A few weeks ago, we had Annette Taber as a guest on CompTIA’s Volley podcast. Annette is CompTIA’s VP in charge of industry councils, and she joined the podcast to discuss the work of the councils and the plans they are making to address future channel shifts. As she talked, she mentioned the function of the channel as a distributor of IT product. This is a basic, fundamental concept, but it triggered a thought process for me on the changing nature of the overall IT industry and the culture needed to shift from products to services.
Industry analyst Ben Thompson has described how this shift is playing out for Apple. He makes the case that Apple’s excellence in delivering products does not necessarily translate to excellence in services. There are certain mindsets and behaviors baked into the organizational structure and the culture that allow for high-quality products but prevent viable services. While the channel has added the managed service concept to its portfolio, the long-standing operations based around products may be getting in the way of true service delivery. Here are a few items that are key to a true transformation:
1. The financial model for services is completely different. From a vendor perspective, the creation of a unique product can drive high margins. As that develops into brand awareness, activities surrounding that product—such as installation or support—can drive margins as well. Note that these activities are not true services. They are discrete tasks that still revolve around the product as the center of the universe.
Services, on the other hand, may not command such high margins—especially as consumers become accustomed to free services offered by companies with alternate revenue streams. Where a high-end product may sacrifice broad adoption by focusing on differentiation, a high-end service typically aims for broad adoption to offset pressure on margins.
2. The feedback loop for services is much tighter. As managed service providers have discovered, there is a different mentality to providing an ongoing service rather than a one-time product transaction. The customer has to remain happy, and that requires an active dialog with processes to quickly incorporate changes.
Feedback becomes even more critical as a service drives business outcomes. Monitoring equipment mainly requires feedback when monitoring fails to catch a problem. Hosting email requires more feedback as a client changes communication preferences. Acting as a virtual CIO requires near-daily interactions to understand the direction of the business and the best application of technology.
3. The skills mix for services is more versatile. With services being less tangible than products, there is a demand for a more well-rounded approach from the workforce. Sales people must understand different scenarios that could meet business needs. Marketing must describe the value delivered by an ongoing service. And technical staff must understand how different components work together to create the complete offering.
This can actually serve as a good test for the breadth of a service offering—if skills are mostly tied to specific products, then the service still may be product-centric. Broader skills can create a service that stands on its own, regardless of the products that may be on the back end.
4. The glue for services is software. There are obviously services that depend on hardware expertise or physical labor. However, as businesses increasingly require usability from complex technology, software will be involved.
Software comes in many forms, from end-user applications to API manipulation to back-end firmware. Building services may require all of these, as users perform tasks by pulling data from cloud platforms and by interacting with legacy systems. Broadly speaking, software expertise is one of the main categories needed to transform the channel into a services establishment.
The construction of the channel as a product delivery mechanism reflected the IT industry of the time. Businesses viewed IT in a supporting role, and products enabled that support. As the industry is taking a more strategic position, it is expanding to include services, which requires a different mindset. The channel will still play a role in the distribution and application of technology, but the firms that succeed will be the ones with the right culture.