Monday, May 4, 2015

CIO: Changing Sourcing Strategies

Sourcing strategies are evolving rapidly. CIOs have to handle this shift, where innovation isn't coming from the usual vendors. There is a clear movement toward those who can facilitate the most critical agendas to enable digital business. New organizational structures are required that allow for a culture of innovation and experimentation. In order to innovate, teams that typically consist of larger, slower-moving units must transform into small, startup-type or project-based units.

AppDynamics CEO, Jyoti Bansal, often speaks about his methodology for creating a startup within a startup. Many new product initiatives begin with a small team of two-to-four engineers and product managers tasked with building a minimum viable product. In this model startup teams are augmented with small acquisitions which come with talent. This new talent provides new perspectives, skills, and core intellectual property allowing the acquirer to meet customer needs quickly. This is similar to the model employed at Google, Facebook, Yahoo, or Twitter allowing for incubation and experimentation with new, unorthodox ideas. At Google, some of these new ideas become winners like Gmail and Google Apps for business, while many fail. Some of these new products take several iterations before they can be productized. Google Talk is one example that was allowed to “sunset” but was reborn as Google Hangouts, which has had rampant adoption with its second iteration and integration of other services. Google Hangouts on Android has over 500 million installations.

This is the new pace of innovation, something CIOs must now replicate in their own operations. A Gartner headline says, "Digital Business Economy is Resulting in Every Business Unit Becoming a Technology Startup." What this means is if you do not evolve your organization, thinking, and sourcing, you will be unable to compete. The furious and often large acquisition strategy, results in non-integrated technologies which fail to compete in a time where technology becomes a major advantage in digital transformations.
Within IT operations management, an area I've studied and tracked for over two decades, we saw many large acquisitions over the years from HP, IBM, BMC, and CA. These acquisitions provided growth and breadth, by adding new capabilities that were slotted into a portfolio. That growth strategy though, which had once been effective, ended up creating too much complexity. The complexity required services, which in turn led to challenges in staying current.

This technology debt and lag do not meet the needs of today's technology buyers. The large acquisition strategy has slowly fallen off; meanwhile, these big players have had major challenges making the transition to organic innovation. Gartner predicts that "By 2017, at least two of the "big four" IT operations management vendors will cease to be viable strategic partners for 60 percent of I&O organizations." We've already seen this play out with the privatization of yesterday's innovators and ongoing execution issues with others.
New innovative upstarts in ITOM run at a different speeds, allowing them to create, build, and provide the value customers want, without the heavy services, consulting, and integration burdens. These new vendors have highly differentiated strategies and approaches that keep them innovative and give them a competitive advantage.  
The question remains for CIOs: Of these innovative vendors, which will be able to continue down the innovation path as they move from being medium-sized companies to become large companies? As revenues of these innovative vendors continue to increase substantially, innovation at scale remains an open question. But at AppDynamics, we're focused on culture and strategy to enable and retain our innovation as we build the next generation ITOM technology for software-defined businesses.

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