Predictions for the continued growth of the SI market are based on the understanding that companies are consuming more IT today than they were yesterday, and the assumption that increased IT consumption will result in tidy profits for SIs. Predictions are a funny things though, based as they are on historical trends. Guess that the market will continue to rise when you’re in the midst of a bull market and you’ll be right, most of the time. That is until something happens, something you didn’t anticipate, something that catches you unawares. The assumption that SI revenue is tied to IT consumption might no longer be true. New tools such as SaaS and cloud computing are enabling line-of-business leaders to step around the traditional IT department and engage with technology directly, bypassing the SIs traditional relationships in IT and providing them with fewer opportunities to sell their wares. At the same time the shift from on-premises to on-demand solutions – solutions which the business is happy to rent rather than own – is slashing the effort required to install, configure and integrate these new solutions, often by as much as seventy to eighty percent. On-demand solutions also have much lighter support needs relying on self-help wikis, users forums and power users, leaving the SI with little more than a small help desk to manage. With only limited access to this new class of IT buyer, dramatically smaller projects, and lower support revenue, the SIs role as IT enabler seems to be in decline. All good things come to an end though, and you usually only realise that the end has come after it has already passed. IT consumption might be going up, but there’s a good chance that SI revenue could soon be going down at the same time.

SIs are fundamentally sandwich shops[1]. When we don’t have the time or money to maintain our own kitchen or make our own sandwiches it can be more efficient to 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 just 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. This sandwich shop model is something that was established early on in the history of business IT. How else could companies afford to access the rare (and expensive) IT skills they needed to create all the systems they need? This might be a payroll system, or stock management, sales pipeline reporting, or the dreaded enterprise resource planning (ERP). Consuming IT used to mean hiring an SI to build and integrate something for you.

The world has changed since then. Back when I started in the industry my home computer couldn’t hold a candle to the beast I was given at work. Today, however, my shiny new 17″ MacBook Pro makes the locked down Windows XP laptops I’m offered seem like a bit of a joke. A new breed of business manager has crept into the business while the world has changed, these are people who grew up with technology and are comfortable solving their technology problems on their own. They know that there are alternatives to the expensive solutions proposed by the IT department (solutions that IT will engage an SI to deliver), and they’re happy to use these alternatives. Why spend a seven figure sum and wait a year for the IT department’s perfect, enterprise-wide project portfolio management solution when there’s one that is good enough, one you can buy on-demand via a company credit card, and one which you know will be up and running in a couple of weeks? We might argue about the regret cost[2], but the art of business is to make a timely decision and then make it work; it’s not to sit on your hands and wait for the perfect solution which will be delivered sometime in the distant future. While demand for new IT solutions might be growing, every time a business manager steps around IT to engage and on-demand solution SIs have one less opportunity to sell their wares.

At the same time we find that these on-demand solutions – when SIs do get their hands on them – only provide a fraction of the revenue that a tradition on-premisis solution does. Time is money for an SI (literally, as most avoid risk by sticking to time and materials contracts) and fielding a SaaS solution takes only a fraction of the time required for a more traditional solution. There’s no hardware to commission with SaaS or cloud computing, nor are there disks to wait for or backup strategies to create. (You still need to worry about business continuity, but that’s another post.) There’s also little chance for customisation, and integration tends to be via standard APIs or pre-built adaptors. It’s not uncommon for a SaaS project to be eighty percent smaller than the more traditional solution. Fewer resources on ground and fewer billable hours means that that the SI can expect their revenues to head in the same direction: south.

We’re also seeing the erosion of SI support revenues. Support used to encompass both the application – in terms of application maintenance, patching and security – and the users – with training and a help desk. Many SaaS and cloud providers don’t want to provide traditional support services as it erodes their margins, margins based on huge scale and little human contact. One solution is to engage an SI to provide these services for them, either on a client-by-client bases or as part of some sort of alliance. A more attractive solution is to move – as much as possible – to a self support model where clients support each other via user forums or a Google search. We soon find that a much smaller help desk will suffice as it’s only required to be the point of last resort, or to support the more technologically illiterate users.

Taken together, these trends – reduced access to buyers, lower project revenues, and lower support revenues – seem to show that the future is not as rosy for the SIs as we first thought. Demand for IT might be growing, but growing demand for IT no longer implies growing demand for the services provided by SIs. The final nail in the coffin is the fairly recent move into SaaS by established IT application vendors. Microsoft has gone on record as wanting to capture a greater percentage of IT spend as license revenues, converting SI installation and customisation costs into licenses by providing clients with prepackaged configurations which can be turned on at the flick of a switch. Rather than pay for a SaaS CRM and then engaging an SI to configure it to your liking, you pay for the SaaS CRM along with a canned sales methodology (Miller Heiman[3]? Holden[4]?) which works out of the box (as it were). Integration between SaaS solutions is also being converted into a configuration option as SaaS vendors sign alliances – just as Google and Saleforce.com did with GoogleForce – enabling these alliances to offer complete application suites which work together out of the box.

Whichever way you look at it, now is not a good time to be a SI.

References

1. Business models for the old rules of IT @ PEG↑
2. The price of regret @ PEG↑
3. Miller Heiman: The Sales Performance Company↑
4. Holden International: Outsell You Competition↑

Our focus first on ideas and then execution distracts us – possibly intentionally so – from the real driver for success in business: luck. Brilliant ideas – ideas who’s time has come – are obviously rare. And then there’s our natural proclivity to overestimate our own abilities. (Such as the vast majority of drivers who think they are better than average drivers. Some of them must be wrong). While we don’t like to admit it, finding ourselves at the right place at the right time with a good enough solution is more important than any other single factor.

Google is a case in point. We can admire skill of Larry Page and Serge Brin, and the search algorithm they developed was obviously better than what came before, but neither of these is sufficient to explain the success that is Google today. Something else was required; luck had a large part to play in their success. If they hadn’t been turned down when they tried for sell a young Google for something like one million dollars, if the didn’t have access to the venture capital community on Sand Hill Road, if they …

We don’t like to talk about needing luck, as allowing luck into the equation implies that something is outside our control, that a success was not the result of our skills alone. If we rolled the Google dice again, from a starting position where the world was slightly different, would Google float to the top? Or would someone else find themselves at the right place at the right time with a good enough idea?

Many business leaders have penned biographies which highlight how their skill – and their skill alone – drove their organisations ever higher. A few are brave enough to admit that they were lucky, and that they were smart enough to to make the most of luck when it flowed their way.

Business is a numbers game. While each throw of the dice might be random, across a number of rolls we can can identify trends which we can use to tip the odds into our favour. An effective player realises this and works to exploit the trends they see and increase their luck. Or as one smart and lucky golfer was heard to say:

The more I practice, the luckier I get.

— Gary Player

The large innovative move from an established company, or the disruptive startup that become a billion dollar company at the founders first attempt, is the exception. There is no silver bullet, a single thing they did and which we can replicate.

Most of us need to play a longer game if we want to see success. Each time we roll the dice we need to ensure that the odds move a little further into our favour by:

• being frugal with our resources
• moving to a position where we have a better chance of success
• make the most of the opportunities that are presented to us
• learning from our previous mistakes

It’s not ideas or execution that determine our success. Both are important but neither is sufficient. It’s our ability to increasingly become more effective with each action we take – our ability to learn from our mistakes, rather than our ability to improve our skills – increasing our luck to the point that one day it overflows and we find ourselves with a success.

As always, thoughts and/or comments are greatly appreciated.

• Why has Microsoft seemingly stopped innovating? [Quora]
  Quora answers the question:

  Apple and Google stand for innovation in my mind, where Microsoft represents the hum-drum. I’m particularly interested in Microsoft, which employs so much talent. This is a follow-up question to How should Microsoft respond to Apple’s iPad?.

• Uniquely positioned [The Economist]
  Innovation means doing something other than what the innovators of yesterday are doing, as Uniqlo is doing with Zara and H&M.
• Marico Innovation Foundation [Marico Innovation Foundation]
  An interesting effort to fuel innovation in India.
• On Biting [12ozPROPHET]
  Jim Jarmusch with some excellent advice on what to make of other peoples’ ideas.

As always, thoughts and/or comments are greatly appreciated.

• ‘Good’ Beats ‘Innovative’ Nearly Every Time [BusinessWeek: Innovate]
  Successful innovation rarely requires you to be original. Sometimes innovating results in a (technically) worse product, but one which users prefer.
• What Matters Now: get the free ebook [Seth's blog]
  Seth Godin asked seventy people what they think matters, with an interesting range of opinions resulting.
• CreativeMornings Video: Andy Bonventre, Google [Swiss Miss]
  Andy Bonventre’s presentation at Creative Morning at Google, discussing company’s approach to user experience. He discusses issues of respect between engineers and designers and how they can get on and work with each other.
• How A Kid Funded VoodooPC With His Credit Card And Sold It To HP [Mixergy]
  At 17-years-old, he couldn’t legally drink, vote or even sign a contract, but that didn’t stop Rahul Sood from launching a company. He just did it. Another example of how the traditional barriers to competition (and innovation) have been destroyed.

Google (well, James Hamilton) has weighted in on the question of private clouds. As expected from a large cloud provider, James takes the position that private clouds make no sense. His reasoning is straight forward: private clouds will never have the scale of public clouds, therefore private clouds can never achieve the same price point as their public brethren. Ergo, there’s no point in building private clouds.

As I’ve pointed out before, there’s a lot more to cloud than simply reducing costs. The biggest benefit is probably the agility that cloud can bring to your IT estate, leveraging a cloud platform’s ability to codify and automate many of the management practices and create a target platform that can work across a range of deployment options, as well as streamlining hardware provisioning. Companies are also increasingly having to deal with the realities of political boundaries, a situation where the best technical solution might not be acceptable due to legal requirements (such as privacy legislation). Developing a private cloud can be a sensible move in this context.

Of course, if you want to compete purely on cost then private cloud will never hit the same price point as public cloud. But this misses the point that for many companies IT flexibility/agility is more important than cost.

Note: I was going to post this as a comment on James’ post, but comments appear to be broken.

Posted via web from PEG @ Posterous

It’s Just a Bunch of Stuff That Happens has done a brilliant job of capturing this visually (included below). I like the usability aspect this highlights. A mash-up’s focus is cross-application usability—removing the annoyances of dealing with separate information sources. We could simply take these sources and squish them up against the glass, delivering the content into iGoogle or NetVibes gadgets. But what those original push-pins on a map mash-ups did was improve the usability of these information sources by eliminating the decisions required to navigate across them. Just as Apple did with the iPod and iPhone, eliminating or fusing functions to eliminate the (unnecessary) decisions required to navigate the overly complex and confusing interfaces of the mobile phones that came before them.

iGoogle and NetVibes are the Symbian to a mash-up’s iPhone.

Symplicity

Posted via web from PEG @ Posterous

As always, thoughts and/or comments are greatly appreciated.

This issue:

• Creative tension [Economist.com]
  Google tunes its approach to innovation as it tries to find a better way of turning good ideas into cash in the bank.
• Innovation Upgrade: How Global Shifts Will Change Your View on Innovation [Stefan Lindegaard]
  Globalization and web tools are starting to invalidate some of the assumptions we used when building our approaches to innovation. How should be foster innovation when ideas are commoditized?
• The Failed Promise of Innovation in the U.S. [BusinessWeek]
  “We live in an era of rapid innovation.” What if that piece of conventional wisdom is wrong?
• How nine of the world’s largest tech companies got started [Royal Pingdom]
  Many of today’s largest tech companies, such as Sony, Nokia, Samsung and IBM, have been around for a very long time (some since the 1800s). Their beginnings were often very humble, and it is fascinating to look back and see how they actually got started.

As always, thoughts and/or comments are greatly appreciated.

This issue:

• The Disruption Talk [A VC]
  Fred Wilson (a VC in New York) partly crowd-sourced a presentation on disruption, presented at Google, recorded and stashed on YouTube.
• In-N-Out Burger’s six secrets for out-and-out success [Daily Finance]
  On the heels of mounting cynicism generated by Wall Street bailouts and the perception that corporate leaders are gaming the system to make a profit, at least one American company is proving that businesses can survive and even thrive while sticking to traditional values.
• Farmers Didn’t Invent Tractors. They Were Busy Farming. [Ben Casnocha]
  There’s a cliche in innovation / entrepreneurship which says, “Scratch your own itch.” That is, solve problems that you know really well. This is not always so.
• Obama’s Seven Lessons for Radical Innovators [Harvard Business]
  Barak Obama’s presidential bid succeeded was a research lab for using social media in a political campaign. It differs from yesterday’s political organizations as much as Google and Threadless differ from yesterday’s corporations: all are a tiny handful of truly new, 21st century institutions in the world today. Here are the seven rules his campaign lived by.

As always, thoughts and/or comments are greatly appreciated.

This issue:

• How David Beats Goliath [The New Yorker]
  Disruptive innovation often comes from organizations and individuals that find ways to break with convention.
• Google: How does your innovation garden grow? [BusinessWeek]
  Managing innovation is often compared to tending a garden. What does it mean if your innovation garden becomes overgrown?
• the New Shelton wet/dry [pantherhouse]
  Innovation is often the process of taking old idea and applying them in a new context, much how Jeff Koons did when he put two or three New Shelton Wet/Dry vacuums in a plexiglass box, adding a title.
• Sid’s Rules [Designer Notes]
  Sid Meier has made some of the most successful computer games ever. Here are some of the priciples he works by.

As always, thoughts and/or comments are greatly appreciated.

This issue:

• Are Apple and Google still “the most innovative companies” in the world? [BusinessWeek]
  BusinessWeek and Boston Consulting Group have recently released the 2009 ranking of the World’s Most Innovative Companies. Apple is #1 for the fifth year in a row. Google is #2 for the fourth year. Still, these companies received fewer votes from the 2,700 senior executives polled than they did last year.
• Tomorrow’s Kitchen (1943) [Paleo-Future]
  It’s always worthwhile taking a little trip to the past to see how we thought the future would play out.
• Bacontrepreneurs building bacon empire [abc news]
  The investment required to start a company has plummeted in recent years: and not just web entrepreneurs but business that make and sell real, physical products. Today, new products and competitors can emerge from the most unexpected quarters.
• David Lynch on ideas [cultural-fuel]
  Ideas, it appears, are like fish.