Mark McDonald

A member of the Gartner Blog Network

Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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Lightweight technologies create an Incumbents’ Dilemma for CIOs

by Mark P. McDonald  |  April 4, 2012  |  4 Comments

Lightweight technologies are transforming equations in both the tech industry and every IT organization.  A lightweight technology is one based on creating value through Internet based services.  The Cloud, Mobile Solutions, Apps, SaaS, PaaS, IaaS are all examples of these technologies.  These lightweight technologies represent more than a substitute or alternative to traditional IT.  They represent a disruptive technology that when it enters the market upsets the traditional balance between price, performance and value described in Clayton Christensen‘s work around the Innovator’s Dilemma.

A characteristic of a dilemma is that it presents an obvious choice that looks to be the right decision but can easily result in pursuing the wrong direction for all the right reasons. 

Christensen’s work illustrates how this happens in terms of an organization’s market response to disruptive innovation where the decision to leave a low margin business to the innovator makes sense until every market becomes a low margin market leaving the organization with a high cost margin structure in a commodity margin market. Christensen explained how ASUS has done this to Dell and other examples.

The incumbent’s dilemma follows the same logic, but applied to their internal operations that invert the way you look at the situation.   Incumbent seeks retreat form high margin costs by replacing them with disruptive products and services — in the case of IT these lightweight technologies.  On the surface it seems like a no brain decision with adoption of lightweight technologies limited only by concerns about security, integrity or functionality — all of which may not be fully capable compared to in house operations.

Sound familiar?

Right now lighter weight technologies are currently disrupting traditional IT from the bottom and they are moving up. Staring with low value/low margin IT services like storage and hosting, these technologies are disrupting the foundation of many IT organizations.  Mobile apps and SaaS are dong the same to the application space providing lighter weight solutions that do not have the power of traditional solutions, but are good enough to represent a viable choice that displaces incumbent solutions.

Individually the right decision, collectively the wrong direction

CFO’s will fall into the same trap as the CMO when they pursue reducing their costs through blindly adopting lightweight technologies based solely on cost and performance criteria.  The individually right decision, for example to move to cloud storage or cloud hosting, can set the company on the wrong direction.  Not because these services are wrong, or necessarily damaging, but because of how we compensate for market based solutions.

We have seen this before.

Remember when we were all warned that ERP packages in general and SAP in particular were going to compromise our sources of competitive advantage.   A number of very smart people predicted that would happen as core business processes collapsed around a single industry standard.

So what did we do?

We went ahead and implemented the ERP.  After all it was a sound business decision as package ERP looked cheaper to acquire and operate than the homegrown applications, which needed to be replaced anyway in the face of Y2K.

A decision that made sense until…

We then customized and configured ERP configuration in the name of retaining competitive advantage.   Even though we were warned about the cost of modifications and customizations, we did it anyway.

The result is that rather than creating a cost effective market-based asset supporting processes that reflect general industry best practices …

… we have an asset that sits somewhere in between.

A generic based asset that needs to be upgraded on a vendor determined schedule.  But an asset customized to the degree that it consumers more resources and requires complex upgrade.

So we made a decision to go corporate ERP to be lower cost and tap into a vendor’s investment in new solutions.  But we wound up with a more expensive asset that ties up resources that would otherwise go to innovation and growth project.

The dilema facing incumbents is changing

Lightweight technologies post a similar dilemma as the case for quick adoption and a low cost of entry creates the sense that it is a good decision.  And it can be provided that we keep the incumbent’s dilemma in mind.  CIOs should not just ceded the lower part of their ‘market space’ without thinking about what that does to long-term plans and long tail activities.

To date, the incumbent’s dilemma has been largely hardware centric.  Consumerization based disruptions have revolved around brining your own device (BYOD) to work.  Handling that form of disruption has been relatively simple and just as Christensen predicted.  CIOs are abandoning a low margin, high resource, and high friction activity – procurement and provisioning – replacing it with standards, remote wiping facilities, etc.  Believe it or not, that dilemma is relatively easy to resolve and reflects an answer for very valid reasons.

However, is leaving a low margin, high resource, high friction market always the best decision?

Consider the type of disruption going on now.  What was hardware disruption is shifting quickly to software creating a new term BMOA or Bring My Own Apps.  Should CIOs pursue the same course of action as BYOD?

Some would say yes, ‘after all the apps that people are buying are at the fringe of the stack.  They are information consumption applications that require either little or no connection to corporate systems.  We cannot possibly support all the permutations, so let the market do that work for us. We will focus our scarce resources on the applications and areas that matter, where there are high operational requirements and the business needs the type of innovation that only we can provide.  That is our strategy’

Sound familiar?

What do you think?

 

4 Comments »

Category: Management Strategic planning Strategy Technology     Tags: , ,

4 responses so far ↓

  • 1 Frank Schipani   April 5, 2012 at 2:36 pm

    Let’s assume the argument is right that getting out of these “low margin” activities really just shifts the costs elsewhere with no net gain for the CIO. Maybe the silver lining is that change always tends to bring about more innovation, and in this case, getting the end user more involved in the selection of the tools they use is good for everyone. They are the ones who know their jobs and goals the best, and how they can best compete in the marketplace, and the technology folks have the necessary skills to turn their ideas into reality. Let the market, driven by consumerization, provide all the new tools, and let the technolgists and the users work together as a team to put them to use to their best advantage.

  • 2 Mark P. McDonald   April 5, 2012 at 4:33 pm

    Frank

    Thanks for your comments and observations. I agree that increasing employee and customer involvement in creating the technology they need is a silver lining and that CIOs should not just abandon a role their but engage the trend. By abandon I mean revert back to saying that we will control employee and customer generated apps either through restrictive polices or by not allowing it on security or data privacy grounds. Rather than ceding the ground, it would be great to see CIOs embrace it, engage employees and the business with vigor and be seen as a catalyst for innovation.

    Your comments also triggered something else that I wanted to comment on. The point was ‘let the market… provides all the new tools.” I think that we have to make some distinction between applying market style paradigms to what happens inside companies. A market paradigm works great in terms of defining the structure for competition that brings the greatest value to customers and winners in the marketplace. WHile a company competes in one or more markets, the company itself is not a market. Attempts to say that the corporation is a market are interesting and engaging, however, in the volatility of markets, the failure rates of competitors, the energy devoted to building market share surface differently in company. It is a difference that needs to be recognized and is not universally beneficial.

  • 3 Eric Guilloteau   April 12, 2012 at 3:51 am

    There is another, positive dimension to lightweight technologies: they help IT address the issue of ‘guerrilla’ applications. Business units have been developing ‘guerilla applications’ ever since development tools have become easily accessible. By embracing lightweight technologies, CIOs could help address the issue associated with those applications. At least now those apps will be securely built, follow data protection and integrity policies and will be scalable. IT could even go further and define a category of applications (with clear rules of engagement) that the business units can purchase and use without needing direct IT involvement. This would be the BMOA category. This could help transform the way IT and business units work together and spur innovation even further.

  • 4 Tofa IT » IT needs to create POP Tech by being more like POP art.   October 3, 2012 at 7:12 am

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