Primarily Written for Business Unit Leaders
The Gartner Scenario for Application Software Providers: Building Digital Transformation in a Bimodal World The Gartner Scenario forApplication Software Providers:Building Digital Transformation in aBimodal World Bianca F. Granetto, Chris Howard, DarylPlummer, Claudio DaRold, RobertAnderson, Chad Eschinger, JoanneCorreia, Nigel Montgomery, Jim Hare,Chris Pang, Neil McMurchy January 2016 Primarily Written for Business Unit Leaders Bianca F. Granetto, Chris Howard, Daryl Plummer, Claudio DaRold, Robert Anderson, Chad Eschinger, Joanne Correia, Nigel Montgomery, Jim Hare, Chris Pang, Neil McMurchy January 2016 Growth and Profit Will Come From Leveraging the Bimodal Dynamics Set in Motion by Your Customers
Digitalization/ Digital Business Digitization Modernization Window of opportunity Mode 1 Window of opportunityis open! Mode 2 The world we know The world in the making! Many IT organizations around the world are implementing a bimodal approach to managing effectively the ongoing operationalrequirements of their businesses with the innovative ones driven by digital business initiatives. Gartner has already published forservice providers a series of documents to analyze the implications of this demand-side trend onto their suppliers of services (see"Vendors Must Become Bimodal to Survive the Flip to Digital Business" [G ] and "Technology Service Providers MustImplement a Bimodal Roadmap or Risk Irrelevance and Decline" [G ]). With this scenario, we are advising a similar approach to guide application software providers and more specifically their businessunit leaders to consider implementing a similar approach in the form of a strategy. We believe this is important to allow to developthe necessary vision, investment decisions, new roles, skills, competencies, methods, acquisitions and models that will: Defend and build competitiveness in the short-term Position for long-term gains Generally all existing providers know about their marketplace and what worked for them for the past 20 years can be located withthe Mode 1 definition. This is what is enabling businesses to operate and where the essential run of the business is supported withthe long-established requirements of stability, reliability and security. On the contrary, Mode 2 is in the making and consequently itrepresents a developing marketplace with new buying and competitive dynamics that is yet to establish its everyday paradigm. Inaddition, it looks to and is inspired by the rapid and disruptive impact of the technologies that power the digital industrial economy. Mode 2 initiatives and their related wants and needs are the direct consequence of the digital dimension being crucial for theattainment of the desired business goals. This creates a sense of urgency and a new kind of attention on delivering new digitalbreakthroughs that will create competitive advantage differentiation and new operating models. Mode 2 vision and executionhave the intrinsic ambition to enact a transformation that will bring entirely new possibilities for the business to diversify andimplement new competitive cost-profit business models. Technology and more so application software, as it lies at the forefront of the user experience within the digital realm oftechnologies (Web, mobile and things) is taking on a "new business role" in addition to or in replacement of others. With the next slides, we reflect on how business budgets are making more space for technology and software expenses and how thischange is driving the organizational and decision-making shifts observed outside the IT department. Key Issues Where Will the Growth Come From?
How Can the Application Software Providers Seize That Growth? How will the buyers behave? What do successful competitive and go-to-market strategies look like? How can providers differentiate? Unique selling points? Action Plan for Next Six Months: Develop a bimodal strategy to leverage the dynamics being set in motion byyour customers. This scenario looks at the opportunities and threats that come with digital transformation in a bimodal world and provides initial planning guidance for application software providers. Where Will the Growth Come From?
The word "growth" here is used purposely as a general term to indicate that there is a wider opportunity to go after that is being driven by digital transformation initiatives. By 2020 Key Application Software Adoption Predicts:
Key Competitive Factors: Analytics, SaaS, SMBs, Digital Applications, Business Outcomes By 2020 Key Application Software Adoption Predicts: By 2020, 80% of enterprise application vendors will compete on the sophisticationof advanced analytics offered in their solutions. By 2020, 60% of business users will be provisioned, in whole or in part, with officesystem capabilities from the cloud. By 2020, for the first time, cloud-based growth will propel North American small ormidsize businesses (SMBs) to a leadership position over large enterprises in totalERP new product revenue. Digital Business: By 2020, 75% of application purchases supporting digital business will be "build,"not "buy." By 2020, LOBs will drive 50% of new IT spending decision making, half of whichwill be expensed for software directly out of their budgets. Our top predictions and forecast assumptions in "Predicts 2016: Software Adoption" (G ) and in ourForecast Overview research clearly establishes where the market will focus on in the coming years. These Predictsare not exhaustive and only cover in parts the dynamics being analyzed in our research and that can be exploited byour customers' strategies and plans. The Predicts do identify the key factors creating value and competitiveness inthe forthcoming years. These Predicts are briefly described here: Analytics will continue to play a leading role in differentiating and adding value to all application softwareproviders. A "new legacy" for essential business applications will emerge in the cloud, having by then established a newcompetitive order as well as an entire new way of consuming and valuing these services. The SMB market segment will play a more significant role in favoring new applications adoption, becoming anessential pillar of any successful SaaS and/or application provider's strategy. Business plans to digitally transform are leading to new buying and spending dynamics that will mostly benefit themarket for business applications. Digital business initiatives draw their funding from both the IT budget and non-IT budgets, from operational costexpense pools and from brand new investments. Thus generating a potential wider addressable market that values upto three times more the current IT spending (Gartner IT Key Metrics Data). Indeed, current IT spending as aproportion of revenue on average equals 3.2%, while based on our digital business Survey of Business and ITExecutives (concluded in June 2015), organizations using digital marketing or with planned digital businessactivities and above $250 million in revenue expect to spend 10% of their revenue in investments for digitalbusiness in 2015 (number of respondents = 304). New Resources Are Being Mobilized for Digital
On average percentage of revenues beingspent on IT = 3.2% 2016 CIO Survey: +2.2% average increasein IT spending 17% of IT spending happens outside of theIT budget on average 40% is directly influenced or paid for byLOBs + x3 On average percentage of revenue that willbe spent on digital business = 10%* The average proportion of investmentsbeing handled in a Mode 2 manner is 25% SMB companies reported that on average28% of their revenue comes from digitalsales, expected to increase above 40%next five years** 95% of global businesses are, in fact,SMBs Digital Transformation Initiatives will generate new revenue streams in the next two years and beyond Follow the Money! All the evidence collected by Gartner research clearly indicates that there is additional demand and consequently spending being planned outside the regular IT planning cycle. In addition, this trend is even stronger among SMBs, which play an increasingly important role in driving IT adoption as well as in generating "greenfield" market opportunities. New investments are being planned to finance Mode 2 initiatives for digital transformation; respondents to our CIO Survey tell us that they are working toward doing more Mode 2 based on funding and maturity considerations. Organizations using digital marketing or with planned digital business activities expect to spend on average 10% of their revenue on digital business, and 71% of these surveyed organizations are self-described as either actively experimenting (36%), piloting (14%), deploying (13%) or fully deployed (8%) digital business. Spending will be even higher than the average 10% of revenue in the industries of communications, media and services (13%) and retail (12%), followed by banking and healthcare (10%) (Digital Business Survey; number of respondents = 304). Midsize businesses are firmly on the digital business path. More than a third of all SMBs have adopted cloud and mobility technologies as business accelerators and show more agility and openness toward adopting even business-critical cloud applications such as CRM and BI and security as a service. According to Gartner's 2014 CEO survey, almost a quarter of SMB companies say 30% to 50% of their revenue already comes from digital sales. The key finding is that budgets that typically expense physical assets and human capital expenses are making space for IT ones. These most likely to complement but also increasingly replace those existing expenses as the digitalization process progresses toward a full business transformation. These IT expenses will increasingly focus on replacing core applications with new digital ones. Arguably IT has always competed to some degree with replacing physical and human capital. Only now does it become significantly more pervasive within; more importantly, it enables the business to successfully make its way into and compete within the digital industrial economy. * = Digital Business Survey (number of respondents = 304); ** = Gartner 2014 CEO survey (number of respondents = 64) Sources: IT Key Metrics; Gartner elaboration of shadow IT spending 2015 (based on forecasting data); Gartner CIO Survey (2,944 CIO respondents) Recommendations by Market Segment
Global Application SoftwareProviders SMB Application Software Providers Sunset Old Offerings Diversify Embed Analytics Pursue Digital Opportunities Plan Realistically Specialize and Simplify Global Application Software Providers: Consider sun setting or selling less profitable or noncore parts of your business so you can invest in growth markets or product innovation Diversify by building extra services solutions alongside your core ones to differentiate and accelerate your customer's business transformation, using either/or: All-in-one business operating essentials to accelerate modernization/digitalization Services solutions offerings for business transformation Increase the sophistication of embedded advanced analytics (predictive/prescriptive) in your solutions promote how your solution helps digital businesses improve decision-making by making contextualized analytic insights available to information workers. SMB Application Software Providers: Assess the impact that digital transformation is having in your geographical markets and align your growth strategy you could discover you actually have a greater opportunity to pursue! Be realistic about growth and expansion plans. The largest markets may appear to provide the biggest opportunity. But in most cases, it will also be the most competitive and expensive to establish a presence. Offer packaged SaaS solutions that can be quickly deployed to address tactical business problems with a minimum of implementation services and customization. Specialize, specialize, specialize (industry; compliance; innovative development skills; and business contextualization). Assess how your customers can benefit from innovation in areas such as the Internet of Things (IoT) and digital business. Create product offerings which simplify and make affordable such projects to SMBs. Recommendations by Deployment Model
Cloud-Native Application SoftwareProviders On-Premises Application SoftwareProviders Bundling for Essentials Focus on Customer Service Comparative and Competitive Entrants Offer Subscription Agile Development Have a Roadmap to Transition Customers to SaaS Cloud Native Application Software Providers Extend your bundling for software and telecommunications business essentials to reduce your customer's vendor management and procurement overhead. Service your customer or someone else will. Keep a good eye out for comparative and competitive entrants; markets are moving quickly. On-Premises Application Software Providers Consider offering subscription on-premises agreements to new customers where they are able to have fully customized solutions but also allow for easy price comparisons to native SaaS offerings. Use SaaS development practices such as agile development so you can better compete on faster innovation releases. Use caution if transitioning to a SaaS business, and have a planned roadmap because it will be a change management exercise (sales, development, channel and management) and it will require expertise in managing the financial transition of your company. How Can the Application Software Providers Seize That Growth
How Can the Application Software Providers Seize That Growth?How will the buyers behave? The following slides will run through a mix of buying behaviors and trends that are universal to IT buying. It is important to understand that the new business requirements and related decision makers will look more at the business outcome of what they are evaluating and less at the individual technologies and the underlining complexities that are needed to achieve the desired result. In addition, these trends reveal that there is a far greater opportunity for application software to be adopted and/or extended beyond its traditional markets and market segments. Buying Behavior: Digital Gets Strategic Attention and Sense of Urgency
GROWTH Compete Globally A source of competitive differentiation and advantage Attain Operational Excellence Improve the efficiency and effectiveness of business operations Implement Business Diversification Allows embracing new business opportunities, reaching new targets Top Five Highly Relevant Factors to Organizations Definition and Execution of Digital Business Creation of client value and new revenue streams (66%) Focus on new front-office strategies to reach the customer orchange the customer experience (this includes improvingthe end-to-end product visibility) (61%) Creation and introduction of new business strategy/models(56%) Clearer understanding of clients' requirements to launchnew products or services (55%) Focus on new back-office strategies to change and enhanceor modernize business processes (47%) Digital business directly impacts the company's ability to make money, which makes it in the principal strategic reason for taking this trend very seriously and urgently. Based on the responses of 609 participants of Gartner 2016 CIO Survey, revenue from digital sales is expected to increase from an average of 16% today to 25% in two years to 37% in five years. Our CIO Survey 2016 sees digitalization/digital marketing now as the No. 5 priority for 2016 priorities. The Digital Business Application Fulfillment Survey (concluded in October 2015 with 167 respondents between IT and Business executives) shows for the majority that both CIOs and IT people are primarily responsible for driving digital business initiatives and application selection, procurement and implementation for end of 2015 and early However, the same study also shows that decisions are being driven from across the enterprise, with a higher proportion in digital initiatives being driven coming directly from business executives, CMOs, innovation committees and individual business units. It requires a different ability to execute as well as more composite application software solutions or digital platforms. For example, it is one thing to know your customer, and it's another to be able to move products "profitably" to ensure delivery expectations are met and that the business is profitable in doing so. For example, allocating merchandise in the right location such as in store or warehouse so that it can be delivered how the customer wants it implies a closer integration between SCM and CRM. Consequently while the customer experience is a driver, in the application realms, it involves much more than just the CRM solution. Similarly, creating a compelling customer experience will inevitably drive convergence and tighter integration between Web content management, e-commerce, portals, user experience (UX) design, analytics and CRM. In turn, this convergence will drive a reinvention of the back-office applications that will need to adjust to the expanding transactional activity occurring through multiple digital means. Source: Gartner Digital Business Document Collections; Digital Business Survey 2015 (total number of respondents = 210) Buying Behavior: Bimodal IT Practice for IT Delivery Will Extend and Change the Decision-Making Structures Bimodal IT is the practice of managing two separate,coherent modes of IT delivery within the same enterprise,with one mode focused on stability and the other focusedon agility, predictability and experimentation or uncertainty. Mode 1 is sequential, emphasizing predictability andaccuracy; Mode 2 is exploratory and nonlinear,emphasizing agility and managing uncertainty. Each mode has specific requirements for people,resources, partners, structure, culture, methodologies,governance and metrics, as well as different attitudestoward value and risk. New investments are deployed through one of the twomodes, depending on the balance of business priorities.When the balance changes, investments and operationsmove seamlessly between modes as the situation dictates(see "Kick-Start Bimodal IT by Launching Mode 2"[G ]). 64% Bimodal IT practice will drive out Mode 2 programs and initiatives through which the business will learn and determine the broader transformational direction. Consequently, as the bimodal IT practice learns its way through the exploratory and experimentation phases, it will assign a value and establish a practice to the enabling technologies it identifies and more so to related providers. This is why application software providers must play a role in supporting these programs and initiatives. More importantly, application software providers must find ways to accelerate the transition to modern application software designs and deployment options to increase the agility and speed expected to respond to their business stakeholders' craving for successful business outcomes. Source: 2016 Gartner CIO Survey (948 CIO respondents represent 32%) Buying Behavior: Many More and New Decision Makers to Align
Digital Business Decision Makers Versus Application Ones The CIO is still in the lead of most digitalbusiness efforts. The fastest-rising single job title in digitalbusiness leadership is the VP of digitalbusiness. The chief digital/innovation officer has sloweddown in comparison growing but not asmuch as the other titles. Powerful stakeholders: CEO and CFO. Many others are involved: COO, CxOs. The intermix between IT, business and digital leadership will need suppliers to rethink how they position and sell into their target accounts. Sources: Digital Business Survey (number of respondents = 304; Digital Business Application Fulfillment Survey, October 2015 (number of respondents =167 IT and business leaders). Buying Behavior: Top Five Applications Priorities in 2016
Business applications fulfilling digital business initiatives: 1. Mobile applications 2. Enterprise software applications 3. Business analytics applications 4. SaaS applications 5. Digital marketing applications Most influential in evaluation and selection of application provider: 1. Has a demonstrated understanding of the business/industry/business process 2. Has openness, integration and interoperability standards 3. Is a trusted brand with credibility in my organization 4. Offers a choice in delivery, pricing and licensing options 5. Has a center of excellence and/or innovation center Mode 2 initiatives create positive dynamics for installed and new application software: Modernizing and digitalizing Mode 1 IT delivery dynamics. The growth curve of modernization driven by digital business initiatives starts with functionally extending existing enterprise application software particularly ERP, CRM and SCM and developing mobile applications and business analytics applications. Accessing and/or building new skills for mobile application development and business analytics applications and models. Contextualizing application capabilities and functionalities for specific business use cases Extending integration and interoperability, especially to unlock information held inside siloed applications, create flow streams and end-to-end processes inside-out and outside-in. Source: Digital Business Application Fulfillment Survey, October 2015 (number of respondents = 167 IT and Business leaders) Buying Behavior: Looking for New Sources of Help
From an application perspective, which of the following have you been using in order to fulfill your digital business initiatives and which ones will you add in order to support your digital business initiatives for end of 2015/early 2016? Diversification is desirable at such a time to create new economies of scale at the lower end of the market while investing to increase the value for business at the top end of the value chain. Application providers and in particular those targeting digital workplace investments have the opportunity to diversify by bundling together the telephony/Internet/mobile services with essential productivity applications. These business essentials can open a natural cooperation or merger opportunity between communications service providers and independent software vendors. Source: Digital Business Application Fulfillment Survey, October 2015 (number of respondents = 167 IT and business leaders, excludes don't knows) Recommendations by Market Segment
Global Application Software Providers SMB Application Software Providers Accelerate Modernization Unique Advanced Analytics Value Creation Value Prop: CxO, CIO, CFO Realistic and Impactful ROI Co-create Global Application Software Providers Accelerate the dynamics for enterprise application software replacement and/or modernization to support business process digitalization: Make sure your value proposition is aligned to the business goals of your customers not only in words but also by means of commercial reinvention and new ecosystem offerings. Separate out and define a new organization to pursue Mode 2 type opportunities (see concluding slides for the initial roadmap). Ensure consistency of customer service and messaging consistency between yourself (as the OEM) and your system integration and business consulting partners. Identify and communicate what unique advanced analytics capabilities are in your platform that differentiate your offering. Promote how your solution will help organizations become digital businesses and support a bimodal approach. SMB Application Software Providers Work on refining, differentiating and aligning your value proposition for the CxO; the CIO and the CFO. Focus on delivering and proving your ability to provide a realistic and impactful ROI. Highlight any specialized business knowledge you have: industry focus, process/domain specific. Co-create with your customers. Launch your digital lab! Recommendations by Deployment Model
Cloud-Native Application Providers On-Premises Application Providers Customer Satisfaction Easy Adoption for Mode 2 Integration in Mode 2 POCs, Pilots Hybrid Cloud Native Application Providers Emphasize customer satisfaction (enterprise buyers and employee users) with your services and your partner ecosystem. Maximize the ease of integration and user experience of your application in Mode 2 proofs of concept and pilots. Promote evidence of what business changes came about as a direct impact of shifting to the cloud. On-Premises Application Providers Develop solutions that can be easily tested or adopted during Mode 2 engagements and delivered through SaaS. Plan for a hybrid on-premises/SaaS business as a way of protecting and extending your penetration with existing customers. Enter adjacent, converging markets to create and deliver a full user experience benefits and support your customers as they execute on becoming digital businesses. How Cloud Changed the Business Enter Near Markets How Can the Application Software Providers Seize That Growth
How Can the Application Software Providers Seize That Growth?What do successful competitive andgo-to-market strategies look like? Offer the right bimodal mix
Application Software Providers Also Must Develop a Bimodal Strategy and Bridge the Gap Between the Two Modes Mode 1 Digitization Commercial Reinvention Bundling SaaS Transition Services Enabling Components Mode 2 Digitalization Business Co-creation Shared Risk Models Bring Insight, Vision, Clarity, Rigor Transforming New Designs New Skills New Approach Digital Ecosystems Digital Platforms Shaping the Future Replacements Rapid Modernization Legacy Transition SaaS Enabling Platforms Industrialization Application providers must adopt a bimodal go-to-market strategy to align with demand-side needs and practices (see "Vendors Must Become Bimodal to Survive the Flip to Digital Business" [G ] and "Technology Service Providers Must Implement a Bimodal Roadmap or Risk Irrelevance and Decline"[G ]). There is a window of opportunity that opened in 2015 to learn Mode 2, while transitioning and industrializing Mode 1. This period will attract new competitors that will inevitably disrupt and challenge the status quo even further and will require change management to be systematized within your business. Adopting a bimodal strategy allows to identify and run differently (with different financials and performance metrics) the dedicated organizations and their related professionals to ensure speed of innovation. More importantly, a bimodal strategy allows for the ability to explore, experiment and fail, to identify and rapidly industrialize the lessons learned on Mode 2 projects, and transfer those back to the rest of the company. Adopting Mode 2 operational and go-to-market strategies, to respond to the demand side's equal initiatives will create the necessary freedom to think, decide and act differently, to disrupt the internal conventions (for example, developing disrupting but fitting new partnerships) and shape the operations and go-to-market required to help your customer on the path to transition and to transform. Mode 2 initiatives will increasingly drive Mode 1 opportunities to modernize, and suppliers must plan to accelerate this transition. Offer the right bimodal mix Case Study Snapshot: Telecom Italia Digital Solutions Exemplifies Mode 2 Strategy
Accountability: Dedicated and accountable LOB/company for each digital offering: cloud; IoT; analytics; security and identity; customer data monetization; and verticals Decisional and executional autonomy: Each LOB runs its operations autonomously including platforms, sales and marketing Multifaceted partner ecosystem: Developed partnerships and reseller agreements with traditional IT value networks, global-scale cloud providers, developers and governmental agencies (provisioning to citizens of digital identities) Legal entity created in June 2013,with goal to play a leading role indigital transformation initiatives of itscustomers (B2B), their industries andtheir customers (B2B2C) Platform-based E2E solution provider Commercial operations expanding toselected countries by opportunity(South America, EMEA ) CAGR +75% by LOBs; profitabilitytarget CAGR +23%; partner businessdevelopment: CAGR +13% Most communications service providers have already identified the opportunity of climbing up the value chain and provide application services alongside their traditional communication ones that are serviced through the cloud. However, the communications business model operates in a very different way than a software one and even more so than an application software one. This quick case study exemplifies how to rapidly gain the experience into a new business and operating model and organizing principles. By creating an entirely separate legal entity, the large incumbent (Telecom Italia) provided the new company (Telecom Italia Digital Solutions TIDS) the necessary levels of accountability, decisional and executional autonomy and ability to look to and develop new nontraditional partners that would otherwise very rapidly come against established practices. It also provided a clear profit-and-loss organization to account for independently and objectively for its successes, thus making its "change and transformation" unbiased and publicly visible. Recent announcements by Telecom Italia see TIDS being incorporated back into the group's IT company Olivetti to transfer in the innovative experience and practices to increase the group's overall competitiveness and ability to respond to the developing opportunities and challenge of their customers becoming digital businesses. GE's Digital Reinvention
"On our current trajectory,GE is on track to be aTop 10 software company." Jeff Immelt, CEO, 2015 GE is the epitome of a big traditional company it has been part of the Dow Jones Industrial Average since 1907 and is ranked No. 8 on the 2015 Fortune 500 list with about $148 billion in revenue. GE is a conglomerate with a huge range of businesses, from jet engines to wind turbines to oil-drilling equipment. About five years ago, GE began to focus on future opportunities associated with what it dubbed "The Industrial Internet" and "Industrial App Economy." It was based on the idea that companies have software running on all kinds of machines used in the workplace. If these devices could collect data, then transmit it to a central location where GE's software could analyze it, that data analysis could be useful to businesses. GE's pitch was predicated around the huge economic gains that even a 1% improvement in efficiency might bring to a number of industries amounting to many millions of dollars if they used its software. The company went on to develop an entirely new common platform called Predix, which acts as a bridge for its analytics and applications in order to transform its business and "reimagine its overall service portfolio." Today Predix, GEs cloud-based analytics software that the company just opened to outside developers earlier this year, will surpass $6 billion in revenue. GE CEO Jeff Immelt says that he expects the software business to grow to $15 billion by GE is highlighting how every company is becoming a digital business that revolves around software and delivering a whole new set of outcomes that are specific to the business applications of its customers. Even the most traditional businesses should have strategies for harnessing the power of data, analytics and mobility to deliver valuable new business applications to customers or risk disruption. This analysis is based entirely on publicly available research. Sources: M. Rosoff. "Jeff Immelt: GE Is on Track to Become a 'Top 10 Software Company.'" Business Insider. 29 September P. C. Evans and M. Annunziata. "Industrial Internet: Pushing the Boundaries of Minds and Machines." GE November 2012. How Can the Application Software Providers Seize That Growth
How Can the Application Software Providers Seize That Growth?How can providers differentiate? Unique selling points? In the Digital Realm, Ecosystems Are Foundational, Not Optional
Enterprise Internal Domain External "Digital" Domain New Value Networks, Opportunities, Competition .com Business Applications Partner Government Agency What to What? What to Whom? By Whom?With Whom? Headquarters ECM Office SCP ERP CRM BI Affiliate To digitally transform means to expand your presence and footprint online, on mobile devices and increasingly in things, to connect and be connected with other players of the digital realm. To do so, companies need enabling technologies and also a great degree of reinvention, re-engineering, ideation and creative thinking. Moreover, they need to establish new business ecosystems because customers and citizens experience the digital dimension holistically for a variety of reasons not merely just to buy goods and services. Creating value in the digital dimension goes beyond monetization. It requires the continuation of experience across a variety of touchpoints and with a life cycle approach, paralleling information and participation, and creating conveniences with the services being offered and delivered. In the digital realm, business ecosystems are foundational, not optional. Digital Supplier Value Network: Buyers Get More Choice
Digital Supplier Value Network: Buyers Get More Choice! Add to Your Unique Selling Points Web Mobile Things Cloud-Based SaaS Provider IaaS/PaaS Provider Developer Start Up ISV OSS Things Provider Mobile Device Provider Digital Platforms Digital Solutions Digital Transformation Initiatives New Market Entrants/Creators Digital Builders' Most Valuable Contributors CSPs The Essentials to Connect and Work Cloud Provider: Contender/Partner Cloud Providers New Paradigm Service Providers The consequence of ecosystems being foundational means two things for application providers: They must design their applications to work with others, open, interoperable, agile, flexible, standards compliant and secure. Their applications must enable their customers in creating and developing their business ecosystems beyond their intranets in support of their unique business operational and/or distinctive requirements. They must develop a digital supplier value network in support of their own application software offerings to support their customers' experiences and create experiences for their customers that deliver value (such as, facilitating participation and creating convenient ways of doing things). In the traditional value networks based on enterprise application software licensing and projects, the roles of players were well-defined and driven by the demand of the project. The buyer defined and procured directly or through a main contractor what it required. The cloud paradigm forces the players to organize themselves in taking the solution to market and in delivering the experience to their customers. Four very significant players are leading the new digital supplier value networks: Cloud Providers These lead the paradigm shift and have implemented enterprise application marketplaces as a means to develop their ecosystems and deliver value to the end customer. "Digital Builders" These are the professionals that have the modern programming skills to fulfill digital projects of both technology companies and nontechnology companies. They are masters of new technologies such as application architectures, app development software, mobile application development, smart machines and IoT applications. New Market Entrants/Creators These players can be technology companies, Web natives (such as Apple, Google, Amazon, Alibaba and Salesforce) or increasingly end-user companies, such as large utility and services companies. These players will not be selling or delivering the applications as their products or as a service but rather provide a business experience (transactional/collaborative) and information-based offerings. Communication Service Providers (CSPs) CSPs have a major opportunity to become an essential player in the digital realm, primarily because any player needs their essential technologies for connecting and communicating. CSPs in the last several years have been developing upward into the value-add network to provide essential applications for the businesses together with their networking, connectivity and communication services. They are equally a contender and a partner for cloud service providers. (See "Market Trends: Worldwide, Five Essential Activities for CSPs in the Digital Era, " [G ]. Recommended Reading: "Tech Go-to-Market: A Definition Guide for Technology Sales and Channels" (G ); " Tech Go-to-Market: European Channel Trends, 2016" (G ). Recommendations by Market Segment: Unique Selling Points
Global Application Software Providers Don't lock in your customer; instead,position to create business value throughyour offerings and those of yourecosystem Seek and align to consulting and systemintegration partners who are able todeliver the vision you are creating (thesemay not be same partners that you havetoday) Even your customers may transform intodigital suppliers and be part of a wider anddifferentiated value network Consider acquiring, merging, and/orpartnering with communications serviceproviders and native dot-com businesses SMB Application Software Providers Show how you can be more focused anddeliver more appropriate solutions to asmaller customer than global applicationcompetitors Establish a presence in the most influentialapps stores for SMBs Expand your mobile development and UXdesign skills Partner/develop with a traditional businessservices company looking to digitalize itsservices Recommendations by Deployment Model: Unique Selling Points
Cloud-Native Application SoftwareProviders Offer a holistic experience versus afragmented one Show openness and choice when itcomes to integration strategies Develop and allow for extensiveconfiguration so end customers do notfeel it is your way or not at all On-Premises Application SoftwareProviders Offer a hybrid deployment opportunity;show how adopting a hybrid solution froma single vendor benefits the user in termsof process and data integrity Ensure and demonstrate how yourapplication stack can be functionallymodified without sacrificing onupgradability by protecting the core yetallowing for custom processes andfeatures that do not interfere with the coreapplication Action Plan for Next Six MonthsDevelop a bimodal strategy to leverage the dynamics being set in motion by your customers. Three Steps to Start Off Your Bimodal Strategy: Use It as an Organizing Principle
1. Launch Mode 2 Structure to respond to any size digital business innovation initiatives Identify where you can create value, where there is the greatest cultural fit and profit potential Identify where you have gaps: talent, knowledge and skills 2. Transform Mode 1 Propel your marketing, sales and channel efforts to create a sense of urgency and convenience to accelerate legacy modernization Be aggressive; aim at displacing the competition Develop talent and foster continuous learning culture 3. Bimodal in Action Let Mode 2 drive and transform Mode 1, and let Mode 1 industrialize rapid innovation Systematize the emerging bimodal practices to establish a new order of things (business model) Focus on differentiation and competitive advantage Business unit leaders should consider this advice as an organizing principle to help them identify the gaps and what needs addressing, changing and developing in order to position themselves as credible counterparts to the building of digital business constructs and projects' fulfillment plans. The term and Gartner advice on bimodal is here repurposed and proposed as an organizing principle to develop a strategy for the different types of application software providers and to commence organizing and visibly planning for success in supporting their customers become digital businesses or partners in delivering to that same goal. Mode 2-type initiatives are already visibly demanding a different approach to their providers and are driving decisions dynamics on existing applications portfolios. Teams in charge of fulfilling these initiatives often rely more heavily on their own internal development capabilities and skills, turn more often to startups, and in fact have all created organizations that have the objective of scouting and monitoring startups. These teams look more often to open-source software building blocks and evaluate how and in what direction to evolve existing applications before they commit to buying any new one. Application architectures also are being innovated, and more commoditized applications such as Office are being shifted from on-premises to cloud-based SaaS. There is also an extreme but very important chain of initiatives and related activities that see experimenting and exploring use of emerging technologies. Most application software providers find it very hard under their current operating model and practices to step in, support and deliver upon these projects, yet it is from these experimentations that breakthrough solutions will emerge. Actively participating to these projects requires a different way of measuring the performance, of allocating the required resources, of selecting and sourcing the right partners, of managing the right mix of teams, and of managing the account. It is for all these reasons that a bimodal strategy can help at least logically to separate out what needs to be done differently, by whom, with whom and through whom. A bimodal strategy can reveal what gaps need bridging, where they are in the organization, and what investments are worth taking and in what directions. Work Through This Organizational Framework to Start Your Bimodal Strategy Roadmap
Mode 1 Market Share Market Entry Replacement Markets Train and Coach; Rotate Jobs Interdisciplinary Teams Focus on Market Share and Increasing Brand Recall Value Commercial Reinvention Shift to Subscription Innovative Contracting Develop Services for Transition Strategies Away From Legacy Develop Holistic Approach Out With the Old and in With the New! Leadership Operations Marketing Sales/Channel Services Delivery Product Development Mode 2 Commit to a Business Model Innovation Build the Team and Provide Funding Brand Building/Understanding the New Competitors Insight/Consultative Selling/Performance-Based Contracting Build New Service Model Create a Co-creation Lab; Iterative Process; Development and Design Skills Step 1 Step 3 Step 2 Complementary and Recommended Research Gartner Research Addresses Specific Roles
Business UnitLeaders Strategic Planners Product Leaders Marketing Leaders Sales Enablement Roles We Address Enterprise Applications Software Cloud-Based SaaS "Forecast Analysis: Enterprise Application Software, Worldwide, 2Q15 Update" (G ) "Competitive Landscape: Public Cloud Business Application Marketplaces, 2015" (G ) "Market Trends: Prepare Now to Smooth the Inevitable Transition to a Subscription-Based Business Model" (G ) "Market Trends: Move Beyond Homegrown Licensing and Entitlement as the IoT Creates New Revenue for Software" (G ) Market Segments: BI and Analytics, CRM, ERP, SCM, Office, ECM "Market Trends: Business Intelligence Tipping Points Herald a New Era of Analytics" (G ) "Ten Reasons to Reach Beyond Basic Business Intelligence" (G ) "Emerging Provider Executive Insights: Move Now to Seize the Opportunity in the Personal and Ecosystem Eras of Analytics" (G ) "Strengthen Your Sales Analytics Initiative With These Six Best Practices" (G ) "Using Mobile Geoconquesting to Steal Customers From Competitors" (G ) "Forecast Overview: CRM Software, Worldwide, 2015" (G ) "Market Trends: Digital Commerce Platform Software Opportunities in Southeast Asia" (G ) "Market Snapshot: Customer Relationship Management, Worldwide, 2014" (G ) "Technology Overview for Travel Expense Management Applications" (G ) "Technology Overview for Employee Recognition and Rewards Software" (G ) "Market Trends: SAP Service Provider Opportunities in a Postmodern ERP World" (G ) "Market Guide for Contract Life Cycle Management" (G ) "Survey Analysis: SaaS Trends Providing Opportunity in the Supply Chain Market" (G ) "Market Snapshot: Supply Chain Management Software, Worldwide, 2014" (G ) "SWOT: Google Apps for Work, Worldwide" (G ) "Competitive Landscape: Cloud-Based Office Productivity Tools, Worldwide, 2015" (G ) "Market Trends: New Mandates and Market Structures for Content Management Drive Growth in 2015 and 2016" (G ) Examples of Recently Published 2015 Research Key InitiativePrimer: Build andMarket DigitalApplicationOfferings Primer for2016 Key InitiativePrimer: ExploitApplicationSoftware Dynamics Key InitiativePrimer: Shift On- Premises Offeringsto Cloud-BasedSaaS Software AdoptionPredicts Upcoming Research2016 Gartner has research that addresses and spells out all the key points touched up in this application scenario presentation document. Application software providers (ASPs) should also note that our research is now directed specifically at roles within ASPs organizations. We advise that ASP take advantage of inquiry to discuss published and upcoming research with application software analysts. Appendix: Gartner Definitions Gartner Definitions Digital Business: The creation of new business designs by blurring the digitaland the physical worlds. Digital Transformation: The execution of a digital business strategy. Digitalization: The use of digital technologies to change a business model andprovide new revenue and value producing opportunities. (It is the process ofmoving to a digital business.) Digitalize: To move a business or process toward digitalization. Digitization: The process of changing from analog to digital form. Digitize: To change from analog into digital form.