Make way for new suppliers on the block! Part I
A side effect of globalization and informed customers is a shorter lifecycle of products and services. The competitive pressures introduced by globalization and buying behavior of customers in combination with the fast past of technological advances, shorten the payback time of investments in R&D and new production facilities. This requires organizations to become increasingly flexible and agile in order to quickly adjust production volumes and product mix.
The increasing complexity of services and products in combination with the ever higher investments required to improve quality, lower cost and renew the product and service portfolio, increase the entry barrier for new players.
Within the banking and insurance industry several new players have gained considerable market share over the last couple of years by leveraging technological advances and the desire of customers for a bigger bang for a buck. Think of web-based brokers which allow consumers to trade stock, derivatives and other financial instruments without expensive dealing rooms as intermediates. Or start-ups which offer pension products at considerably lower prices than traditional financial institutions. In both situations plays IT a crucial role. The new kids on the block use it as a key enabler to capitalize on business opportunities while the legacy IT of established banks and insurers limits the ability to adjust the business model to the changes in the market place.
One of the effects of the previously mentioned trends is the need as a company to specialize. Where General Motors used to own the whole value chain required to build a car, are many individual chains now allocated to sub-contractors. The benefits are lower cost through economies of scale and freeing up funds that can be invested in strengthening existing capabilities or innovation. Specialization however also means making choices. Choices about retaining which activities, assets and employees. And that brings me to the subject of the external supplier
‘Old school’ suppliers
‘Agile’ is a term which gained in popularity when the software development community introduced the Agile (SCRUM) concept. But not only in software development is often more agility required, the whole IT function has to become more agile to cope with the trend described in the previous paragraph. And that is an area most ‘traditional’ IT service providers don’t excel in. They are the masters of operational excellence: lowering cost through economies of scale.
As a result the big players find it difficult to response on developments like cloud computing, and ‘as-a-service’ solutions with truly agile solutions. Yes of course they advertise that they also can deliver it, but when looking beyond the marketing fluff one sees in most cases that the underlying technology and organization is still largely the same as used to deliver the traditional services.
Everything is ‘virtualized’, but short speed to market is only available if you stick to the standard solution of the supplier. There is typically no room for flexilibility in these concept other than in volume. You have to upgrade when they upgrade, you have to stick with their support and maintenance windows, you have to follow their patch policies, you have to…
And worse of all, it is in most cases the same service organization that supports it. An organization that is organized in functional silo’s with their concrete processes and procedures. The organizations that take ages to comes back to you when you have an issue and excel in ping ponging tickets between departments.
New school suppliers
As described in the previous post, are the traditional service offerings excellent for a large part of the typical service portfolio of an organization (e.g. Key Operational services), but especially for the services related to the quadrant High Potential, the offering has to be truly agile, quick and innovative. And that is why especially in cloud and as-a-service solutions new players can be successful. They fulfill a business need both the internal IT organization struggles to fulfill and which traditional service providers are also not capable to deliver.
The newcomers allow the internal IT organization to ‘rent’ their innovations and new capabilities and incorporate them into their own service portfolio. This in term allows the internal IT organization to finally transform itself from delivering business process automation services and other low added value solutions. More on these new kids on the block in the second part.
The increasing complexity of services and products in combination with the ever higher investments required to improve quality, lower cost and renew the product and service portfolio, increase the entry barrier for new players.
Within the banking and insurance industry several new players have gained considerable market share over the last couple of years by leveraging technological advances and the desire of customers for a bigger bang for a buck. Think of web-based brokers which allow consumers to trade stock, derivatives and other financial instruments without expensive dealing rooms as intermediates. Or start-ups which offer pension products at considerably lower prices than traditional financial institutions. In both situations plays IT a crucial role. The new kids on the block use it as a key enabler to capitalize on business opportunities while the legacy IT of established banks and insurers limits the ability to adjust the business model to the changes in the market place.
One of the effects of the previously mentioned trends is the need as a company to specialize. Where General Motors used to own the whole value chain required to build a car, are many individual chains now allocated to sub-contractors. The benefits are lower cost through economies of scale and freeing up funds that can be invested in strengthening existing capabilities or innovation. Specialization however also means making choices. Choices about retaining which activities, assets and employees. And that brings me to the subject of the external supplier
‘Old school’ suppliers
‘Agile’ is a term which gained in popularity when the software development community introduced the Agile (SCRUM) concept. But not only in software development is often more agility required, the whole IT function has to become more agile to cope with the trend described in the previous paragraph. And that is an area most ‘traditional’ IT service providers don’t excel in. They are the masters of operational excellence: lowering cost through economies of scale.
As a result the big players find it difficult to response on developments like cloud computing, and ‘as-a-service’ solutions with truly agile solutions. Yes of course they advertise that they also can deliver it, but when looking beyond the marketing fluff one sees in most cases that the underlying technology and organization is still largely the same as used to deliver the traditional services.
Everything is ‘virtualized’, but short speed to market is only available if you stick to the standard solution of the supplier. There is typically no room for flexilibility in these concept other than in volume. You have to upgrade when they upgrade, you have to stick with their support and maintenance windows, you have to follow their patch policies, you have to…
| New school suppliers | Old-school suppliers | |
| Economics | Early market entry enables charging premium prices and acquiring large market share, speed and innovation is key. | High fixed cost make large volumes essential to achieve low unit cost; economies of scale are key |
| Culture | Battle for talent, low entry barriers, many small players trive | Battle for scale; rapid consolidation, a few big players dominate |
| Competition | Employee centered, coddling the creative stars | Cost focused; stressed standardization, predictability and efficiency |
And worse of all, it is in most cases the same service organization that supports it. An organization that is organized in functional silo’s with their concrete processes and procedures. The organizations that take ages to comes back to you when you have an issue and excel in ping ponging tickets between departments.
New school suppliers
As described in the previous post, are the traditional service offerings excellent for a large part of the typical service portfolio of an organization (e.g. Key Operational services), but especially for the services related to the quadrant High Potential, the offering has to be truly agile, quick and innovative. And that is why especially in cloud and as-a-service solutions new players can be successful. They fulfill a business need both the internal IT organization struggles to fulfill and which traditional service providers are also not capable to deliver.
The newcomers allow the internal IT organization to ‘rent’ their innovations and new capabilities and incorporate them into their own service portfolio. This in term allows the internal IT organization to finally transform itself from delivering business process automation services and other low added value solutions. More on these new kids on the block in the second part.
Comments
Post a Comment