deal architect

The Real Deal: Martin Geddes on a New Paradigm for Communications Services

This continues a series of columns from practitioners I respect. The category "Real Deal" describes them well.

This time it is Martin Geddes, profiled in my book in the chapter on telcos. He is a thought leader on business models in the telecommunications industry. He provides consulting services to Boards, CEOs and CTOs seeking a thinking partner and critical friend. Martin was formerly Strategy Director at BT Innovate & Design, and Chief Analyst at Telco 2.0.

“Voice and messaging services are the core business of telcos, comprising over 70% of global telecoms revenues. Voice is also the quintessentially human communication channel, as well as a natural interface between human and machine. Telephony will thus remain central to telecommunications for the foreseeable future.

However, minute-based revenues for both fixed and mobile services face decline as a result of competition, substitution, regulation, arbitrage and technology abundance, which forces telcos to seek new business models. The presumed alternatives – broadband and media services – do not offer comparable margins or profit. It is clear that telcos also lack competence and competitive advantage in application service development. Furthermore, companies such as Google – with the ‘Cult of Free’ – threaten the very essence of telco business models by offering free application and media services funded by ‘upstream’ advertising revenue. In future we can expect to see not only free services but also free distribution of those services (e.g. Google Voice) posing a direct attack on telco ‘quad play’ revenues.

Meanwhile, every enterprise engages not only in industry-specific processes but also in ‘horizontal’ business processes, from marketing to customer support. These commonly require customer contact via channels such as telephony, voicemail, SMS, or email. The capabilities and social customs of these channels are largely accidents of history, frequently deriving from analogue-era technologies. We collectively fail to transcend these old patterns when designing new systems that are intended to support B2C communication.

This has often resulted in the unhelpful positioning of the boundary between people and machines. Humans are often reduced to doing rote tasks that are better suited to computers, while computers are designated tasks they cannot perform satisfactorily. Thus opportunities for effective and value-adding automation are missed, with resultant inefficiency, ineffectiveness and insecurity for enterprises along with increased operational and working capital costs. Problematically for B2C communication, the effect is a poor customer experience. All too frequently, everyday business processes are bottlenecked by the capabilities of the communications channels between the enterprise and the customer.

The challenge for telcos is how to re-think their voice and messaging business model to address the loss of consumer revenue and compete against ‘free’, whilst protecting today’s telephony and SMS cash cows. For enterprises, the question is how to engage communications service-providers to eliminate the friction in their contact with customers, and then to go beyond this: creating new value by enabling new modes of interaction and personalisation.

Today telcos make money from ‘minutes, messages and megabytes’ as enterprises communicate with their customers. In future, they will need to address the ‘moments’ when these business processes are serviced through features of the communications media that carry them. This demand that telcos address three core enterprise communications needs:

1. The ability to connect with their customers.

2. Rich interaction with their customers.

3. Transactional services that integrate commerce and communications.

Rising to this challenge will require a rethink of how communications products are built and sold. This industry paradigm change will only be to the advantage of telcos if they act to embrace it. What enterprises demand is standardisation, global reach, and relevant functionality. The realisation of the Cloud Communications opportunity will necessitate a collaborative process among the key ecosystem players – enterprises, telcos, aggregators, systems integrators, network vendors. Achieving this will in turn will call for external strategists’ catalytic contribution.”

For a free white paper on how cloud communications forces a paradigm shift on the business model of telcos, contact Martin Geddes at mail@martingeddes.com, or for more information see www.martingeddes.com

Burning question: Time to split IT?

Mark DeSantis in the section of “consumerization of technology” in his radio interview with me commented about someone he knew at the Pentagon, (which traditionally has had early access to emerging technology) who increasingly walks the halls of the retailer, BestBuy for technology innovation ideas. The book, of course, has plenty of other technology executives who look for innovation “from left field”

In contrast, here is an example of “how dare you even suggest IT should  buy anything at BestBuy?” Larry Dignan at ZDNet paraphrased my recent post and wrote “You can buy a terabyte of storage for less than $100 in a one-time payment. Enterprises are paying $100 or more per gigabyte over a three-year useful life. In other words, the enterprise pays 1,000 more for storage than the consumer.”  He should have included what my original post said “Granted that is high - availability, enterprise -grade storage, but is it worth 1,000 times as much?” Probably would not have mattered. If you see the 100+ comments Larry’s post attracted, many mocked at the mere thought of the consumer focused storage.  And, in other circles, you get similar reactions to technologies from a start up which may die next year or from the unsafe, unwashed public cloud.

Welcome to the two faces of today’s IT. One that is curious, willing to look anywhere for ideas, then adapt them (and let’s not delude ourselves the Pentagon would not test and adapt for their own secure needs), and one that has honed the “no one ever got fired for buying from IBM” ethos of old into an even more compliance, security, business continuity defined mentality. Alicia Blain adds more historical perspective on how with Sarbanes Oxley the “corporate cop” role for IT has grown.

Most CIOs are individually Polymaths – as Maynard Webb says “they have to be masters of many disciplines—they are technology strategists, business partners, project managers, operations gurus and budget analysts." Most IT under him/her, on the other hand, is mostly monomaths – specialists in security, data center operations etc. Competent but conservative -especially so in organizations where the CIO today reports to the CFO.

I think it is time to move the CIO and a few of IT staff which is business process, architecture and innovation focused to report to the CEO (or the COO), and move the infrastructure, procurement/legal, security and compliance and standards part under the corporate controller (or the CFO).  You may argue that has been happening for a while, as business executives have been buying their own packaged applications and cloud services on their departmental corporate cards. 

What I am talking about is a much more coordinated effort by such as unshackled CIO to unleash technology enabled innovation throughout the enterprise - in product R&D, process redefinition,  market channel analysis and business model redefinition. In reverse, the infrastructure and risk mitigation portions of IT would be much more aligned with the “corporate cop” roles - asset management, internal audit, business continuity and standards group that report today across the business to the CFO.

Yes, there would be more tension between the new CIO and the CFO – but I think that is healthy. In the end the business has to live with the consequences and makes its own risk assessments in most business areas – which markets to enter, where to locate plants etc - so why should it not have more of a say on technology risks that the new CIO may suggest they take to innovate?

Obviously, the execution towards a newer organizational model and governance would be a bit messy, but the spurt in innovation and the streamlining of the “corporate cop” function would be worth the effort.

Thoughts?

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Unlearning what I learned at Gartner

The standard pitch at Gartner was 18 slides, 45 minutes. If you have seen Gartner slides, they compete in denseness with folks who put the whole encyclopedia on a grain of rice. Next you squeezed as many words as you could into the speaker notes. And then of course, you had your spoken words. If you were really clever, none of them matched, so you got 3X the content out:)

I am presenting at Ignite in Toronto next Friday. The format is 20 slides, 5 minutes.

Not a typo – 5 minutes.

I better start rehearsing like this guy from the Fedex commercials….

Alarming IT data points

I am grateful for plenty of positive coverage my book has received. The coverage, though, has focused mostly on all the innovators I profile in the book. That’s not surprising because the vast majority of the book focuses on innovations.

But the small slice of the book which is negative contains alarming IT data points and trends I believe deserve attention on their own. So, I have extracted them (and organized them below for flow) with the hope that even folks who don’t read the whole book get a chance to review and discuss them – and hopefully start to reverse some of the status quo.

a) We are dangerously dependent in IT on an external supply chain 

“The research firm Gartner expected global IT and telecom spending to be $3.3 trillion in 2010. Robert Mahowald, a director at IDC, another IT research firm that collects market data by sector — software, telecom, and so on — says there is some cross - selling between sectors, but, in total, it is safe to say that the global spend is in excess of $3 trillion a year. Neither IDC nor Gartner, however, tabulates internal corporate IT costs: salaries, benefits and internal burdened charges. If they did, it would reveal that most enterprises spend 80 percent to 90 percent of their IT and telecom budget with outside vendors. 

“Even in automobile and aerospace, which have much more mature supply chain management, companies such as Ford and Boeing get around 70 percent of components from suppliers. In those industries, supplier consolidation and tiering makes sense because Ford and Boeing are dominant customers and can dictate design standards and justifiable economics. IT buyers in contrast have little leverage — even companies as big as Ford and Boeing make up less than 0.5 percent of an IBM’s or Oracle’s revenue.

“Many enterprises don’t even realize this external dependence because much of the spend is outside the budget of the CIO. Research and development (R & D) technology is charged to product development, telecom to call centers and business intelligence to the corporate planning group. Mobile charges come via expense reports and Amazon Web Services via corporate cards and are charged to even more budgets.

b) The IT buyer-vendor equilibrium is way off kilter

“The top 25 global technology vendors, such as HP and AT & T, now make up more than 50 percent of the volume of the IT amount spent externally. The top 25 global technology buyers (dominated by large banks and government entities), however, barely make up 5 percent of the total spend. As a result, buyers have little control over vendor product design and innovation strategy when they individually control so little of a vendor’s revenue.

c) The bigger IT vendors have not been innovating much 

“With a few exceptions, such as Apple, Intel, and Google, the bigger technology vendors have not been innovating much. The three biggest chunks of external technology spend are in telecommunications, outsourcing, and software. Telecommunications vendors invest in capital expenditures (capex), outsourcing vendors in training their people, and software vendors in tweaking older versions. Not much is spent on breakthrough R&D or real innovation. Would you believe Verizon does not use the word “ research ” anywhere in its 10 - K? Why should it invest in R&D when it can just leverage all the cool stuff that Apple and Google are delivering? Even those companies spend only 10 percent or so of revenues on R&D. Outsourcing vendors — by the way, over half of IBM ’ s revenues are from outsourcing — typically spend less than 2 percent of revenues on R&D, and much of that is on “ solution centers, ” which are more about marketing than research. They, in turn, conveniently leverage innovation coming out of salesforce.com and Dell. Software vendors invest somewhat more in R&D than do telecom and outsourcing vendors — but parse that
spend and you find much of it is going toward version 7, 8, or 12 of their products, some first introduced 10 to 20 years ago. So it is not really impactful innovation. Also, many of the software R&D dollars go toward porting products to new hardware platforms and devices or in “ localization ” to newer countries. Here’s the irony: Some technology vendors spend more on internal IT than they do on R&D. The attitude toward real innovation is that “It’s somebody else’s job". When pushed, the stock answer from most technology vendors is that too much R & D spending offers only diminishing returns. In contrast, they do not believe they get diminishing returns from their sales and general and administrative (SG&A) costs, which make up 25 percent to 60 percent of their revenues — five to ten times what they spend on R&D.

Even Intel, an acknowledged champion of breakthrough innovation may be getting away from its legacy .“As Fast Company observed, “ [Intel itself has been] pushing the Atom mobile chip, in a dogleg pivot from Moore ’s Law, the founding axiom behind Intel, that chips get exponentially faster; and embracing new territory, new markets, and new ways of playing with others”

d) What IT is left in-house is often not strategic 

“But let’ s not just blame IT vendors. What Ford and Boeing keep in house in their manufacturing are strategic areas — for example, design of the aircraft or manufacture of the engine. In many IT shops, the thin sliver that stays in house is often not strategic: Many are technicians such as desktop support staff, database administrators, and network managers. They are important, but they mostly provide infrastructure — not innovation — support. Some CIOs keep such staff members in-house because they are the most visible to users and so they give the perception of “ better customer care”.

e) The majority of CIOs are focused on control and compliance, not innovation

“In a CIO Magazine Executive Council survey of 600 CIOs, 34 percent were classified as “ function heads ” : Only 4 percent of this group were focused on “ driving business innovation ” whereas 79 percent of them reported they supported “improving IT operations/systems performance. ” This is at the highest level; further down in the IT organization, there is even less of a focus on innovation. Yet these companies still spent 5.1 percent of their revenues on IT. Another group — 45 percent of the CIOs were classified as “ transformational ” —and 40 percent of this group reported that they were “ driving business innovation ” while spending a bit more — 5.5 percent — of their revenues on IT. Finally, the third group — another 21 percent — were classified as “ business strategist ” ; 70 percent of this group reported they were “ driving business innovation, ” and they spent 7.2 percent of revenues on IT. So, across all groups, a bedrock of about 5 percent of revenues is going toward “ keeping the lights on ” , not innovation, IT. Traditionally, IT has been conservative — the old adage used to be “ No one got fired for buying from IBM. ” Today, that saying has become a little broader — to include IBM, Verizon, Oracle, Accenture and other large vendors. Too many IT executives live in fear of one of their smaller vendors going out of business. And since many CIOs report to the CFO, their mandate is often focused on control and compliance, not on innovation.

f) There are way too many IT line items which make the $ 600 military toilet look downright affordable

Examples abound

• “ You and I can buy a terabyte of storage for less than $100 and it’s a one - time payment. Yet many enterprises are paying $100 or more per gigabyte over a three - year useful life, when you amortize the cost of storage and support for it. Granted that is high - availability, enterprise -grade storage, but is it worth 1,000 times as much? Then, when you look at duplication of storage — multiple backups to meet compliance needs, archived e – mails sent to multiple addresses with the same attachment, and the like — the waste is numbing.
• “If you were to amortize the cost of annual software vendor ’ s support and maintenance charge over the number of calls made to its support desk, a price of $10,000 per call would not be unusual.
• “What if gas cost $5,000 a gallon and you had a leaky gas tank? That describes the situation with printer ink
• “ A study by Harris Interactive showed that the average U.S. employee spends $693 in international roaming calls on an overseas trip
• “Another problem in the SI world is consultant travel. That often adds another 15 to 25 percent to base fees, which are already high to begin with

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Last Chance – Polymath “Wow” candidate contest

Get your entries in by August 31 – details here.

Could be a nice gift for a student – the Wiley catalog is full of pricey educational books..so it would cost you 100 words in an email to thenewpolymath@gmail.com, but could save them a bunch.

What an exhilarating Workday!

We run into each other at various industry conferences - a group of industry analysts, consultants and bloggers focused on enterprise software. Rarely though 20 of us are we in a room for a whole day - many of us have competitive business models, others honestly cannot stand each other. So, it is even more unusual we would (mostly) agree about - and even admire what was on display.

Few vendors have the guts to be open to such a smart and opinionated bunch as Workday was during its Technology Day yesterday. Like a marathon tennis match with plenty of volleys and lobs and aces, the back and forth was something to watch.  As you can see from the Twitterstream and blog posts from the day a wide set of angles were covered - object models, user interface design, change management processes,  analytics and integration tools (in a SaaS market where both are still weak), stuff from the labs - tablet and voice interfaces, mobile applications - and more. 

I would like to have to heard more about how they plan to scale their compute/storage infrastructure, more about their application management people and process and on their implementation experiences. Sure others in the room have their own follow up lists.

Honestly, though the last time I can remember such an energetic session was during a visit to SAP in Walldorf in 1997. And that was restricted to Gartner analysts so we did not have the breadth of coverage that the Workday session had. Some recent SAP blogger sessions have come close in terms of openness, but not in quality of the products or the presenters.

So, I left wondering why more vendors don't have such sessions.  It would accomplish two goals - brief market influencers in an intense session and get plenty of feedback for product improvement.

Part of the reason is they don't have Workday's co-founders - Aneel Bhusri and Dave Duffield. Aneel, with recent Greylock venture capital experience has access to impressive market intelligence and talent and it was on display throughout the day. Dave brings the humility and openness he has long being known for - and that was equally on display (though he only came in for a bit and sat at the back). While the expectation was some of the items during the day would be off the record, the tally of such items at the end of the day was zero.

Discount to HR Tech conference

Good friend Bill Kutik is again offering a nice discount to readers of this blog to the 13th annual HR Technology Conference in Chicago starting September 29 - easily the best HR software and best practices event in the industry.  

Use the promotion code of VINNIE10 (case sensitive) when registering to get $ 500 off.

A few of this year’s highlights: the debate between fellow EI Naomi Bloom and Gartner’s Jim Holincheck, Oracle revealing more of Fusion HCM, the annual signature event the Shootout, a Blogger Insight Panel, and “Awesome New Technologies for HR” from bleeding edge start-ups (chosen at the last possible second).

To see the latest, download the pdf of the full conference brochure

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