by Esteban Herrera

The dawn and dusk for IT service providers

May 26, 20153 mins
IT StrategyOutsourcingTechnology Industry

Advances in digital technology and cloud computing are wholly reshaping the IT services economy. Some will win; some will lose. Service providers that make the pivot by offering business solutions -- instead of technical ones -- stand the best chance of surviving.

In a recent post, I shared one of the questions most often asked of us at ISG: “How is the IT services landscape changing?” Most often, the questioner wants to know who is going to win at this new game.

I have enough enemies already, so I won’t answer with specific service provider names, but I will share with you the insights I have about what seems to be working and what seems to be a solid foundation for success in the future.

Advances in digital technology and cloud computing mean radical and difficult changes for the service provider community, which is largely used to selling bodies although every one of them would tell you they prefer non-linear revenue.

Today, digital and cloud capabilities are also table stakes. Over 80 percent of the IT deals we advise have at least a component of digital/cloud somewhere in them. Who are the winners and losers? Here are some telltale signs, as I see them:

Winners are busy developing vertical-specific, highly robust, secure and repeatable solutions to business problems as flexible multitenant platforms. Losers sell towers, widgets and bodies. Winners make integration of these platforms to legacy systems and other platforms easy; losers try to go proprietary.

Winners understand that, while a big chunk of their product is still bits and bytes, the platforms they sell are front-office solutions that fundamentally change how their clients interact with customers and make money. Losers get stuck in features and benefits rather than working to solve issues with direct impact on the income statement or balance sheet.

Winners use application-centric approaches to make sure each application in the solution can live successfully in the cloud. Losers use asset-centric approaches, essentially adopting a build-it-and-they-will-come attitude that, in our experience, tends to fail. This does not mean that the winners get a pass on high-quality services and robust infrastructure as part of their business solutions—stability and scalability are required in this game.

Winners have relationships with new buyers—from the business unit and functional VPs to the COO and even the CEO. Losers will latch on to the CIO and his or her direct reports, competing harder and harder for the diminishing dollars they have to spend.

Winners have the wherewithal to help their clients change. They have the consulting capability and credibility to guide and stabilize their clients through what is sometimes dramatic transformation. Losers will keep trying to solve business problems with technological approaches and hang on to business models that will inevitably fade out of existence.

You can draw your own conclusions as to which service providers are in it for the long haul, welcoming the new dawn of the services economy, and which ones may be headed toward a gloomy dusk.