater needs for the type of “T-shaped” people who can understand the true needs of their customer’s business and determine and articulate the ways in which the vendor’s technology can address that need, the vendor’s needs will be dwarfed by their customers’ needs for the same type of people. These customers will require the type of IT people who understand almost as much about their own company’s business needs as their IT needs and business people who fully understand how IT can address their business needs. After all, customers who lack such people on staff will be less capable of anticipating, justifying, driving, implementing or effectively using the solutions the vendors are trying to sell.
The real challenge—for both vendors and customers alike—is that there simply aren’t enough such people to go around. And, with fewer and fewer U.S. and European students studying the type of STEM (Science, Technology, Engineering and Math) disciplines that are required to make these links between business and technology, these shortages are likely to get much worse, before they get better.
As I have argued in many previous blogs and reports, IT companies MUST take a much more active role in creating such people.