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B4B: Where Tech is Headed

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presented by Keynote Speaker J.B. Wood, CEO, TSIA at the 2014 ISG SIC, September 30, 2014

Published in: Technology

B4B: Where Tech is Headed

  1. 1. B4B: Where Tech Is Headed J.B. Wood CEO TSIA Lead Author: B4B ISG September 2014
  2. 2. 2 2009 2011 2013 “We Have a Problem…” “A New Purchasing Model Is Coming” “Industry Transformation”
  3. 3. Risk Shifts to The Vendor 1 3 Simplicity Will Be King 2 Users Drive Tech Decisions 3 Customer Aggregators Shrink Direct Market 4 Channel Value Reset 5 Tech Pricing Under Pressure 6 Usage Data Leverage Becomes Key 7 © TCG Advisors and TSIA The New Rules of Tech (circa 2010) Services Will Own the Customer 8
  4. 4. Industry Trends Impacting Tech Supplier Business Models
  5. 5. Revenue of Large Cap Tech Companies Are Declining 5 2008 Q4, $248B 2011 Q4, $242B $206B $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 $220,000 $240,000 $260,000 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2008 2009 2010 2011 2012 2013 2014 -$7B Q4 to Q1 - $36B or 15% - $140B/Yr SOURCE: TSIA Service 50 Index
  6. 6. What Is Happening to IT Suppliers? 6 Software Eating Hardware. Cloud Eating On-Prem. Services Eating Products. Business Buyers Eating IT Budget. Sell Complex Products To the IT Department Sell Outcome Services To the Business Users Complexity Price Per Unit
  7. 7. Service vs. Product Spending 7 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 2008 2009 2010 2011 2012 2013 2014 Total Service & Product Revenues Sum of Product Revenue Sum of Service Revenue
  8. 8. What Is Happening to Service Providers? 8 Software Eating Labor. Cloud Eating On-Prem. Point Products Battling Solutions. Who’s Budget? IT or Business? Sell Services To Business Buyers Sell Outcome Services To the Business Users Complexity Price Per Unit
  9. 9. Market Forces in Play 9 Profitable Legacy Model ? Commoditized Legacy Model XaaS 1.0 Supplier Scenarios Demand for New Consumption Models Profitability of Core Offering
  10. 10. No One Wants Either Scenario 10 Profitable Legacy Model ? Commoditized Legacy Model XaaS 1.0 Supplier Scenarios Demand for New Consumption Models Profitability of Core Offering X X Everyone Seeking
  11. 11. B4B Frameworks and How Tech Suppliers Are Aligning to Transform
  12. 12. The Great Divide Product Focused Outcome Focused CUSTOMERS SUPPLIERS Much of Future Supplier Growth and Differentiation Will Be Determined In This White Space 12
  13. 13. Basic Offer: Complex Offer: Optimize Offer: Outcome Offer: B4B Operating Model Construct Optimal ROI Ease Best Product, Fair Price Fast and Sure Availability Standard, Reliable Product Implementation and Maintenance Services Tailored Product Adoption Services Connected Product + + LEVEL 1 SUPPLIER LEVEL 2 SUPPLIER LEVEL 3 SUPPLIER LEVEL 4 SUPPLIER Supplier Operating Model Product Focused Outcome Focused Operate (Managed) Services Customer Value Power + Outcome as-a- Service Supplier Offer Power 13
  14. 14. LEVEL 1 AND LEVEL 2 SUPPLIERS B4B: 14 “B2B was an age where a manufacturer sold products TO a business customer.”
  15. 15. What Do Manufacturers Like To Do? • Make. • Sell. • Ship. 15
  16. 16. Basic Offer: Level 1 Works Great For Basic Products Best Product, Fair Price Standard, Reliable Product LEVEL 1 SUPPLIER Supplier Operating Model Product Focused Outcome Focused Customer Value Power Supplier Offer Power Make. Sell. Ship. 16 It’s Easy! IT Department Role To Own and Operate
  17. 17. Basic Offer: Level 1 Supplier: The Financial Model Was Well Understood LEVEL 1 SUPPLIER Supplier Operating Model Product Focused Outcome Focused Rev Mix PRODUCT OTHER Cost Structure Target Profit % COGS % COM % COS % G&A % EBIT Make. Sell. Ship. 17
  18. 18. Out of Level 1 Grew A Critical, Tacit Agreement Supplier Model: OUTCOME PROVIDER Customer Responsible Zone Supplier Responsible Zone Asset Works Asset Operational Optimized ROI Competitive Differentiation Customer Value Objectives (meet needs of different buyer types) Make. Sell. Ship. Own. Operate. Get Outcome. 18
  19. 19. Once Software Or Systems Get Involved, Customers Need Help to Get and Keep the Product Operational 19
  20. 20. Complex Offers Require a Level 2 Supplier 20 Basic Offer: Complex Offer: Optimize Offer: Outcome Offer: LEVEL 1 SUPPLIER LEVEL 2 SUPPLIER LEVEL 3 SUPPLIER LEVEL 4 SUPPLIER Supplier Operating Model Product Focused Outcome Focused Great Product Great Product Product Attached Services IT Department Role To Own and Operate I Need a Bit of Help! Make. Sell. Ship. Service. +
  21. 21. Basic Offer: Complex Offer: Level 2 Supplier: Different Financial Model Was Even Better! LEVEL 1 SUPPLIER LEVEL 2 SUPPLIER Supplier Operating Model Product Focused Outcome Focused Rev Mix % PRODUCT % SERVICES Cost Structure Target Profit % COGS % COM % COSa % G&A % EBIT % COSe 21 Make. Sell. Ship. Service. +
  22. 22. Basic Offer: Complex Offer: The Hard Line For Suppliers At Level 2 LEVEL 1 SUPPLIER LEVEL 2 SUPPLIER Supplier Operating Model Product Focused Outcome Focused STOP Complexity. Friction. Cost. Time. = Not Scalable 22 Make. Sell. Ship. Service. +
  23. 23. But Now…This 23 2008 Q4, $248B 2011 Q4, $242B $206B $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 $220,000 $240,000 $260,000 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2008 2009 2010 2011 2012 2013 2014 -$7B Q4 to Q1 - $36B or 15% - $140B/Yr SOURCE: TSIA Service 50 Index
  24. 24. LEVEL 3 AND LEVEL 4 SUPPLIERS B4B: 24 “B4B is an age where a supplier achieves an outcome FOR a business customer.”
  25. 25. Level 3 and Level 4 Markets: OEMs And Partners Are Gearing Up To Play New Roles 25 Basic Offer: Complex Offer: Optimize Offer: Outcome Offer: LEVEL 1 SUPPLIER LEVEL 2 SUPPLIER LEVEL 3 SUPPLIER LEVEL 4 SUPPLIER Supplier Operating Model Product Focused Outcome Focused Great Product Great Product Product Attached Services New Ways to Save Customers Money and Improve Their Business Outcomes
  26. 26. As Market Demand Shifts To Level 3: New Roles Formerly Done by IT or Not At All 26 Basic Offer: Complex Offer: Optimize Offer: Outcome Offer: LEVEL 1 SUPPLIER LEVEL 2 SUPPLIER LEVEL 3 SUPPLIER LEVEL 4 SUPPLIER Supplier Operating Model Product Focused Outcome Focused Great Product Great Product Product Attached Services Great Product Product Attached Services Operate and Adopt Services
  27. 27. As Market Demand Shifts To Level 4: Monetize Huge Volumes By Delivering Customer Outcomes Easily and With Low Risk 27 Basic Offer: Complex Offer: Optimize Offer: Outcome Offer: LEVEL 1 SUPPLIER LEVEL 2 SUPPLIER LEVEL 3 SUPPLIER LEVEL 4 SUPPLIER Supplier Operating Model Product Focused Outcome Focused Great Product Great Product Product Attached Services Great Product Product Attached Services Operate and Adopt Services Extreme Automation Platform
  28. 28. The Great Race is On 28 Profitable Legacy Model B4B Company (XaaS 2.0) Commoditized Legacy Model XaaS 1.0 OEM Scenarios Demand for New Consumption Models Profitability of Core Offering
  29. 29. Sales in the XaaS Model 29 Selling into OpEx Budgets Selling into CapEx Budgets Business Expertise Technical Expertise Vertical Territories Geographic Territories Selling Results Selling Features Outcome-Based Contracts Fixed-Price Contracts Business Process Slides Demoing Features Land and Expand Large, Multi-Year Lock-In The Business Buyer The IT Buyer What’s Hot? What’s Not?
  30. 30. Level 1 Suppliers Focused On: • Make. • Sell. • Ship. 30
  31. 31. Level 3 and 4 Suppliers Now Preparing To Talk About Customer Outcomes 31 Outcome Based Service Portfolio Consumption KPIs Financials Type 1 Type 2 Type 3 Users Transactions Terabytes Instances Features Minutes # of Customers Units Produced Employee Productivity Equipment Productivity Customer Sat # of People Efficiency KPIs Percent Compliance Spend Per Customer Cost per Transaction Reduced Labor Cost New Offer Revenue
  32. 32. The Yin-Yang of Outcome Offers Building a Product Offer: 1. Product: What can this product do? 2. Services : What services will the customer need with this product? – Implementation, Training, Ongoing Support 3. Features and Benefits: Why should the customer buy these services from us? – Expert staff that know the technology – Reduce implementation time and risk – Optimize uptime Building an Outcome Offer: 1. Business Challenge: What is the business challenge your customer is facing? 2. Outcome Metrics: How does the customer know they have solved the business challenge? 3. Capabilities: What are the capabilities required to meet the challenge and achieve the outcome? 4. Processes: What are specific processes need optimized to support the capability? 5. Performance Metrics: How will you measure progress toward the outcome? 32 Product + Service Outcome Dependencies
  33. 33. What Does the “Shift Right” Mean to IT? • Pivot toward the business users and new innovations • Trusted advisors to the business users, then trusted sourcers (both among suppliers and vs. internal IT) • Relegate more of “operate” and “adopt” to suppliers • Shift supplier evaluation criteria away from features and toward their operating model capability • Hard choices about IT’s role and size 33
  34. 34. RESULT OF THE GRAND BARGAINS: Suppliers That Satisfy CIOs 34 Low Cost and Variable Costs of Usage State-of-the-Art Security Range of Purchase Models Innovations That I Did Not See Ability to Deliver Outcomes Fast and Agile On-Prem, Hybrid, Cloud Options Flexible Data Constructs Technology Enabled Mastery of Domain
  35. 35. What Changes? A Lot. A Calm, Rationale Approach to Transformation
  36. 36. 27 Things That Level 3 & 4 Suppliers Must Re-visit Offers Markets Partner X Product Land Sales Financial Models GTM …aaS Operations Pricing Value Prop Offer Type Trial Mktg Processes Org & Skills User Exp Dev Capab Connected Prod SaaS 2.0 Revenue Mix Offer Margins Land GTMs Expand GTMs Service GTMs Ext Auto Plat Cust Success Expand Sales Partner Eval Partner Enabl Partner Mgmt Target Buyer Segment Model Comp. Analy In Use Mktg Services Quote-to-Cash
  37. 37. New Capabilities Must Be Added, Some Must Be Repurposed, Others Eliminated 37 ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ CEO R&D Manufacturing Sales Services Marketing CFO ✔
  38. 38. The Technology Industry Products Hardware and Software Technology Services Product Services Technical Design Implementation Integration Offsite Tech Support Onsite Repair Technical Training Traditional Level 2 Supplier Product and Service Offers L2 L1
  39. 39. The Technology Industry Products Hardware and Software Technology as a Service Technology Services Product Services Technical Design Implementation Integration Offsite Tech Support Onsite Repair Technical Training Optimize Services Operational Services* System Monitoring Hosting Configuration Management Multi-Vendor Management Adoption Services Adoption Planning Process Consulting Consumption Monitoring Consumption Optimization Information Services Data Maintenance Data Analytics Data Supplementation Outcome as a Service Outcome and Risk Management Success Science Success Reviews Success Variables Success Plays Outcome Bundles* Full Automation *Also known as Managed Services New B4B Services Are Coming From Tech Companies L2 +L3 +L4 L1
  40. 40. A Changing Landscape • Tech Companies Will Rapidly Migrate Toward Services • They Will Combine Technology (on-prem and off) and Services (on- prem and off) • Pure Service and L3/4 Product Companies Will Compete • New Supplier Operating Models Are Still…New! – What Are the New Financial Models? – What Are the New Capabilities? – Who Does What? – Direct AND Indirect Customers • We Believe the Transformation Is Manageable – and Vital 40
  41. 41. The New XaaS Normal 41 What’s Out? • Complex technology • Asset purchases • Install, integrate, upgrade • Maintenance costs • Hard-to-use software • Central IT control What’s In? • Simple • Pay for results • Business value • Turn on, turn off vendors • Higher volumes • End-user preference
  42. 42. Thank You! J.B. Wood CEO TSIA Lead Author: B4B ISG September 2014

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