The rise of platform-powered professional services
October 18 2019
by Katy Ring
The business models of IT service providers are being disrupted by the requirements of enterprise digital transformation projects. Enterprise organizations are continuing to respond to digital competition from cloud-native entrants.
According to 451 Research's Digital Pulse, Workloads and Key Projects 2019 survey, a large minority (42%) are now strategically preparing for the changes they face over the next decade by digitizing business processes and assets, while another 26% are in the research phase of digital transformation strategy planning. However, digital transformation requires data-driven continuous service improvement that breaks the classic business models of the IT service providers.
The 451 Take
For IT service providers to successfully transform themselves to survive and prosper in the era of digital services, they need to move to a platform-powered way of delivering their services. Such professional service digital business platforms enable smart, technology-augmented services, that help providers transition to new business models, preparing them for future phases of professional services market development.
Broken business models
To provide services for digital leaders looking for digital transformation, IT professional services have to change profoundly. The traditional, siloed segmentation of the IT services market into consulting, systems integration and managed services has become problematic. This is because design, transition and operation become a bundled wheel of services, driven by incoming insights from a combination of existing and new data to provide continual service improvement
It is now very difficult for service design, service transition and service operation to be neatly divided along three separate lines, or even three different types of provider. This is why consultancies are now also offering managed services, SIs are buying their way into design thinking advisory, and outsourcing companies are expanding into SaaS. The main problem is each one of these segments of the IT services market cannot continue with business as usual to appeal to enterprise digital leaders and remain relevant in the long term.
Consultancies can no longer simply work with Excel and PowerPoint to advise on technology and business roadmaps, because service design needs to incorporate such large amounts of data, and be responsive to ongoing feedback from deployed systems. Offshore providers can't just provide armies of low-cost coders without them being tightly integrated with talent local to the client in service design, with delivery augmented by automation and AI technologies. Finally, outsourcers and MSPs can no longer lift and shift systems, offering operational improvements every three to five years, because the pace of change disables this approach. All these classic IT services models are broken.
Transforming for the digital agenda
To prevent IT service providers from being left behind solely to nurse legacy systems and technology, they need to appeal to the digital leaders among enterprise customers in unique ways that pivot professional services revenue toward new opportunities.
Increasingly, these providers are creating platforms to help them transform and better respond to the requirements of enterprises in the digital era. We are all familiar with Uber, Airbnb, Amazon, Apple and PayPal, and how these companies disrupted their markets when they launched. Today, they are industry leaders, and each business is built on a cloud platform. This has led to heightened interest and commitment among IT service providers to join this platform revolution to transform their own business models, and successfully emerge as relevant IT service providers for the digital era. They are building their own business platforms to provide IT services to the enterprise market, and platform-based IT services delivery is the new IT professional services business model.
Providers that can transition from offering point services to 'managing transformation' are well-positioned to gain influence with, and revenue from, customers tackling digital innovation. Platform-enabled services that take advantage of IaaS, PaaS, SaaS and a range of new technologies – including big data, automation, IoT and machine learning – can enable IT service providers to do this in a fast, consistent and scalable way. The Platform Revolution is an opportunity for many IT service providers to support clients that need to develop, buy or rent technology to support their digital initiatives, as well as adapt to the world of evolving ecosystems, with survival dependent on rapid adaptability to change. Essentially, in the world of digital transformation, there are very few 'one and done' engagements for professional services, because the demand is for ongoing incremental improvements.
The development of digital business platforms by IT service providers constitutes their own transformation to a new business model. Platform-powered professional services address modernization of in-place requirements to bring legacy systems into the digital age, by intelligent workflows that can use the logic in those systems as necessary. This use of technology to support IT services professionals is giving rise to a smart augmented services approach that blends human skills and expertise with advanced technologies to achieve the targeted business outcomes of digital transformation.
Smart augmented services
Smart augmented services instantiate a methodical approach to professional services delivery that takes an enterprise from the incumbent ERP estate to a modern environment that delivers goals such as 'increased employee productivity' or becoming a 'data-driven enterprise.' It defines and executes an integrated project process from consultancy to deployment to ongoing delivery, focused on outcomes rather than project or technology deployment milestones.
Such so-called outcome-based services have been the holy grail of the services market for a decade or more, and one of the exciting characteristics of the smart augmented services approach is that it gives both service providers and clients confidence in the ability to achieve the specified outcomes of the transformation. This is because the approach makes it easier to use datasets to benchmark activities and outcomes, while also providing higher visibility into the continuous improvement of end-to-end processes.
In the past, contracting to deliver business outcomes beyond the outsourcing of very stable business processes has proven challenging. This is largely because the technology component of the overall business outcome was one factor among many; and in siloed functional areas, overall control of an outcome becomes difficult for a service provider to manage. However, with the rise of digital services and the pervasive generation of data, many of these challenges are ameliorated.
The smart augmented services approach illustrated in Figure 1 depicts how the platform supports teams, by bringing together methodologies, domain expertise and technologies in an end-to-end circular process analogous to a continuous production line, addressing various phases in a project. The engagement begins by working with clients to jointly develop the business case, and then goes straight through to sprints and design, which (hopefully) rapidly develops a system that is ready to use. The starting point of the desired business outcome is achieved with collaborative effort from different teams using 'platform power' to assemble the knowledge, software and processes to continuously deliver it.
Figure 1: The Smart Augmented Services Approach
451 Research LLC
Adapting for the future
The digital transformation projects of many enterprises today still remain focused on front-office, customer-facing systems to improve the customer experience. It is in these areas that the main commercial opportunities lie. For this, it is important that service providers invest in the first-phase requirements of design thinking and innovative consulting, assisting clients by developing outside-in journey-mapping to capture the moments that matter from the customer viewpoint.
The second agile development phase involves the building of cloud-native digital services to give form to the requirements of rapid business adaptability using containers, platforms, accelerators, agile methods and DevOps. This area has gained much service provider attention, in response to enterprises that have come to learn the need for the broad use of these tools and techniques to form the foundation for their digital business transformation. All players are converging here – from management consultants to SIs.
However, the third phase of digital operations is potentially the biggest opportunity for service providers in the coming years. It entails minimizing the risk around the running of agile and intelligent business processes in areas such as production, supply chain, logistics and workforce management, integrated with the dynamic systems of engagement that are now being created in the front office.
Service providers must be prepared to address all three phases of digital professional services. We believe the best way to do so, while also providing the means to adapt to unforeseen or even unpredictable market demand, is to assemble the necessary platforms and smart augmented services.