This is a very odd confession, but I love market sizing and forecasting. Strong language, I know, but I just love it. I think it is the combination of attention to detail and precision calculation, coupled with the intellectual leaps of faith needed when assumption making. Starting with a blank sheet and a new market gives me the opportunity to spend hours on pure thought, and there are very few things that excite me that much (and only a couple of those are legal!) I just wanted to share a few of my thoughts about the market sizing and forecasting.
Sizing a Market – more about common sense than rocket science
There is sometimes a mystery that surrounds the market sizing process, that I don’t think is necessary. There are very few ways to size any market – and none of them are rocket science. The accuracy and quality of any market size is primarily dependant on the quality of sample being used, and the way you segment the market to create representative groups.
For example, if I were to size the market for business PCs in the US using a buy side model (sizing the market from companies actually buying the PCs), I would segment the market into company size, by industry and by geography – I am using PCs as an example because often product markets, particularly a ubiquitous one like the PC is more universally understood and has less problems. The sample in each segment would be interviewed (or use another source of primary data) to discover annual spend on PCs by each sample company. The sample portion would represent a quantifiable proportion of the segment, which if it were 10%, the market size for the segment would be 10 times the total spend of the sample. Then you add all the segments up to produce the market size. The main assumption you make is that the samples spending is representative of the segments, so it is crucial that you divide the market into segments where spending is more consistent, this is why segmenting by industry is often used as it is likely banks spend is more similar to each other than to, for example, an agricultural business.
The main source of inaccuracy is ensuring the responses are representative, which is why this method of sizing always needs a cross reference, usually with service provider revenues. This provides a check on any mis-sampling where by chance you sampled the only 30 utility companies that only upgraded their PCs once a decade. These problems appear when you have markets which are less saturated, like many services sectors, particularly outsourcing. For example, if only one utility company has signed up for an HR outsourcing deal, and your sample misses it, then your market size is shot, likewise if you stumble upon just the companies that outsourced in a market that has few deals, you’d skew the market upward.
Verifying signed deals and revenues with the suppliers in a market helps to rectify these types of errors, and can mean either using an estimation for the industry garnered from the demographics/service provider revenues, or enlarging the sample or looking for new data points to guide the market size.
This is why most market sizing models used by analysts start with supplier revenues – you build a list of known suppliers in the market, which for the PC market is fairly easy for the top 10. You estimate the specific market revenues from the financials, which you may cross check through interviews / feedback. Then, you build a probability model to fill in the gap, estimating the part of the market not covered by the providers that you know. Essentially saying what is the probability that I am missing a supplier in the top 5, top 10, top 25 and in the remainder. This is where the analyst needs to be honest about her or his knowledge of the market and be realistic about the likely number of smaller firms. Which is why having good demographics to build out a buy-side model helps set the parameters for the market – and helps to double check the probably.
It is these things that provide us forecasters with the biggest challenge, especially building a market sizing model that works in a fragmented (ad often hard to define) market like outsourcing, managed services or process automation. However, the saving grace is deal data, this gives another way of building the market size. You can estimate the annual revenue flow from each contract, segment it into service type and produce a market size. The issue here is again one of sampling, no database of contracts is complete. So we compare the data produced from the contracts with the vendor revenues and with the survey data to complete the picture. Hopefully producing an accurate market size!
Forecasting a Market – the joy is finding that consensus of inputs to perform one trendline
Market forecasting is a similar task in many respects to market sizing, but, for me, it is where most of the joy in the process comes. I suspect this is because you can draw on more information and it is about bringing together and distilling contrasting data into a simple trend.
The simple forecast method that is typically used for technology markets, is euphemistically called an assumption-based or judgement-based forecast. Largely, I tend to rely on a mixture of methods and tend to combine them.
For an outsourcing market, I would typically use a model that predicted the sales of a product from past data, generally a time series model. This provides a base trend line for the market, typically the market would accelerate or decelerate in line with the established trend for the particular market. This essentially extrapolates the existing trends, part of this process would also include looking at economic growth and making assumptions for how a particular market is likely to grow given the economic outlook.
The next stage would be to alter the predicted growth based on likely forthcoming events in the market. This tests the analysts and my knowledge of the marketplace mapping out the likely market drivers and inhibitors, quantifying their effects, weighting them by probability/strength of impact and summing the drivers and inhibitors to produce an overall market impact. Part of this equation is also the adjusting the forecast based on survey work, providing the forecast with direct input from the customers and suppliers. In the outsourcing markets, we also sample specialist advisors and consultants which can add another perspective – broader than a single client and, typically, more realistic (or is that cynical) than suppliers.
It is the balancing of the different factors and the bringing all the data together to produce a single growth rate that I find the most satisfying. A forecast at its best is a distillation of survey work, market data and analyst expertise, the marriage of the objective and subjective in as precise a way as possible.
The Bottom-line: There’s nothing more beautiful that quantifying that view of the market at that particular point in history and occasionally getting it right
The thing I love most about sizing and forecasting a market is that balance between fact and foresight. When people look back at historical forecasts, the size of the market at that particular point in time should always be solid, providing said forecast is doing their job properly. The forecast was simply what we all thought the market was going to do based on the available inputs we had at the time. It doesn’t matter if it was widely wrong, as long as the inputs were sound the the forecaster was not smoking something too dubious =)
However, if we really got (some of) those forecasts in line with what eventually happened, then we can die happy knowing we performed some genuine wizardry doing something that we loved to do.
Being an industry analyst, our work differs greatly from day to day and as such, today more than ever, we are wearing an ever increasing number of hats and taking on more responsibilities. Although, rather like the transition to the As-a-Service Economy, which dominates our research at HfS, overcoming the specter of legacy is one our key concerns.
The scene: a dinner party with unknown persons. Polite small talk ultimately leads to the question, “So what do you do?” I suppress a sigh, take a fortifying sip of whatever is lying around and announce, “I’m an industry analyst” (or something along those lines). Now the response can vary dramatically here, the most common been “A what?”, “You work with numbers??” or, in more polite company, a vague “Oh…”. Following this I feel compelled to explain what I do. Now there is of course another, less savory, reaction to my announcement of employment, this often comes from those working in the industry and having had too much contact with legacy analysts of old who plied their trade in arrogance, assumptions and skepticism bordering on derision.
So back to the explanation, what do I actually do?
Well, it really depends on the day. Right now I’m blogging, whilst reading a press release and getting a tweet or two out (coffee is obviously a given). Last week I was sat in Blenheim Palace (google it!) enjoying a glass of wine, listening to an orchestra and speaking to some serious industry leaders in the BPO world. Other notable activities include consulting calls and strategy sessions with both buyers and service providers, Blueprint project briefings, Soundbite, PoV and Blueprint production, travel, events and more travel. Needless to say not many two days are the same, or, end at 17:30. This largely represents todays working environment. The ability to be flexible, work on the fly and multi-task have all become hygiene in the industry analyst world of today.
So back to these “legacy” analysts I mentioned earlier. The industry analyst community has garnered a checkered reputation in years gone by. The age of the pompous, overly and aggressively opinionated analysts are gone and in has come industry analyst 2.0. Who aim to work alongside industry, commentating on development and of course calling out bad practice, but ultimately assisting in educating the market and facilitating change as the industry moves towards the As-a-Service Economy.
So with this in mind, what does it mean to be an industry analyst in 2016?
At the end of the day it is content. Relevant, timely, accurate, consumable and thought provoking content. As analysts, we need to keep a continual eye on the pulse of the industry, all the while dodging the marcomm puffery from suppliers and getting to the overarching themes in the market. In addition, working with enterprise service buyers in formulating sourcing decisions in one’s field of analysis is key. The watch word here is “analysis”, not simply research. Research gets you to the door but real insight and analysis gets you invited to the party. Therefore, the most successful analysts in today’s world don’t only sit in an office working on single research projects but rather analyze, educate, track and engage the market with the goal been the betterment of industry.
My husband and I have three children, including twins with autism. Over the past few years we have become accustomed to thinking outside of the box and trying different approaches as parents. We’ve learned the importance of good planning to meet a desired outcome (often the hard way!). We have also had to unlearn many parenting techniques employed with our eldest child to best support the twins. Service providers have undergone a similar transition, as they battle with how best to support the high growth area of SaaS services compared with the requirements of the on premise world of yesteryear.
I’ve been an analyst for 20 years, a period dominated by legacy systems, on premise applications and a very strict view of the IT services Value Chain of Plan, Implement and Manage. Service providers and analysts alike list relevant services that should appear in each of these boxes to facilitate product development for service providers and market tracking for analysts. Since I started out as an analyst, I’ve tracked all sorts of services markets, from network professional services, to security services to application services. Jumping from topic to topic was never a major problem, as I applied the same basic principles of the IT service Value Chain to every area I covered. It was simply a case of coming up to speed on the new technology, understanding buyer needs, and identifying which service providers could throw a practice together to make money out of a growing hot trend. The Value Chain itself hardly altered. Sure, the specifics had to be tweaked but generally speaking service providers, analysts and buyers all knew exactly what you would get in each individual box:
Plan: this is the consulting phase of the engagement and includes a whole host of advice services for business strategy, deployment design, blueprinting, governance, security, regulatory compliance, and so on. It used to be a lengthy engagement, typically at least one year, as service provider and buyer teams tried to tick off every possible eventuality in the upcoming scary deployment phase.
Implement: this includes implementation, integration, testing, training, any customizations and so on. If the roadmap set out in the consulting phase was airtight, the implementation phase was as easy as pie. Of course this seldom happened, and tweaks were made as the project evolved. Typically this was a technical and tactical project with the focus on execution excellence in a cost effective way.
Manage: ah yes, the management phase. That thing that most enterprises don’t think they actually need or convinced that they can do it all in-house. But as all the markets I tracked evolved, management services inevitably became more important and in high demand. These were typically stale in nature, keeping the light on type of activities. I saw more proactive monitoring type of services in the network and security market, with some service providers independently making changes to improve network communication or security settings (shock, horror!) but I didn’t witness too much of this proactive engagement in the application services space.
I still use an IT services Value Chain at HfS for the three main SaaS Blueprint reports I have authored: Workday, Salesforce and SuccessFactors services. It is useful because it outlines the main services that should be included in each IT service area. Here is our Workday Services Value Chain:
Exhibit 1: Workday Services Value Chain
Source: HfS Research June 2016
The silos still serve a purpose, if mainly an informative one – and frankly, this diagram wouldn’t look half as good without the pretty columns. But this illustrates the ‘what’ rather than the ‘how’ – and it’s the ‘how’ that is radically changing in the SaaS services market.
SaaS Services Requires a Different Approach
SaaS application adoption is changing IT service delivery requirements. The consulting phase remains an important first step because, as with most things in life, successful outcomes often rely on the best planning. But service providers can no longer just use the best brains and collaborative approach in the consulting phase – and then sweep them away to be replaced by technical teams that focus purely on specific module implementation. Moreover, consulting is no longer a drawn-out process. Buyers want fast deployments, with go-lives expected within a year. The implementation phase requires strong account management and project management teams who align all decisions to the desired business outcomes outlined in the planning stage. Management services increasingly look like consulting-as-a-service offerings, with users often purchasing a bundle of hours to use as they wish per month or year. Management services requests could be answered by remote assistance or they may require onsite work. As a result some service providers are investing in in-region delivery centers to be able to deploy consultants to client sites more easily.
In terms of skills and delivery the lines between the Value Chain phases are blurring. The best consultants have a deep understanding of organizational and technical issues that can arise in the deployment phase. Some service providers offer rotation programs for their consultants in implementation and management services as understanding both makes them more effective in their primary roles.
The Buyers Are The Eventual Winners
Buyers have finally had enough of being presented with a catalogue of services to select. They just want the solution to work and for the service provider to share best practice on running the relevant process. Enterprises are more mature about what they can demand from service providers, and they’re frankly not as easy to work with as they were 20 years ago. Several buyers I have spoken to in my Workday Services Blueprint, tell me that they insisted on interviewing the proposed delivery team during the service provider selection process. They want to meet the people they will be working with on a daily basis, as ultimately that relationship will determine the success of the project. Buyers are also demanding that service providers challenge them more. Something I hear regularly from buyers is: “I wish the service provider just said ‘No’ more”. SaaS is a relatively new adoption area and buyers rely on service providers to provide sound advice based on their experience. In addition, many of the HfS ideals of the As-a-Service economy are increasingly important to success, notably Collaborative Engagements, Design Thinking, Intelligent Automation, and of course helping clients to Write off Legacy.
Bottom Line: Unlearn or Fail
So can service providers unlearn their old engagement and delivery practices for on premise deployments and embrace the new IT services world of SaaS services? The leading service providers will, or indeed have been investing in this forecasted eventuality in recent years. To succeed they need to adopt new approaches, think outside of the box, and demonstrate real commitment to succeed (trust me, I know!).
Everyone is talking about how to get to the right strategy for omnichannel customer communications, yet no one really knows what it means. First of all, let’s just get it out there that omnichannel is one of those terms everyone loves to hate. It’s ubiquitous, it’s vague, and it’s a misnomer– “omni” is impossible and customers don’t think in terms of channels. That said, omnichannel is an aspirational goal pointing many service providers and enterprises in the right direction toward really getting customer experience right. So with that in mind, it has become my mission to dissect the subject, get past the hype, and figure out where the opportunities lie for the services industry.
The keys to creating an omnichannel experience are the following:
Non-creepy Individualization: “We know the name of your cat because we stalk your Facebook updates” (we’ve seen these creepy mistakes backfire bigtime). And please stop talking about customer “intimacy.” Customers don’t want you to be intimate with them, they just want to be acknowledged as individuals (especially those self-centered millennials), and for you to know their buying patterns and preferences. This is part of the Amazonization of the consumer experience that just isn’t going away anytime soon – and striking the right balance is essential.
Simplicity: Making it easy for the customer to do business with you is at the heart of customer satisfaction. More than anything, customers want want to be able to get information, interact, and buy products and services easily, without jumping through hoops. Our “one-click” ordering culture has raised the bar for the way we expect to get things done. Look at reservation systems for example—why should I have to call, sit on hold, and speak to a person when I could simply use an online scheduling system?
Consistency: Whether it’s about product pricing and discounting, visual design or cultural feel, it’s crucial to the omnichannel experience to have consistency across devices, physical experiences and interactions. Making a brand one that customers relate to and develop an affinity with goes a long way toward generating loyalty. Apple for example, has done this well with creating an in-store and online consistent experience as well as developed a culture that people want to be a part of.
Executing on these concepts is no easy task, involving many facets of the organization, and most companies are coming nowhere near these ideals. One of the biggest opportunities, and yet most troubling elements of this omnichannel notion is where contact center fits into the paradigm. The conversations consumers have with businesses are at the heart of creating a differentiated experience, but let’s face it, right now contact centers are not pivoting to be strategic differentiators. Most of us deal with this pain regularly in our personal lives. Just last week I called my bank with a simple question (which could have likely been answered via self-service), was transferred and repeated information 3 times before I even reached the right department. As much promise as there is for a utopian omnichannel world, most are struggling with the basics.
The Bottom-line: work on fixing broken customer service (keeping the goal of omnichannel in mind)
Contact center service providers are acutely aware of these opportunities and desperately trying to carve out an omnichannel story and capabilities. As we noted in our recent Contact Center Operations Blueprint, while many of the pilots and messages are spot on, client adoption is low and stories of omnichannel success are few and far between. Many buyers are just grappling with implementing digital channels, and a total redesign of customer experience is far too daunting. Service providers need to help their clients (with the goals of personalization, consistency and simplicity in mind), to start making some real changes in bite sized pieces to improve customer experience. Instead of trying to “delight and surprise” the customer at every turn, just taking some basic steps to make customers’ lives easier could go a long way. Omnichannel is the future of customer experience (or whatever the next buzzword that encapsulates a seamless customer journey may be), and one of the biggest steps toward that is a clear and focused contact center strategy.
This is my all new spot on Horses for Sources. The home of razor-sharp analysis and the place where hypes are crushed and real trends are born. Phil has set the bar incredibly high over the past decade. Inspired by the best analyst blogger around, my aim is to be as edgy as you are used to on Horses for Sources.
What you can expect on Berzerk with Derk I lead the energy, utilities and natural resources practice at HfS. I’m passionate about these industries and the huge shifts they need to make to stay relevant to this world. These are the largest and most fundamental industries in the world. The looming departure from fossil fuels mean the world’s energy systems, which have historically been slow to change, are in an unprecedented period of rapid transformation.
Renewable energy is the next normal – but the world has not woken up to this new reality yet This blog will help you stay abreast of all these fast-moving trends plus cut through all the hype that is out there. We’ll be covering the energy markets and the ongoing energy transition; away from fossil fuels and toward renewables. And specifically zoom in on the transformation of energy companies and service providers. The As-a-Service Economy has arrived in the services world and holds the potential to play a critical role in the energy transition.
The holy triangle of services; People, Process and Technology In my focus areas, besides aforementioned Energy, these are Supply Chain Management and Procurement, we see a fast convergence of people, process and technology, forever changing market demand and the offerings of service providers. Talent is a major topic for enterprises and service providers; there is a deficit of skills needed in the As-a-Service Economy. We need more people who can be strategic, experiment, play with business and revenue models, design new organizational structures and cultures, implement and pivot rapidly. People who have a keen eye for societal, political and technological developments and its ensuing opportunities and threats. There is an enormous opportunity for technology and business service providers to become part of the solution. This requires investment from both sides, real partnerships and the application of leading-edge technologies: intelligent automation, IoT ecosystems, actionable data and analytics are essential ingredients of digital transformations designed to push energy providers forward on the energy transition journey.
Change = new stuff = hype The common theme in much of our work at HfS is change. The old, legacy way of doing things is not cutting it anymore. Labor arbitrage, lift and shift and the traditional models of outsourcing are well past their prime and the services industry is transitioning into this new phase of As-a-Service. Before new things come to fruition, there is often a lot of hype and fluff surrounding them, clouding the view of what is real and what is not (yet). This is where HfS analysts come in… This blog won’t shy away to expose bs, calling out cookie cutter hype and identifying what is real.
All nice and well Mr Erbé, but why should I care? My goal is to tell you something you may not know with every post. I have been in the trenches of technology implementations, business transformations and operating model changes. I’ve managed the backlash of failed implementations on the business, designed business and IT functions. So in a lot of situations where theoretic solutions and vendor promises have broken down and the real issues still need to be fixed.
On this blog I will address the real-world issues screaming for real change, exploring what works, what doesn’t work and what needs to be done.
I will be:
– Harsh (sometimes)
– Real (always)
– Candid (the key to being an analyst isn’t it)
Are you of the curious variety, care about the world around you and the vast opportunities there are for business and you as a professional? I will introduce you to the most intelligent, innovative and forward looking folks in energy, supply chain and procurement. And help you navigate the real-hype divide, which solutions are aspirational and which solutions can bring scale, results and impact now.
When I entered the industry in 2008, working for a boutique research firm in Pune, India, the research themes floating around were about “what’s next for BPO, because this recession changes everything.”
We studied the knowledge process outsourcing (KPO) segment (“KPO” sounds so dated now!), which included service areas such as legal services, marketing, publishing and digital media management, e-learning, engineering services and market research and analytics. KPO services were perceived and categorized by the market to be different because they involve a) specialized skillsets, b) judgement based work with complex sub-processes, c) greater degree of partnership between client and service provider beyond process compliance and d) required a greater degree of specialization from the service provider in a horizontal/vertical, making them “higher value services” that came along with premium billing rates.
This definitional distinction that our research revealed between KPO services and “vanilla” BPO is worth unpacking today. Our conversations now are about enterprises operating in an As-a-Service Economy, heading towards Intelligent Operations. We’re actually seeing these traditional KPO markers becoming a core part of BPO and BPaaS service delivery.
Our Blueprint scoring methodology, based on HfS’ 8 ideals of As-a-Service has Collaborative Engagement as a key parameter for success, and we see promising examples of how a partnership-driven approach has helped set up engagements for success by focusing on business context and outcomes.
As for judgment based work and higher value services, this is very much the future of the industry for three reasons:
The robot will be taken out of the human. We will reach a point in the not-too-distant future where we can leverage talent to do meaningful, value-adding work, essentially taking the rules-driven robot out of the FTE. This is already happening in pockets as the services industry makes progress on embedding intelligent automation technologies, including robotic process automation, autonomics and cognitive platforms.
Industry domain knowledge is critical. Every service provider worth its salt lives in a “verticalized” client market, and our research in core operations outsourcing often reveals how buyers hang on to providers because their delivery staff has deep domain knowledge, “know more about our industry than we do” and have the certifications for their talent to prove it.
End to end service platform-based delivery demands deeper skillsets. Thirdly, service providers today (at least the preferred/strategic partners) manage a lot more parts of the services value chain than just backoffice transaction processing/call center operations. With more platform-based delivery of services that have straight-through processing and analytical insights baked-in, buyers are incentivized to carve out more end-to-end service delivery that includes both complex sub-processes and volume-driven processing.
The speed of change in today’s global environment can’t be captured any better than news coming this week of UK’s tentative departure from the EU, and speculations are flying wildly about the implications of this U.S. election year. And so here we are, as an industry, once again, wondering, what happens next, because emerging digital business models and the global environment is changing everything.
The Bottom-line: KPO really became “As-a-Service” – Smart talent and technology delivering value via the on-demand delivery model
HfS defines a future state for the services industry where As-a-Service is native to enterprise operations instead of a set of processes and technologies being retro-fitted in painful increments. Investments are made in outcome-centric services first, followed by talent acquisition to broker these capabilities and align them to the revenue-generating, customer-first activities of the business. In the next few years, as more outsourcing engagements o down this road…leverage actionable and accessible data, common standards, automation, digital tools and apps, powered by cloud delivery, priced As-a-Service, we will need a lot more judgement, and reimagination to navigate through it all. The KPO terminology might not make a resurgence, but its distinction will continue to blur as service providers morph the business they want to be in and the value they deliver to foster genuine, long term partnerships with their clients.
Procurement’s very existence is in trouble. The function must be part of the whole negotiation process, not only to protect the company from making deals that do not benefit the firm but also ensure they are sensible, cordial and well-balanced – and both supplier and buyer realize the outcomes they both want to achieve. Sadly, this is so not the case with so many pivotal business deals today.
The fact of the matter is, for some bizarre reason, most senior executives just don’t care about them, and they seem to show up when the deal is already made and “promises” have been made that are hard to break. All that transpires is both the senior executives from the supplier and the buyer end up frustrated – and feelings of mistrust can really break down what was a blossoming partnership with a very “transactional” experience.
The problem really is two-fold – executives doing the buying probably don’t even think about involving procurement, as they see no value in their contribution – or have no awareness of any potential value. They probably never even thought about involving them. In many cases, they never even intended to include them and procurement only inserted itself when they were asked to make the payment. Which means procurement’s role has been reduced merely to a last minute attempt to sabotage a deal; otherwise, its existence in the company is rendered completely useless, and you might as well phase it out (or replace with some software).
Who’s to blame when procurement comes along to mess everything up? Yourself!
To all executives out there who like to spend company money on things:
Ignoring procurement in the buying process nearly always ends in tears for everyone. I often feel the amount of time, negative energy and lost money tied to the procurement experience is simply not worth the investment of having them in the first place. So stop acting like they don’t exist and start communicating.
This means getting procurement into the loop regarding your intentions, once you know what it is you want to invest company money in. Train your sales people that procurement exists for a reason and that they are not the boogie man from the outset. The reason it often goes wrong at the end of a sales cycle is that procurement people feel they are not participating in the process and need to make last minute changes to the contract (which is usual to try and squeeze the supplier on price, which just pisses everyone off).
When procurement people are feeling ignored, all they will try and do is derail the buying process, as opposed to helping shepherd it through and add some value (or at least a few sensible suggestions) along the way. Procurement needs to feel it has a reason to exist, like any other business function. With HR, we often know it adds no “strategic” value in the hiring process, but at least it will run the background checks, the references, sort out the payroll, etc. At least HR has a role in the company, whereas procurement is in danger of extinction if its contribution is worthless. So while procurement still exists, you must involve it, or it will make everything unravel down the road.
To Procurement Executives:
Be a business relationship manager, not a transactional negotiator. Get off your backsides and serve the people who pay for your salary. Yes, we are a team, but sending these emails such as “No more discount or we need a minimum of 20% margin”, or “We only accept 90 days payment”, do not help at all. You’ve made it clear in the time your profession exists that you are not business people and care nothing for “customer service” or “employee experience”. The fact you feel you are the police of the people that call themselves “sales” is a fairy tale. You should get up and try to understand what your firm is doing, the clients you are serving and the history that exists between your company and your customers. Only looking at making a personal gain is not a solution for anyone but yourself. If you like to have war stories, join the army. Don’t pull this nonsense on the work floor.
Bottom line: Communicating with each other is the first step to getting business done
We all need to live with certain professions within a process. Some we like, some we just have to tolerate. But we can make it nice along the way to work more closely together and stop pretending we do not exist or need each other. If you listen, you will learn, if you keep doing what you always do, you keep getting what you always had. We have enough islands in this world, let us not fight internal battles all the time, but let us communicate and not harm the clients and eventually our business.
It’s easy to make a compelling case that ‘digital’ will ultimately replace what was once ‘IT’ at some point in the future as the former rapidly evolves and the latter become more and more associated with legacy technology and practices. hedging bets on what will happen and when however is a different matter entirely and hugely variable from business to business.
A historical analogy I’ve used frequently is the period when steam power slowly gave way to electrification. Steam enabled the industrial revolution and generations of power creation and transfer expertise. Simplifying, early manufacturing typically had one giant steam engine driving multiple leather belts to various ‘creating’ contraptions.
Along came electrification and boilermakers and belt tensioning experts started to work alongside electric motors and light, but the period when these two power sources co existed was surprisingly long as companies sunsetted their amortization of steam power and invested in electrical.
It wasn’t until the 1930’s that ‘as a service’ from the plug socket and light switch regulated electrical grids were established in north America. Prior to that electrification was very parochial and needs driven for the creation of electric light and to power specific factories.
Just as early use of digital media for marketing is analogous to the creation of neon signs and electric light arrays in cities as soon as their generation was possible, today the focus on ‘digital’ has been skewed towards marketing though social networks and ‘customer conversations’. Electric light displays in places like Times Square NYC were the wonder of the world only 100 years ago, initially hand switched on and off in sequence by staff.
All fascinating history, what has this got to do with our digital ‘as a service’ world? The period when steam power slowly moved to the less visible role of creation of distributed electrical power is analogous to the way enterprise computing has evolved. Cloud and mobile networks have transformed our world on an individual basis but as we all know there’s an awful lot of mainframes and cobol out there.
As HfS’s Phil Fersht recently wrote
When you consider only $15 Billion is being spent on public cloud services (IaaS) this year and $ 1 trillion being spent on services tied to traditional services delivery, there is a huge amount of “legacy” IT and BPO business in play – for another decade and beyond – to enable the enterprise digital experience.
It’s amazing to think that less than 100 years ago people would go by horse drawn carriage to see people turning arrays of lights on and off in Times Square on a Saturday night as ‘advertainment’. The pace of change has sped up enormously just within this century alone: as an example AWS delivered the first storage service (Amazon S3) in the spring of 2006 and compute (Amazon EC2) in the fall of that year.
For the services world the twin speed world we live in of legacy IT and digital evolution has some similarities to the past era of boiler makers and electricians – today most of the work is in keeping the steam boilers ever more efficient in the enterprise world, but everyone knows the increasingly automated grid is evolving fast. Making the decisions of what to focus on with staff and technology – what skill sets are needed and how and where to apply them – is doubly difficult when for decades most of your waking hours have been focused on ‘busy work’ to keep IT systems running. Quote to cash isn’t going to go away but it is certain to evolve and be ever more connected to other parts of the digital continuum most companies now have in focus strategically and aspire to.
Where steam power was rigid, brittle and inflexible despite enormous power generation, eventually ‘ always on’ electrical power provided plug and play secondary, tertiary and on usages (light, power, heat, production lines etc). This is the analogy the services sector are increasingly aware of and where ‘core digital’ is arguably emerging to supersede ‘IT’.
These are absolutely fascinating times, not least because this new world allows an astounding pace of innovation and appetite for the new. Steam power didn’t go away of course – as late as the 1960’s steam locomotives were the way people travelled by rail, and the electricity I am consuming to type this post may well have some steam generated electrons commingled. As the transition and automation of older services yield to newer digital needshere at HfS we will be commenting and informing on where the power and growth centers of the ‘as a service’ world opportunities are.
“When we first outsourced, our service provider had the newest ideas, but now three years later, we have caught up to them and they’re treading water. So what’s next?”
These are quotes from operations executives over the past months of research, when asked about whether or not they (still) consider their service provider “innovative.” Since the term is open to interpretation, for the sake of this blog, let’s view it as an ongoing improvement in the impact of the work being delivered by doing something differently… something over and above the basics of what you would have expected, beyond the letter of the contract.
And, often, these comments are followed by, “it may be… well it likely is, our organization that is holding us back.”
If you really want what’s next… your service provider might actually have the ideas… but is your leadership willing to listen, invest, give them access to your intimate data, and give it a try? Is your organization genuinely culturally ready for innovative change? And is the service provider capable and culturally aligned as well? If not, maybe you aren’t ready for innovation; or, maybe not with your current partners.
Consider three “Power Ups” to change the face and increase the value of outsourcing: Courage, Budget, and Stories
Harken back to the days of Mario brothers in the video games, when Mario and Luigi tapped into “power ups” to help achieve their goal. (Maybe this is not such a leap in time for you!) “Super mushrooms” gave them temporary size and height advantage, ability to take multiple “hits” before dying, and additional lives. The “super mushrooms” of outsourcing—to achieve innovation and increased value through partnership—are good for use by any player—operations executives, delivery staff, service buyer or service provider:
Courage: The “gumption” as a leader to “allow,” and as an employee to “take” a chance, to leave egos at the door, to experiment, to “play,” to quickly acknowledge and shut down what does not seem to be working.
Budget: Realistically, nothing much will happen without a dedicated budget to finance time and materials that support research, dialogue, and prototypes.
Stories: Visuals and stories connect with our emotions, and are memorable. When you really want someone to understand, appreciate, engage, own, and promote a concept, a result, an idea, or a change, then “show and tell.”
If you want innovation—new ideas implemented to drive step changes in results—you need to be willing to do 1-2-3. If not, you are probably keeping yourself in a dangerous continuous improvement cycle—and also likely to get lost in the dust of other companies that are innovating.
I don’t believe there is any digital business or consumer that can be 100 percent secure 100 percent of the time, unless they opt to abandon technology and live in an obsolete analog world. It’s as simple as that.
As we continue the shift from the legacy, analog economy of the last century towards a still emerging 21st century digital economy, new opportunities abound. Brands that couldn’t have existed 20 years ago now dominate our global economy. Facebook and Google are almost totally digital, while others such as Uber, Amazon, and Apple blend the physical and digital to perfection. These are among the most recognizable, but there are countless more that make up a marketplace of brands and consumers that function in a totally different way that we did a decade ago—and the change is unlikely to stop any time in the near future. As rapidly as the human race embraced the digital wave, we’re just barely beginning the transition.
But for all the opportunity, there is tremendous risk. Our human existence has been shaped for millennia by the analog experience. It’s where we learned to live, learn, and trust the world—and the people—around us. It’s also where we learned not to trust.
For modern-world youngsters born in the ‘90s and ‘aughts, the digital world is all they know. My kids and their friends have never known a world without smart, mobile phones and online shopping, or where homework was not assigned online (and the homework dropped into a teacher’s shared Google drive), or where friends—that they’ll never meet face-to-face—are found and relationships built.
But for most others, this has been a period of transition that has brought both significant challenges and even more significant risks (from the challenges of shifting from paper to electronic bills to having your personal data stolen and sold on the open market).
The same is true for businesses. As my children are digital natives, so too are many brands, but far more are struggling to change—to reinvent themselves digitally as quickly as possible and shed old analog roots in favor of digital opportunities. But the most important, and common, issue that we all face is one of trust. It’s difficult to trust the company you can’t see, the bank you never visit, or the online contact you’ve never met. It’s even more difficult to protect, and leverage, your assets now that they’ve shifted from the mattress to the great cloud in the sky.
When we talk about protecting assets, we’re talking about employing cybersecurity to protect our digital assets against the threat-actor who would hack, steal, or destroy all that is ones and zeros. This is the dark side of digital, driven not by the greater good, but by personal, or state, gain—the world of the cyber threat.
In the analog world, we know how to counter, or at least avoid, most threats. We know how to learn to trust a friend, or a brand. Digitally, however, it’s a different story. The markers we used to look for to create bonds of friendship and trust simply don’t have direct analogues in the digital world. The business processes that we used to rely upon are also no longer the same, as technology has given us a powerful tool to rethink not just what we do, but how we do it, and why.
In this blog (In Digital We Trust?), we’ll be exploring a number of themes, primarily from an enterprise, provider, and consumer perspective—themes that share a common focal point: digital trust. As cybersecurity is core to securing our information and our brands, expect a healthy dose of that. But we’ll also be taking a hard look at the way we use digital today, from the technology to the processes that keep our corporate and our personal data both safe and accessible.
Some of the questions we’ll be discussing include:
What is digital trust, why is it so important, and how can enterprises, partners, and providers collaborate to leverage it for greater business success?
What are the “transformational” roles within the enterprise that are key to digital transformation?
How can a holistic approach to security be woven into the overall business process, from product development to marketing to sales and customer support?
How will emerging technologies, such as analytics, automation, and cognitive/AI help us secure our digital assets against ever-evolving cyber threats (both within and external to the enterprise)?
Will nascent technologies, like blockchain, actually become mass-market viable and allow us to build a more transparent, and trusted, transactional infrastructure?
How are mobile and cloud, and the shift away from legacy IT models, forcing enterprises to rethink the architecture of security?
How is customer experience influenced—positively or negatively—by our ability to implement enterprise-wide holistic security?
Who are the key providers, of both technology and services, that are reshaping the digital enterprise, and how are they promoting the ability of enterprises to achieve a state of digital trust?
We won’t shy away from controversy, and we certainly won’t shy away from sharing a strong opinion or two. Where providers and enterprises are doing it right, we’ll give them props. And when they miss the mark, we’ll let you know as well.
To help kick this blog off, here’s a link to our just-released report, The State of Cybersecurity and Digital Trust 2016. In this ground-breaking research, also published today, we discuss the challenges faced by enterprise security professionals and the steps they must take to ensure the integrity, and trustworthiness, of corporate and consumer digital assets. This report digs deep into five critical gaps—involving talent, technology, organizational parity, budget, and management—that are inhibiting digital trust across all industry verticals and geographic regions. Give it a read, and let the conversation begin.
