Monday, December 31, 2001

On Technology: Transforming technology companies into solutions providers

By Jeffrey M. Kaplan

As enterprise companies continue to reassess their IT strategies, IT product vendors must quickly reposition themselves. In an industry where technological innovation has traditionally been the primary means of differentiation, today's winners are the suppliers who can demonstrate that they know how to apply technology to meet their clients' business objectives.

This shift is more significant than just changing a company's marketing messages from selling systems to selling solutions. It entails a total realignment of a company's go-to-market strategy, profit and loss structure, and corporate culture. For buyers of technology solutions, it means using a broader set of criteria to select your suppliers.

The downturn in the economy and concerns stemming from events on Sept. 11 have caused most enterprise companies to put a hold on new IT investments or initiatives. After a half decade of rapid IT expansion and often blind adoption of new technologies, most IT departments are taking a much needed break to catch their breath, stabilize their systems and re-evaluate their strategies. This process has also led them to reconsider their sourcing behavior and selection criteria.

As the demands for new business applications have subsided, so too has the willingness to accept any vendor with a "hot box" to meet urgent business needs. Instead, most companies are seeking to reinforce their current computing environments with systems that enhance the value of their existing IT investments.

This means suppliers must demonstrate that their products and technologies can complement customers' infrastructure rather than disrupt it.

Most IT veterans now know integrating new technology into existing environments entails more than a set of simple installation instructions or software wizard. In sophisticated computing environments, inevitably populated with a mix of proprietary systems, integration is a human intervention process.

That intervention will be performed by the in-house IT staff, a product vendor's installation team, or a third-party integration company. Whichever group takes the lead, the burden of making the process successful ultimately falls on the product vendor because vendors are increasingly being judged on the compatibility of its products in established IT environments.

That burden is exposing the weak links in many technology companies' service organizations. They have under-invested in these units because they historically expected technology improvements to solve product problems, and saw service as cost of doing business that should be kept to a minimum.

They failed to structure their service offerings because they didn't understand the hierarchy of customer needs they would support or the stratified value they would have to provide. They poorly staffed the service organization with employees who were less than helpful on the help desk phones. And they arbitrarily priced their services because they expected them to be given away by their salespeople anyway to reduce the risk of losing a sale.

Now IT managers are less interested in bleeding-edge technologies and more interested in reliable solutions. They want to buy from stable companies with solid products and dependable services. It's no wonder IBM is doing so well in today's climate and why many other IT vendors are scurrying to catch up on what they previously viewed as the mundane parts of their corporate operations - service and support.

Few of these companies will succeed in meeting the new service requirements of their customers because the challenge goes beyond simply packaging and pricing a set of services. It means providing more than traditional, reactive technical services that respond to customer calls only when there is a problem.

It means providing services at the front end of the product acquisition life cycle that help the customer better integrate the technology and measure its impact on their operations. Expanding the definition of service and support from reactive tech support to active services means building the right kind of service organization, composed of more highly skilled and experienced staff.

This transformation process requires corporate leadership, investor commitment and time to be successful. Service management systems must be implemented, service offerings packaged and priced, and staff trained and deployed.

It also means selling these services because few vendors can afford to give them away anymore. Finding salespeople willing to sell services is like finding a needle in a haystack. Most salespeople consider selling services an impediment to signing a deal rather than an asset.

Part of this mentality can be changed, by putting the right compensation incentives and penalties in place to motivate the salesperson to include service in their bids. But sales resistance to selling services won't truly be solved until the service organization can prove services that are easy to sell, easy to buy and easy to value.

As technology differences between vendors' products blurs, service quality is becoming the new battleground for suppliers and scorecard for enterprise customers. Those who recognize this shift and act accordingly will survive and prosper in an increasingly challenging economic climate.

Jeffrey M. Kaplan is managing director of THINKstrategies, a strategic consulting services company. He can be reached at jkaplan@thinkstrategies.com.