Shaun Daly

Organizations today have the ability to solve complex problems or create whole new markets through the creative use of technology. Venture capitalist Peter Thiel bluntly posits that “competition is for losers” in his argument that monopolies are the only way to create and capture long-term value. I believe Thiel’s ideology applies to the supply chain as much as it does to the customer acquisition strategy. The winners in this digital revolution will not be those that provision compute, storage, bandwidth, and application services at the lowest cost through competition but rather how one assembles a technology ecosystem to deliver a one-of-a-kind product or service.

In the not so distant past, IT was a department in the back office next to HR, Accounting, Legal, and Procurement. With neighbors like that, it’s no wonder CIO’s adopted a utility mission – keep the systems up and running at the lowest possible cost with the fewest possible disruptions to the business. This tactical mindset led to being boxed into a commodity service paradigm with all the trimmings: assessments, benchmarks, budget cuts, and ultimately outsourcing.

Competition, or the mere threat of competition, has been the preferred club of choice to keep suppliers of IT services “honest”. Even today, as IT has become one with the business, technology services are still being procured with commodity approaches that “create competition”. However, there is a shift that is starting to have an impact on the supply chain. I believe we will continue to see more specialization in the provider community as buyers disaggregate services in a multi sourcing fashion. I am experiencing the shift within the organizations I work with as bimodal IT and hybrid cloud are no longer theories but reality. As mentioned in a previous post, the ecosystem requires vendors and partners, but each must bring inherent value.

Head-to-head commodity competition is being replaced with specialization. If your tactical plan includes pitting suppliers against each other in the hopes of maintaining competitive balance, you’re likely on the wrong strategic path. If, on the other hand, you have suppliers participating in a healthy ecosystem that know they must continually create unique value to remain relevant, you’re creating positive incentives that likely translate to strong market offerings for your customers.

In a multi sourcing model, buyers are looking for unique capabilities that unite the strengths of many organizations into a cohesive whole. To use a sports analogy, CIO’s and sourcing executives are moving from a Ryder Cup captain role to a baseball general manager. The Ryder Cup team is sourced by selecting the best golfers based on a scoring system – similar to the legacy evaluation scorecard in an RFP process. In baseball, specialization is king. The general manager assembles a team of unique and complementary players: athletes with speed and strong arms in the outfield, middle infielders with quick hands and feet, corner infielders that hit for power, and starting pitchers with an arsenal of pitches thrown at different speeds supported by relievers with one or two pitches hard to hit in a single at bat. The do-it-all utility player sits on the bench. As a service provider, it’s getting more dangerous to be a utility player.

The next level up the food chain for the CIO as baseball general manager will be to apply an IT version of sabermetrics, leveraging data science to create the most impactful combination of tools and services within the ecosystem. We’re getting ahead of ourselves. For now I think it is important to acknowledge the shift – be great at something, not good at everything. As a service provider, it’s much better to be Clayton Kershaw than Chase Utley. Which are you?

Microsoft’s $26 billion acquisition of LinkedIn last week is the latest in a series of smart bets that has repositioned the sleeping software giant to become something much more. Critics are questioning the premium (7x revenue) paid for a business that seems to have stagnated, but the value created by the combination is compelling and another sign Microsoft is charting a bold new course. A closer look at at the strategy is worth exploring as the key pillars of the plan are relevant to every 21st century organization.

I am not in the business of making stock recommendations or assessing the terms of an acquisition. We all know most acquisitions fail and this may not be an exception. I am often a “standing neutral”, working as an intermediary with buyers and sellers of enterprise IT services, a marketplace that includes Microsoft. As such, I remain agnostic and seek to find the right outcomes that work for the benefit of both parties. That said, as an observer of the broader consumer market, the legacy Microsoft business model and culture created resentment and a strong anti-establishment movement that has benefited Apple, Google, and many others.

As Apple was busy changing the world with the iPhone and Google became synonymous with innovation, I wondered if Microsoft had a vision beyond Windows. Those doubts have been answered. In our current climate of measuring success by the quarterly earnings release, Microsoft may not be the belle of the ball yet. However, notwithstanding the need for successful integration of the acquisition, the vision and supporting strategy of Microsoft caught my eye as something progressive and significant. Let’s take a look at what they are creating and how these key tenets of the strategy are vital to most technology-based organizations (i.e., every organization).

• As-a-Service: Perhaps the poster child of the vendor lock-in era, Microsoft has turned the corner and is now a cloud services leader. Office 365 may be the most adopted enterprise cloud service to date and Azure is second only to AWS in the broader cloud compute and storage space. As hybrid cloud environments become more mainstream, Microsoft is well positioned to retain and grow its current customer base.
• Data Analytics: LinkedIn is essentially a data acquisition. As the unquestionable leader of business-focused social media, LinkedIn provides a database of the world’s professional community. The possibilities are intriguing when you consider the merging of LinkedIn profiles with Microsoft’s existing CRM platform Dynamics, a combined asset that may present options for Salesforce.com customers.
• Digital: Building on the data analytics, the new combined entity can now digitally connect the dots by integrating Microsoft’s “Office Graph” (digital view of calendar, meetings, notes, customers) with LinkedIn’s “Economic Graph” (digital view of employee data, resume, skills, and available jobs).
• Collaboration: Office 365, Sharepoint, Skype, and Lync are not perfect collaboration tools but are strong building blocks. Again, the LinkedIn online estate creates an outstanding opportunity for Microsoft to become the glue that holds business communications together in a way no other competition could match. Personally, I’d like to see Microsoft acquire Slack to integrate the various tools.
• Artificial Intelligence: Apple has Siri, Amazon has Alexa, and now Microsoft has Cortana, the personal assistant touted as Conversation-as-a-Service. Microsoft will further the integration of data from LinkedIn into Cortana, bringing to life in conversational form the intelligence captured through the combined digital footprint of the business. Siri or Alexa may be the bot of choice at home but Cortana will likely be your go to assistant at work.

Microsoft seems to have a renewed vision with a focus on what they do well – serve the enterprise with tools and technologies that work well and work well together. They are starting to fulfill the mission of that vision with a strategy built for the future. All organizations should continually examine their strategy to ensure it is supporting the vision, especially as the technology environment and speed of business accelerates. Is your organization willing to look in the mirror, adjust, and make big bets on the future?

Business becomes more dynamic every day. Markets change overnight. An app to catch a cab is worth $50 billion. Does anyone remember Blackberry? This new normal of accelerated Darwinism in business requires critical thinking and the ability to process and digest complexity. Mission statements and project plans are not enough. The use of frameworks and the thinking and process to create and evolve them become a core asset of the organization in this hyper-competitive environment.

I am a recent convert to the practice of framework thinking. My whole career has revolved around helping organizations through large, transformational change initiatives. These almost always start with some form of a business plan. The plan documents the need for change (which is usually obvious) and then goes further to recommend a solution and a roadmap to implement. Bam, we’re on our way!

This traditional linear thinking often treats strategy as a consultant-driven process based on industry best practice that spawns a series of projects to be executed by skilled project management professionals with detailed project plans and risk registers. The missing element from this sterile approach is a framework or set of frameworks that provide the context and the story that unites people to make the change relevant.

So what is a framework and why do they matter? Generically, I think of a framework as a skeletal structure of interconnected components that supports an objective and provides a dynamic, systems view that allows for modulation as factors change. But frameworks are more than that definition. Frameworks encourage the exploration of the system and the seeking out of tension and critical thinking to better optimize outcomes. The development of a good framework requires the engagement of people and provides a forum to uncover the intricacies of relationships within an ecosystem. They share some common principles:

1. They’re structures that help establish a shared definition.
2. They tie together multiple dimensions that provide context around a specific topic.
3. They provide logic against which an outcome can be achieved and decisions inferred.

Frameworks provide a portal to a new way of approaching complex topics. They capture the essential elements and allow for a visualization of the relationships. Framework thinking becomes a mindset, an appreciation of the whole that can be deployed in numerous situations, including:

• Strategic frameworks that clarify mission and vision
• Problem solving frameworks that stimulate thinking to get to the root of an issue
• Design frameworks that shape a system
• Planning and execution frameworks that set direction and track achievement

As attractive as the utility of frameworks is the application of frameworks to create meaningful inputs and outputs. The process should include live discussion with teams of stakeholders to facilitate conversation in the pursuit of truth – filling in gaps, testing tensions, identifying critical success factors. The outcome of a framework building process will provide the outline of a story that allows the complex to be communicated in a way that consistently and coherently captures the soul of the topic.

As the legacy providers of IT goods and services continue with layoffs in 2016, I am reminded of the power and force technology is having on our culture. As the expression goes, software is eating the world – and, in the process, a lot of traditional service delivery jobs.

I have become relatively immune to the technology services industry hype and overuse of buzzwords and jargon. As a third-party advisor, I have seen more service provider PowerPoint presentations than is healthy. The stories are often the same – a barrage of slides that include customer logos, a color coded world map, industry verticals, recent acquisitions, the service delivery framework, the transformation journey, and more logos of alliance partners.

What I have not become immune to and has grabbed my attention over the last 12-18 months is the shift from people using tools to deliver service to tools becoming the service. If you think cloud and As-a-Service are still hype you’re not paying attention. The adoption rate still lags the marketing hyperbole but make no mistake the labor component of the supply chain to deliver technology services is becoming smaller by the day.

I know Robotic Process Automation and Cognitive Computing sounds like science fiction but the future is at our doorstep. The convergence of digitization, automation, and artificial intelligence is and will continue to radically alter the technology services industry. Costs will plummet, delivery times will be instant, and data will be exponentially more accurate.

Software tools will ultimately replace the bulk of the labor in technology operations (i.e., provisioning, build, testing, maintenance, CMDB, billing, performance management, service desk, service integration, etc.). People will govern but software will deliver.

This not-so-distant future will bifurcate the service provider community. Amazon, Microsoft, and others are and will continue to evolve as vendors of low-cost transactional compute and storage services. Buyers do not have relationships with these vendors who offer standardized services in a pay-by-the-drink model. These are online transactions conducted in an efficient and affordable manner.

Other service providers will transition into strategic partner roles. Private and public sector clients will continue to need strategic support to navigate the abundance of technology choices and more importantly integrate the business strategy with the technology supply chain. The assembly and orchestration of the ecosystem of technology supply chain vendors and partners, all synchronized to deliver a business offering to an end-user, will separate the market leaders from the pack. The strategic partner will evolve from a service provider to a service conductor, curating from a host of internal and external sources to create the perfect blend of technology components in delivering a product or service.

Technology will continue to evolve and play an ever-increasing role in our society. Although thousands of service provider jobs are being eliminated, many more jobs are being created everyday in support of the information age and the digital economy. Data science, social media marketing, data security, and machine learning are all rapidly expanding. Curation and integration of these technologies within the ecosystem will determine success.

As Bob Dylan once put it, “He not busy being born is busy dying.” So, are you busy becoming a vendor or a partner, or just busy dying?

If you haven’t heard by now, traditional outsourcing is dead. What once held so much promise is now morphing beyond recognition right in front of our eyes. I don’t know about you, but I’m ready to turn the page. The future looks so much better, and it’s already here.

I’ve lived in the outsourcing and shared services world my whole career, going back to the early 1990’s. The vast majority of my experience has been in midsize to large complex information technology outsourcing (ITO) relationships. As an internal shared service provider in a large enterprise, to joining an outsourcing service provider that more than tripled in size in five years, to finally becoming a third-party advisor on the other side of the table representing buyers.

I became a deal junkie early on. I loved the challenge of crafting a solution and business case that appeared to meet the needs of both buyer and seller. It was very similar to playing a sport. You worked with a team, developed a game plan, established the rules of engagement, played the negotiation game, and kept score with a financial model. You traveled (a lot) and played against different teams and were well compensated.

Life was good. Or was it? What we considered successful was often the source of frustration and dysfunction for the stay behind teams left to operationalize the deal. The problems were systematic and deeply embedded in the organic evolution of the service model, namely:

• Strategy: From  the beginning, traditional outsourcing has been about the money. Savvy executives would tout the “this allows us to focus on our core competencies” line but it was really about cost savings (or containment). Although technology is now a business differentiator, buyers and sellers of traditional managed services outsourcing relationships are stuck playing the “same mess for less” game to meet budgets and earn profit margins.
• Structure: The birth of the highly prescriptive request for proposal (RFP) led to 1,000 page contracts that provided a false sense of certainty and accomplishment. The pace of change in business and technology today demands more room to move, more flexibility and decision-making by governance teams. This collaborative dance requires extreme role clarity and accountability, fueled by greater human capacities such as empathy, connection, trust, and integrity. It’s not enough to just rely on elaborate service level methodologies and detailed governance process flows.

Today, with technology disrupting business on a widespread basis and the emergence of automation, robotics, cloud capabilities, and standardized as-a-Service (aaS) offerings, a new game is being played. From startups to large enterprises, everyone is starting to take advantage of the abundance of choice and low cost. The days of compute as a utility are actually now here. The new game is starting to take shape, and at a high-level includes the following attributes:

• It’s about the business. Enterprise strategy and executive engagement drive the service model. Better, faster, cheaper is no longer good enough – the service must be in support of (and sometimes drive) the enterprise mission.
• It requires an ecosystem. Multisourcing with partners (relationship-based) and aaS vendors (commodity) is the norm. As technology continues to become commoditized through automation and packaged as an on/off service, the partner relationships will focus on business strategy and ecosystem integration.
• Integration is key. Beyond alignment, integration within the enterprise is crucial. The stakes are higher, the C-Suite is at the table. Role clarity and accountability becomes essential within the ecosystem and processing tensions in a timely manner enables speed and agility.
• Overhead is shrinking. The legacy service provider will become either a strategic partner or a vendor – neither of which requires the overhead of structuring and managing a traditional outsourcing relationship. Vendors providing aaS services will have fixed service levels and pricing while strategic partners will shift to an outcomes-based professional services agreement. Neither will have a contract in the traditional sense.

These are just a few elements of the new game. I am energized by this new paradigm. Technology evolution and the impact on commercial and government operations is profound. It has elevated the significance of information technology and data. Traditional outsourcing is becoming extinct. Are you prepared for the new game?

I’ve spent the last 25 years of my career in IT services – from the inside of a large enterprise (American Airlines, now Sabre), to being a supplier of outsourced services (ACS, now Atos), to standing in the middle of buyer and seller as an advisor (TPI, now ISG). This experience left me wanting more, knowing there must be a better way for organizations to create sustainable value.

In 2008 I decided to take a chance and create my own business. I wanted more than just a paycheck. I wanted to make a difference in an industry that seemed determined to continue exploiting an outsourcing model designed for success in the 1980’s. I had experienced too many occasions where “getting the deal done” defined success, only to hear months later that “the deal” was heading south.

Now, in 2016, we live in a completely different world. Technology is disrupting business at an unprecedented pace. Command and control organizations and managed service deal structures are ill equipped to provide the speed, agility, and cost competitive edge that is now required. Businesses and business models must be reinvented or risk becoming irrelevant. Tweaking the old carrots and sticks model is no longer sufficient.

I believe there will be more change in the way IT services are delivered over the next five years than there has been in the last twenty-five years combined. The Everything-as-a-Service economy fueled by API’s changes the game. Digital integration, labor automation, and machine learning take this new subscription-based business model to the next level, where speed and cost are commoditized and curation and integration separate the leaders from the pack.

The future is exciting, the journey is the challenge. Most organizations will struggle along the way, running bimodal operations to leverage existing investments and adopt next-generation technology and services. This tension to keep the lights on, stay within budget, and transform operations to the As-a-Service economy is demanding.

This blog is about my experiences helping organizations along the journey, as well as sharing thoughts about the future and passing along insights, reflections, humor, and useful life hacks picked up along the way from books, blogs, and podcasts.

The soft stuff is always harder than the hard stuff.

– Roger Enrico, CEO Pepsico

I’ve never understood why human qualities such as the courage to risk yourself, the willingness to be honest and transparent, and the strength to empathetically engage conflict are considered “soft”. Perhaps the hard stuff would be easier if we were practiced at the soft stuff.

This realization that the root of success is to develop a culture that attracts people that are inspired and committed to the mission and to empower and trust the ecosystem was not instinctual to me. You could say I’m more left brain than right. I’ve historically trusted analytics and logic over intuition and emotion. I’m an MBA with a Finance undergraduate degree – I can’t help it!

However, my real world experience over the last couple of decades is consistent with the 80/20 Pareto principle – we spend (generously) 20% of our time on the things that really matter, that have the biggest impact. We completely under serve designing and iterating the cultural elements that impact how work gets done – defining purpose, establishing meaningful success measures, distributing power, building communication channels, changing the nature of meetings, surfacing and dealing with tensions, and even down to how office space is designed and how teams collaborate.

On the other hand, we spend an inordinate amount of time building strategies, project plans, process flows, drafting policies and compensation structures, creating detailed budgets, rationalizing historical data, creating presentations, and sitting in meetings that create no value and become self-perpetuating – you know the drill. Yes, we need to do all of this to some extent. My bigger point is not how much time we waste but how little time we allocate to the things that really matter.

• Say “no” to your boss.
• Say “I don’t know” in front of your peers.
• Allow your team to make the final decision.

These things challenge us but those willing to be uncomfortable are generally rewarded with the outcomes that are generated. People crave authenticity. The more your culture promotes tough conversations the more inviting an uncomfortable moment becomes – it signals the discovery of truth.

Rather than creating policies to enforce mandatory participation in yoga classes and meditation training, I will offer more tangible (left brain) ideas to consider. Systems thinking is a great framework to put this in context. If you rise above the day-to-day and look at how the entire system operates – how the component parts are impacted by the relationships with each other and with other systems – you start to appreciate the impact of culture.

• Decision making – High performing teams consist of individuals that are purpose-driven and crave the autonomy to apply their creativity and experience in the pursuit of meaningful outcomes. Nothing crushes this entrepreneurial spirit more than a command and control hierarchy. Design a system that allows individuals and teams to solve issues and cut through bureaucracy.
• Transparency – A byproduct of trust, organizations that are transparent are generally inviting a dialogue among the stakeholders in pursuit of achieving the mission. An open sharing of strategy, financials, and customer relationships – the good and the bad – galvanizes people and fosters a community of participation. Going further, enterprise transparency with respect to defined roles and accountabilities reduces informal office politics.
• Meetings – I saw a quote recently about never inviting someone to a meeting that enjoys meetings. I get that meetings are needed but they generally should be more crisp with fewer numbers of attendees and designed for action. I once worked in an organization where only customer meetings were allowed between 8 and 5. If you wanted to have an internal meeting you had to schedule it before or after “customer time”. That was extreme but I’ve learned to appreciate it over time.

Too often outsourcing negotiations lead to engineered pricing – pushing upfront cost to the out years – allowing buyers to construct a “winning business case” and supplier pursuit teams to “close a deal.” Both parties swallow hard, knowing the cost bubble has been deferred, not eliminated. The honeymoon is underway but eventually governance teams from both sides turnover and sometime around Years 2 or 3 the buyer feels stuck with an out-of-market cost structure that has the business screaming for change. Time to restructure or benchmark and potentially there goes the relationship.

This scenario is played out repeatedly in the marketplace. Anxious service providers in pursuit of new logos place big bets on their ability to reduce delivery cost and sell new services. Both of these objectives are difficult to achieve in the short-term, placing the provider account executive team under stress from corporate while desperately trying to develop a customer relationship and meet extreme expectations from end users. This classic Outsourcing 1.0 conundrum is a symptom of the mindset that many in our industry have accepted as normal: take what you can get now and defer the pain for the next guy. The buyer wants to transfer risk and book short-term savings. The provider wants a new logo talking point for the street and a backlog of recurring revenues. Both sides tick the box and hope for the best.

The cumulative effect of these engineered relationships has taken its toll on a number of service providers. Although there are several other factors contributing to the fundamental shift occurring today in the sourcing of complex services – including the unprecedented accelerating pace of change in technology and the resulting establishment of new ways to achieve a different level of outcomes  – the legacy me-focused mindset combined with engineered pricing has created a survival need for change for many. None of the traditional Tier 1 service providers have gone unscathed and, like all of their competitors, are facing a new world that demands an exploration of alternative service and business models to remain competitive.

The margin compression effect of financial engineering on the front end followed by contract renegotiations in the mid-term creates an unsustainable business model for the providers and leaves the buyer wanting more. The service levels are green but the account is red – margins less than anticipated and low customer satisfaction. Service providers, under continued pressure from the financial markets, have shifted focus from revenue growth to margin expansion. Although the revenue opportunity associated with a “takeover and transform” approach is still tempting, more providers are seeking high-margin transformation project engagements followed by recurring, standardized “as a Service” relationships that provide more predictable outcomes. This new model places greater emphasis on business outcomes and agility over just the traditional process and cost efficiencies of the “same mess for less” mentality.

That all sounds good but there is still a very large elephant in the room – the cost bubble. How does a buyer engage a service provider to start a transformational journey without incurring a significant financial bogey? To put it bluntly, it may not be possible. However, for most, it is achievable. Depending on the size of “your mess” and the stretch required to achieve your desired state, it may very well require funding beyond your current operating and capital budget. If so, there are a number of steps you should take to address the business need, including:

• Build the case – like any business decision, a case for change must be established and communicated, so a cost-benefit analysis with a risk assessment should be developed and socialized to secure funding.
• Establish perspective – clarify the differences between the current economic conditions and related needs and those that prevailed at the time of previous contract engagements or that served as the basis for the current budget.
• Be transparent – if forced to engineer the charges with the service provider, be as transparent as possible with respect to the amount that is financed and avoid burying it in the service charges.

The lack of transparency, beginning with the economics of the relationship but extending out to other motives and challenges, is a significant inhibitor to establishing a service relationship where both parties are pulling in the same direction and creating value not otherwise achievable.

Although some situations will unavoidably require investment, many others can be managed within budget if the parties are willing to reset the relationship framework. The reset begins with a revised mindset, moving beyond a buyer-provider relationship to one of partnering, where the parties work together to co-create the strategy and execution of mutually beneficial outcomes. Risk is shared. Trust is essential. This form of hyper-collaborative partnering is not for everyone and not appropriate for every situation. However, if the service has a strategic impact on the business and speed and agility are differentiators, the legacy buyer-provider managed services model is not sufficient.

So how does partnering versus buying change the economics and avoid the cost bubble trap that has plagued so many relationships? We’ll dive deeper into each of these in the future, but the following elements of partnering create the environment necessary to avoid the cost bubble trap:

• Compatibility and Trust: When two organizations decide to work together within a complex service relationship, the relationship must be seen as the substance of the deal that transcends the solution and the terms and conditions. As such, finding a partner that values mutuality and transparency is paramount. Codify the win-win sales talk with a contractual commitment to a set of values and behaviors. With this as a foundation, the risk of creating a ticking time bomb to scratch a short-term itch is significantly reduced.

• Business Model: Create clear objectives and align the incentives. The market has become expert at solving the wrong problems, pushing transformation projects that are not meaningful or relevant to the business. The business needs to be involved in establishing the objectives of the program. The business model should then encourage both parties to pull in the same direction by allocating the bulk of the margin to the achievement of desired outcomes. These outcomes can include budget objectives such as self-funding transformational change via tactical initiatives to reduce ongoing operating costs. With this partnership mindset, cost transparency not only provides a measure necessary to ensure the achievement of the joint objectives but also engenders empathy, further bonding the joint ownership of the program. Additionally, taking a holistic, systems view of the change initiative and capturing hard cost savings beyond the immediate scope of work as well as conservatively quantifying the business value generated can change the nature of the conversation with the stakeholders.

• Joint Stewardship: In the complex world of ITO and BPO service relationships, the governance mindset can make or break the success of the relationship. Organizations, not just deal teams, must be committed to the success of the partnership. Business happens, and over the course of the relationship variables will change, including financial inputs and objectives. Managing a shared risk and reward business model requires a mix of art and science and a lot of trust. Avoiding financial pitfalls such as financial engineering or cross-subsidization requires not only a contractual framework that allows the parties to deal with the unexpected but also a shared culture of looking out for each other knowing it is in the best interest of the program in the long run.

Albert Einstein is often quoted as having said, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.” I believe the lack of financial transparency in a business relationship between two organizations is another wall that needs to be torn down in order to discover more value. The closed book mentality that we’ve grown up with has helped foster the atmosphere of self interest and that each side needs to take care of themselves and not worry about the success or failure of each other. The market is telling us it’s time to change our level of thinking.