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Forget about commoditization – the real enemy is choice.

by Mark P. McDonald  |  September 24, 2009  |  3 Comments

Commoditization has been the buzzword threat for IT professionals for years.  This reached a fever pitch with Nicholas Carr’s books about IT.  If you wanted to scare a CIO all you have to do is raise the threat of IT becoming a commodity.  The commodity threat abated some as people rushed to cut their budgets and do more with less.

As things turn around and IT demand increases, the threat of commoditization will return.  It is an argument that is now a red herring.  The issue facing CIOs and IT execs is not commoditization, but choice.  Not their choice, but the increasing choice business executives have and will have in provisioning IT services and solutions.

Business executives have unprecedented choice.  A scant ten years ago, the captive IT organization was about the only game in town for a business that wanted to innovate with technology.  Since that time, venture capital and technology companies have invested billions to create technologies that create alternative approaches to the traditional IT organization.

It is ironic.  Technology companies have used funds generate from traditional IT to create solutions that challenge traditional IT.  I am talking of course about the increasing capabilities of cloud, software-as-a service, managed services, other service based computing models and other alternative delivery models.  This should be expected as solutions that bypass traditional IT enable tech companies to address the business directly – a larger potential profit pool than the IT budget.

So what is a CIO to do?

Forget about becoming a commodity and think about how the business chooses you as the preferred provider of technology solutions.  Leading from the fear of commoditization is a race to the bottom defined by best value in terms of lower price/performance ratios,

Leading from the perspective of choice requires more.  Think back, you did this to some degree when combating outsourcing threats by pointing out your lower overall costs, the things that you did cheaper than the outsourcer, the things that no outsourcer would do, etc.  However, combating the outsourcing threat was more of a commoditization argument – particularly if concerns about “security and risk” were used in your argument.

Being the option of business choice requires a positive decision based on a positive argument not one driven by the threat of risk or loss.  That requires CIOs to do the following:

  • Commoditize the stuff that does not matter, the things that are not essential to driving scale or speed in the business, the things that do not contribute to competitive advantage or capability.
  • Concentrate on raising IT productivity from two perspectives:  the business power/impact of your solutions and the resource efficiency involved in creating these solutions.  Business choice is driven by the value you create which needs to be greater than the prospective value offered by your commercial competition.
  • Give the business an experience working with IT:  impressions matter when choice is on the line.  Commercial competitors get to hide their mistakes you do not.  That means that how you do your work, how the business feels about working with you are important factors in business choice.  Think about how you work with your customer and if someone treated you that way – would you choose to work with them in the future?
  • Be frugal in every aspect of IT: every enterprise is under pressure to manage cost regardless of economic conditions. Being frugal demonstrates that you are spending the company’s money as if it is your own.  This means looking for ways to reuse components, reduce cycle times, and gain greater leverage out of your technical and other resources.  Don’t be cheap, which plays into the commodity argument.  Recognize the difference between cheap and thoughtfully frugal.

Category: 2010  budgets  cio  economy  leadership  strategy  

Tags: 2010-planning  it-budgets  it-leadership  

Mark McDonald, Ph.D., is a Vice President and Fellow Emeritus in Gartner for General Managers Program.




Thoughts on Forget about commoditization – the real enemy is choice.


  1. […] This post was mentioned on Twitter by fly_fishing. fly_fishing said: RT @Gartner_inc: "Forget about commoditization – the real enemy is choice." Mark McDonald, Gartner, on his blog: http://bit.ly/18GY5w |hmmmm […]

  2. Question and comment

    1- commodization us the derivative of choice
    2- as high level (C level) advisors to top 500 companies we have said ‘commodization leads to cannabilization’ and have written extensive supportive white papers to support
    3- in Jim Collins most current book How the Mighty Fall he correctly points out scale cannot happen with consumer adoption
    4- your point if further directly relative to our documents we have produced around the consumer being the tipping point
    5- we all know now the long tail does not cover the 80% adopters and buyers

    that said, what is the interesection between tipping point and choice?

    Free??

  3. Mark McDonald says:

    Lawrence

    Thanks for your comments and here are some responses.

    1) You can say that commoditization implies a choice — a choice that the thing being commoditized is of little value to me so I treat it like a commodity. However, applying that view the business would be commoditizing all technology rather than making a choice for market based technology services. In talking with executives they indicate a great value in technology, but see less value in their internal IT organization so they apply the commodity label there.

    2) The relationship between commoditization and the cannabilization of markets is well studied from many perspectives. The issue is how to avoid the commodity trap. That is often done through differentiation and what is the point of differentiation — choice.

    3) True regarding Collins, but that was not the immediate point of the post. Market based technology services will work hard to make themselves more widespread as they need the scale to drive their economics. This means that they will be more focused on positioning the choice between themselves and internal IT in the face of the business. Internal IT will lose if they do not see that they have to become the object of choice for technology services by the business.

    4) The consumer will be an important part of this, and in fact may provide the scale needed to subsidize going after business based services.

    If you read the book Free by Chris Andersen you will see that Free is not as simple as it sounds. If by tipping point you mean when a market creates a clear winner, then the intersection is choice or perhaps more importantly market validation and acceptance.



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