If you're a student of the IT industry, you're probably familiar with Clayton M. Christensen's famous book "The Innovator's Dilemna".
In a nutshell, his observation is that the same forces that make companies big and successful can also effectively insulate them from new opportunities -- and make them blind to newer competitors who are playing by a completely different set of rules.
If for some reason you haven't read it yet, perhaps you should. It accurately describes a pattern of change and innovation that you'll see played out over and over again -- once you've learned to recognize it.
Success Can Frequently Blind
Companies get started. They grow. They find loyal customers who spend a lot of money. They tend to focus on these loyal customers and their unique needs. More and more of the companies resources tend to get focused on fewer and fewer customer segments.
A natural cultural and organizational barrier emerges that makes it difficult to identify and invest in new opportunities, or -- more importantly -- new ways of serving the needs of existing customers. Technology shifts, markets shift, customer prefences shift -- and there you are: exposed like a whale sitting on the beach.
And if you're in this business, there's no shortage of examples of once-successful companies that were marginalized (or worse!) by this effect.
Things Are Moving Fast
My take is that the market is moving very fast indeed, as everything seems to be changing at the same time.
The underlying technologies are certainly moving fast. The services (and how they're packaged and priced) is perhaps even moving faster. The value chain of how technologies get transformed into services and eventually delivered to the end customer is changing as well.
And, to cap it all off, there's a new-found willingness from IT organizations -- large and small -- to seriously consider working with compatible service providers in ways we didn't see just a year or so ago.
So many vectors of change implies a theoretical advantage to smaller SP organizations that are nimble and adaptive. Or, in some cases, larger organizations that can figure out a way to act like a smaller one :-)
And that's how it's playing out as far as I can see, given my interactions with SPs. All the exciting action seems to be from smaller and more nimble players. Whether they've got new flavors of IaaS, a focus on a few popular platforms, or have taken a more focused vertical or other specialized approach -- this market appears to be growing from the bottom up.
Sure, there are notable exceptions. But there's no arguing the trend.
So, why is this a particular challenge for many SPs?
Re-engineering Your Existing Business Can Be Hard
I usually categorize larger SPs in terms of their previous business model(s).
For example, there's strong interest from traditional outsourcers in standing up newer flavors of variable services. On the surface of it, that's a great proposition: they've got the infrastructure, the skills, the relationship with customers, and so forth.
What they typically *don't* have is the ability to create a new model that might unfavorably impact the existing one. Remember, most outsourcing deals are fixed price / fixed service deals -- and that doesn't play well with variable consumption models.
Or, take the crew of hosters and co-lo outfits that are out there. Same story, different chapter. They're so used to charging for physical infrastructure used (power, space, cooling, etc.) -- and can struggle to make the leap to focused and specialized services that might be priced and marketed quite independently than the sum of their inputs.
Perhaps you'd like to consider the larger telcos? Yes, they've got the infrastructure, existing customer relationships and deep pockets, but very often are challenged to appreciate the vast array of IT-as-a-service as anything more than an add-on to make their network services more attractive.
Add in larger resellers who want to stand up a service. Or perhaps software vendors who'd like to deliver their product in an easier-to-consume manner for their customers.
It doesn't matter where you look: you can see the opportunities in front of these organizations -- and you can also see the inherent barriers they'll have to face in the process.
So, how does an organization with a successful existing business model make the transformation to a new one?
Organizing For Success
You may not be able to be a small, nimble smaller player -- but you can certainly organize like one.
Let me tell you what appears to categorically not work well: putting a small team in place, and having them "work with" the rest of the existing organizational apparatus to create a set of offers and get them to market.
Guess what? The "rest of the organization" will always hold back the entrepeneurs. It's not that anyone is being bad, or wrong, or thick-headed -- it's the way large organizations tend to work. All the time is spent working with different factions, aligning interests, occasionally invoking higher powers, etc. -- things move at a glacial pace.
Sure, you'll be big -- and efficient -- if you ever get there!
Conversely, I'm starting to see more "organizations within an organization" where there's enough self-sufficiency -- and autonomy! -- to get into the targeted business offerings. The meetings are quick, decisions are fast, responses to new information are almost immediate -- it's the advantage that smaller organizations inherently have.
One Model For Market Entry, One Model For Scale
Building and launching a business is decidedly a different proposition than making it scale effectively. It's not infrequent that I see people confusing the two.
At EMC, we've been known to use an incubator model when we want to get into a new business that isn't quite like the ones we're familiar with. The incubator team gets good people, a decent pile of resources, expedited autonomy -- and a finite amount of time -- to get into the new business.
Acquisition is a nice acellerator: acquiring a company in the space gives us a pre-fabricated incubator.
The incubator team is free to use corporate resources -- or not -- depending on their needs and desires. When they don't find a corporate function they can use, they're largely free to go build their own.
After a while, there's an interesting discussion. Do we continue with the incubator model, and just make it bigger? Do we "mainstream" the business into the rest of our activities? Or do we just shut it down, learn our lessons, and move on to the next thing? And we've done all three.
It's not a perfect approach -- but we haven't found anything better.
There's A Selfish Motive In All Of This
At EMC, we're starting to do an enormous amount of work with SPs of all size, shapes and stripes.
Our goal? Help SPs to deliver better services to their customers -- period.
If we're working with a smaller, focused team with clear goals and a decent level of autonomy, it's a pretty clear shot: we can make our proposals with a very clear target to shoot at. And -- more often than not -- we end up earning the trust and entering into a productive partnership.
However, if decision-making authority is scattered around the organization -- with the inevitable multiple agendas in play -- we can lose focus of what we're aiming at.
The infrastructure team isn't on the same page. The business team isn't on the same page. The sales and marketing groups aren't on the same page. So as esrtwhile vendors, we busily flip around from page to page, hoping for a clue -- where there really isn't a good one to be had.
We can easily end up trying to please everyone -- and pleasing no one in the process.
So, if you're reading this -- and you're part of an SP organization (or trying to be!) -- answer me this -- are you organized for success?
Nicely done, Chuck. Lots of good insight here. As a SP customer who finds themselves at one of those inflection points, the challenge is very real.
Posted by: Jeramiah Dooley | 09/16/2010 at 05:45 PM