Having been in leadership positions at a number of Australian IT services organisations over the past 15 years, I’d like to think I’ve personally lived the highs and lows of trying to set the vision and deliver on the strategy in an industry that is always changing.
It can be a challenge. It’s easy to question yourself, “Am I doing the right thing here?” Last year I set out on a research project to help fill in the gaps. I spoke to a group of people I respected a lot, particularly around where our industry is headed.
This information was pulled together via interviews I conducted with a number of respected Australian IT industry leaders. The interviewees were chosen as highly knowledgeable individuals who could provide perspectives from a range of positions – different hierarchy levels, functional areas, geographies and organisations. Some were vendors, some partners, and some consultancies. Although their identities and responses are confidential, I’m sure you would know a few of them, and their insights could sound familiar.
The key themes that arose were:
1. Most leaders view the key success factors for an IT services organisation to be profitability, quality of relationships and reputation in the market.
2. IT services opportunities are eroding from vendors, more than ever, driving the direction of the industry via their delivery/pace of innovation, along with the quality of their products.
3. Buyers of our services are changing and along with the rise of simple solutions, we could face some serious disruption.
4. High-value activities still command the attention and spend of customers.
Let’s jump into a little more detail on these themes.
I know that when running OBS, profitability and customer satisfaction were key measures we tracked. More than 70 percent of the interviewees for this project stated that profitability was a key factor. However, many further qualified it by stating that it had to be “sustainable” profitability and preferably “annuity profit” – that is, recurring from a repeatable, predictable income. We’ve heard this from vendors such as Microsoft in recent times as well, and it forms one of the key things I am now tracking at my new role at Sensei Project Solutions.
Likewise, more than 70 percent of respondents stated that relationships and reputation featured as a measure of success, which further contributes to the idea of sustainable business. One interviewee linked the two very closely together stating that “customers need to be viewed now for their lifetime value, especially given the low margins that cloud-based services provide”.
When asked, “What is the biggest disruptive threat facing our industry?”, the majority of answers – 64 percent – cited the effect that vendors are having on IT services organisations, either through their pace of innovation, or the fact that they are producing products that are eroding services opportunities.
Put bluntly, many products provided out of the box by Microsoft, Amazon, Google and others are now seen by customers to be good enough, and the value of a systems integrator or partner questioned. A number of interviewees expressed concern that through clever software configuration and more smarts built into the product, vendors may be inadvertently removing the need for IT services, particularly those partners that focus on building software solutions.
A leader from one of the channel’s major vendors questioned the ability of any IT services organisation to stay abreast of the innovation being delivered by any vendor – and not just the one he worked for. Along these lines, multiple discussions centred on whether or not IT professionals now actually needed to know everything or keep pace with the vendors, which in the past seemed to be a necessity.
One managing director echoed these sentiments: “Even for a person like me who loves technology… it can be overwhelming with all the new things that are coming. I am concerned that there will be the day where I can’t follow the pace the industry is currently keeping.”
The pace of innovation from vendors was mentioned multiple times within my interviews. Within merger and acquisition activity, a “buy over build” strategy is preferred in order to keep pace and acquire the appropriate competitive capabilities required for the fast moving IT services market – an experience I have personally had three times in acquisitions over the past 15 years, and one I expect to continue to see in our industry.
The main buyer of IT services is evolving and as a result, the relevance of IT services organisations is under threat. While not a particularly new insight, buyers today have increased their bargaining power and knowledge through growing commoditisation, the reduction of complexity, technology education through their personal lives (also described as the consumerisation of IT) and the new ways in which business solutions can be delivered through the cloud.
It is expected that buying behaviour will continue to evolve based on newer competitors and entrants to the market who can bring simpler solutions and pricing models to traditional problems. This is likely to see buying behaviour shift from the one-stop-shop to modular providers that specialise in supplying specific solutions or parts thereof. A key success theme for IT services in the future is combining technology skills with a deep business knowledge to create successful outcomes.
In line with this, customers are placing greater importance on high-value activities provided by IT services businesses; such as business intelligence, data analytics, machine learning as well as integration and providing pre-built, proven solutions harnessing existing intellectual property, rather than software development and “building custom solutions”.
Combined with the challenge of trying to keep pace with all the innovation the vendors are delivering, it makes sense these days to have a specialisation and deliver real (proven) value to a customer – through repeatable solutions and product IP. This is a key principle for Sensei, where we are delivering a mix of consulting, products, training and managed services specialising in Microsoft project and productivity solutions solely. Our niche focus allows us to develop valuable IP and measurable success stories with customers quickly.
Undertaking this research has reinforced to me the importance of continually evolving and reviewing the strategy of your business, in light of industry change and the wants and needs of customers. The Australian IT services industry is currently undergoing some significant change with the effects of commoditisation, cloud, vendor innovation and buyer behaviour. Organisations that cannot keep up with the change will suffer devastating consequences and likely be relegated to competing with others on a cost basis, compromising that key measure of success: sustainable profitability.
The pace of innovation will likely mean that IT services firms need to specialise, rather than attempt to do a broad range of services well. Finally, customers will look for value in a combination of demonstrable business understanding and deep specialist skills. This, to me, is the future recipe for success of an Australian IT services organisation.
Andy Neumann is chief executive officer of Sensei Project Solutions Asia-Pacific. He was formerly the chief innovation and marketing officer at Empired and managing director of OBS.