Business models for the old rules of IT

The old rules for enterprise IT{{1}} — the rules that have determined the nature of the enterprise IT market — has shaped the people and companies involved. The roles we took on fall into a few regular patterns, patterns which I’ve always thought of in terms of analogies. Outsourcers (AM, BPO …), for example, are similar to trucking companies. Software and hardware vendors can be likened to mining companies. Consultancies are the dating agencies of the IT world. While software integrators and services firms have something of the sandwich shop about them. These analogies do have their limitations, but I’ve found that pondering these stereotypes can help you uncover a few simple truths which are useful in your day-to-day interactions.

[[1]]The rule of enterprise IT[[1]]

I’ve always had a penchant for a simple analogy. Yes, reasoning by analogy can be problematic (just ask any witch from the middle ages{{2}}), but it can provide a new perspective which helps you to uncover some aspect of the subject which had previously eluded you. All too often a failed project or outsourced service can be traced back to a misunderstanding of the nature of the engagement — a misunderstanding of the roles both client and supplier play in the IT industry. The type of simple truths an analogy highlights can go a long way to understanding these roles.

[[2]]She’s a witch! from The life of Brian[[2]]

The roles organisations currently play in the IT industry are driven by the need to deliver large IT assets into the business. What started as a simple tools to manage tabulated data — calculating payrolls, inventory levels and the like — soon grew to the point where developing them was beyond the scope of what many companies could undertake on their own. The pyramid of skills required just became too large, with too many technical skills involved that most companies couldn’t afford to own. The systems we were building had outgrown the men in sheds at the bottom of the garden, and we need to become a bit more organised.

System Integrators emerged as as way for organisations to share these skills. Technologists banded together and travelled from client to client developing applications as they went. This was good. Clients won as they could hire a group who had the skills and tacit knowledge — the did it, done it stories — required to deliver these solutions on time and to budget. The travelling System Integrator won as there was now a big enough stream of work for which they were highly valued, allowing them to be paid what they were worth rather than what any one company could afford.

As the industry grew, the System Integrators rapidly became the sandwich shops of our IT world. When we don’t have the time or money to maintain our own kitchen or make our own sandwiches, it’s more efficient to simply head over to the local sandwich shop to pick up what we need. Their margins are thin and revenue is largely tied to the size of the sandwich you bought, so they’d really like you to buy a larger and more expensive sandwich. (Notice how sandwiches have grown so much bigger over the years, and everything is now gourmet?) And, of course, pre-made sandwiches are always a lot cheaper than special orders.

With the technology industry rapidly maturing, SIs soon found that most clients had all the sandwiches they needed (I don’t know about you, but I don’t eat more than one a day), so they started to focus on convincing you to upgrade your existing sandwich, replacing it before you had actually finished eating it. If you want some of those pickles they’ve just found at the bottom of a jar then you have to buy an entirely new sandwich, and not just the pickles. Don’t mind the fact that you’ve only half finished your last sandwich.

Consultancies, on the other hand, are the technological dating agencies of the IT industry. Where SIs focus on providing sandwiches, consultancies try and set you up with a skilled subject matter expert who can help you sort out what type of sandwich you’d like to eat. Procurement, supply chain, knowledge management, IT strategy … They take a fee for each date arranged, giving them a strong focus on generating repeat business.

Some organisations — of course — try and blend a dating agency with a sandwich shop. They hope that their SMEs can steer you toward the types of sandwiches that their sandwich shop makes.

Back in application land we have the software vendors: mining companies that spend vast sums of money spelunking for new solutions and technologies, which they then package up in a box and sell for a tidy profit. (In theory, the tidy profit is reinvested back into spelunking for more technology.) Maintenance fees can be considered the delivery charges.

Software vendors allow companies to pool their exploration resources, sharing both the cost and risk of finding new applications in the technological landscape, and extracting them. Be warned though, the more unique demands you make of the vendor, the less chance they have to pool your needs with those of other companies. If you have to many unique requirements, if you move from configuration to customisation, then you start to force the vendor to go exploring for you alone, accepting all the cost and risk yourself.

And finally we have the outsources (as I’ve already mentioned). Like trucking companies, they’re focused on sweating an asset. In the case of trucking companies it’s trucks: keep the trucks moving and don’t spend money on tires. For outsources its an application: make sure they’re running at near capacity, and try and avoid changes (either patches or change requests) as they all involve disruption which goes directly into the bottom line. To make the most of outsources, you need to pass them assets which you can afford to ignore — and not upgrade or change — for a long time.

Of course these analogies break down at some point, and we need to be cognisant of this. Regardless, I think that they could form a useful, shorthand way of understanding the goals and restrictions, the business drivers, for each role in the IT industry.