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 Primarily Written for Business Unit Leaders ID: 679095
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Slide1
The Gartner Scenario for Application Software Providers: Building Digital Transformation in a Bimodal World
Bianca F. Granetto, Chris Howard, Daryl Plummer, Claudio DaRold, Robert Anderson, Chad Eschinger, Joanne Correia, Nigel Montgomery, Jim Hare, Chris Pang, Neil McMurchyJanuary 2016
Primarily Written for Business Unit LeadersSlide2
Growth and Profit Will Come From Leveraging the Bimodal Dynamics Set in Motion by Your Customers
Digitalization/
Digital Business
Digitization
Modernization
Window of opportunity 2010-2030+
Mode 1
Window of opportunity
is open!
2015-2030+
Mode 2
The world we know
The world in the making!Slide3
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 by your customers.
Key IssuesSlide4
Where Will the Growth Come From? Slide5
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 sophistication of advanced analytics offered in their solutions.By 2020, 60% of business users will be provisioned, in whole or in part, with office system capabilities from the
cloud.
By 2020, for the first time, cloud-based growth will propel North American small or midsize businesses (SMBs) to a leadership position over large enterprises in total ERP 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 which will be expensed for software directly out of their budgets.Slide6
On average percentage of revenues being spent on IT = 3.2%
2016 CIO Survey: +2.2% average increase in IT spending17% of IT spending happens outside of the IT budget on average40% is directly influenced or paid for by LOBs
On average percentage of revenue that will be spent on digital business = 10%*
The average proportion of investments being handled in a Mode 2 manner is 25%
SMB companies reported that on average 28% of their revenue comes from digital sales, expected to increase above 40% next five years**
95% of global businesses are, in fact, SMBs
New Resources Are Being Mobilized for Digital
* = 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); 2016 Gartner CIO Survey (2,944 CIO respondents)Digital Transformation Initiatives will generate new revenue streams in the next two years and beyondFollow the Money!+ x3Slide7
Global Application Software Providers
SMB Application Software ProvidersRecommendations by Market Segment
Sunset Old Offerings
Diversify
Embed Analytics
Pursue Digital Opportunities
Plan Realistically
Specialize and SimplifySlide8
Cloud-Native Application Software Providers
On-Premises Application Software ProvidersRecommendations by Deployment Model
Bundling for Essentials
Focus on Customer Service
Comparative and Competitive Entrants
Offer Subscription
Agile Development
Have a Roadmap to Transition Customers to SaaSSlide9
How Can the Application Software Providers Seize That Growth?
How will the buyers behave?Slide10
Buying Behavior: Digital Gets Strategic Attention and Sense of Urgency
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 targetsSource: Gartner Digital Business Document Collections; Digital Business Survey 2015 (total number of respondents = 210)Top Five Highly Relevant Factors to Organizations Definition and Execution of Digital BusinessCreation of client value and new revenue streams (66%)Focus on new front-office strategies to reach the customer or change the customer experience (this includes improving the end-to-end product visibility) (61%) Creation and introduction of new business strategy/models (56%)Clearer understanding of clients' requirements to launch new products or services (55%)Focus on new back-office strategies to change and enhance or modernize business processes (47%)GROWTHSlide11
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 focused on
agility, predictability and experimentation or uncertainty. Mode 1 is sequential, emphasizing predictability and accuracy; 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 attitudes toward value and risk. New investments are deployed through one of the two modes, depending on the balance of business priorities. When the balance changes, investments and operations move seamlessly between modes as the situation dictates (see "Kick-Start Bimodal IT by Launching Mode 2" [G00273955]).
Buying
Behavior
:
Bimodal IT Practice for IT Delivery Will Extend and Change the Decision-Making Structures
Source: 2016 Gartner CIO Survey (948
CIO respondents represent 32%)64%Slide12
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
d
igital business efforts.
The
fastest-rising
single job title in digital business leadership is the VP of digital business.The chief digital/innovation officer has slowed down in comparison — growing but not as much as the other titles.Powerful stakeholders: CEO and CFO.Many others are involved: COO, CxOs.Sources: Digital Business Survey (number of respondents = 304; Digital Business Application Fulfillment Survey, October 2015 (number of respondents = 167 IT and business leaders).Slide13
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 process2. Has openness, integration and interoperability standards3. Is a trusted brand with credibility in my organization4. Offers a choice in delivery, pricing and licensing options5. Has a center of excellence and/or innovation centerBuying Behavior: Top Five Applications Priorities in 2016Source: Digital Business Application Fulfillment Survey, October 2015 (number of respondents = 167 IT and Business leaders)Slide14
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?
Source: Digital Business Application Fulfillment
Survey,
October
2015
(number of respondents = 167
IT and business leaders, excludes don't knows)Slide15
Global Application Software Providers
SMB Application Software ProvidersRecommendations by Market Segment
Accelerate Modernization
Unique Advanced Analytics
Value Creation
Value Prop: CxO, CIO, CFO
Realistic and Impactful ROI
Co-createSlide16
Cloud-Native Application Providers
On-Premises Application ProvidersRecommendations by Deployment Model
Customer Satisfaction
Integration in Mode 2 POCs, Pilots
How Cloud Changed the Business
Easy Adoption for Mode 2
Hybrid
Enter Near
M
arketsSlide17
How Can the Application Software Providers Seize That Growth?
What do successful competitive and go-to-market strategies look like?Slide18
Mode 1
Digitization
Commercial Reinvention — Bundling SaaS
Transition Services
Enabling Components
Mode 2
Digitalization
Business Co-creation — Shared Risk ModelsBring Insight, Vision, Clarity, RigorTransforming
Application Software Providers Also Must Develop a Bimodal Strategy and Bridge the Gap Between the Two ModesOffer the right bimodal mixReplacementsRapid ModernizationLegacy TransitionSaaSEnabling PlatformsIndustrializationNew Designs New SkillsNew ApproachDigital EcosystemsDigital PlatformsShaping the FutureSlide19
Legal entity created in June 2013, with goal to play a leading role in digital transformation initiatives of its customers (B2B), their industries and their customers (B2B2C)
Platform-based E2E solution providerCommercial operations expanding to selected countries by opportunity (South America, EMEA …)CAGR +75% by LOBs; profitability target CAGR +23%; partner business development: CAGR +13%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)Slide20
GE's Digital Reinvention
"On our current trajectory, GE is on track to be a
Top
10 software company
."
Jeff Immelt, CEO, 2015Slide21
How Can the Application Software Providers Seize That Growth?
How can providers differentiate? Unique selling points?Slide22
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
AffiliateSlide23
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 UpISVOSSThings ProviderMobile Device Provider
Digital PlatformsDigital Solutions
Digital Transformation InitiativesNew MarketEntrants/CreatorsDigital Builders' Most Valuable Contributors
CSPs
The Essentials to Connect and Work
Cloud Provider: Contender/Partner
Cloud Providers
New Paradigm
Service ProvidersSlide24
Global Application Software Providers
Don't lock in your customer; instead, position to create business value through your offerings and those of your ecosystemSeek and align to consulting and system integration partners who are able to deliver the vision you are creating (these may not be same partners that you have today) Even your customers may transform into digital suppliers and be part of a wider and differentiated value network
Consider acquiring, merging, and/or partnering with communications service providers and native dot-com businesses
SMB Application Software Providers
Show how you can be more focused and deliver more appropriate solutions to a smaller customer than global application competitors
Establish a presence in the most influential apps stores for SMBs
Expand your mobile development and UX design skills
Partner/develop with a traditional business services company looking to digitalize its services Recommendations by Market Segment: Unique Selling PointsSlide25
Cloud-Native Application Software Providers
Offer a holistic experience versus a fragmented oneShow openness and choice when it comes to integration strategiesDevelop and allow for extensive configuration so end customers do not feel it is your way or not at all
On-Premises Application Software Providers
Offer a hybrid deployment opportunity; show how adopting a hybrid solution from a single vendor benefits the user in terms of process and data integrity
Ensure and demonstrate how your application stack can be functionally modified without sacrificing on upgradability by protecting the core yet allowing for custom processes and features that do not interfere with the core application
Recommendations by Deployment Model: Unique Selling Points Slide26
Action Plan for Next Six Months
Develop a bimodal strategy to leverage the dynamics being set in motion by your customers.Slide27
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 ActionLet 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 advantageThree Steps to Start Off Your Bimodal Strategy: Use It as an Organizing PrincipleSlide28
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!
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
M
odel
Create a Co-creation Lab; Iterative Process; Development and Design Skills
Work Through This Organizational Framework to Start Your Bimodal Strategy Roadmap
Leadership
Operations
Marketing
Sales/Channel
Services Delivery
Product Development
Step 1
Step 2
Step 3Slide29
Complementary and Recommended ResearchSlide30
Gartner Research Addresses Specific Roles
Business Unit Leaders
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" (G00279474)"Competitive Landscape: Public Cloud Business Application Marketplaces, 2015" (G00262514)"Market Trends: Prepare Now to Smooth the Inevitable Transition to a Subscription-Based Business Model" (G00290238) "Market Trends: Move Beyond Homegrown Licensing and Entitlement as the IoT Creates New Revenue for Software" (G00277387)
Market Segments: BI and Analytics, CRM, ERP, SCM, Office, ECM"Market Trends: Business Intelligence Tipping Points Herald a New Era of Analytics" (G00264016)"Ten Reasons to Reach Beyond Basic Business Intelligence" (G00227064)"Emerging Provider Executive Insights: Move Now to Seize the Opportunity in the Personal and Ecosystem Eras of Analytics" (G00278429)"Strengthen Your Sales Analytics Initiative With These Six Best Practices" (G00274949)"Using Mobile Geoconquesting to Steal Customers From Competitors" (G00278576)"Forecast Overview: CRM Software, Worldwide, 2015" (G00275913)"Market Trends: Digital Commerce Platform Software Opportunities in Southeast Asia" (G00274134)"Market Snapshot: Customer Relationship Management, Worldwide, 2014" (G00275912)"Technology Overview for Travel Expense Management Applications" (G00272872)"Technology Overview for Employee Recognition and Rewards
Software" (G00275498)"Market Trends: SAP Service Provider Opportunities in a Postmodern ERP World" (G00270342)"Market Guide for Contract Life Cycle Management" (G00276707)"Survey Analysis: SaaS Trends Providing Opportunity in the Supply Chain Market" (G00275970)"Market Snapshot: Supply Chain Management Software, Worldwide, 2014" (G00275972)"SWOT: Google Apps for Work, Worldwide" (G00270208)"Competitive Landscape: Cloud-Based Office Productivity Tools, Worldwide, 2015" (G00271898)"Market Trends: New Mandates and Market Structures for Content Management Drive Growth in 2015 and 2016" (G00277482)
Examples of Recently Published 2015 Research
Key Initiative Primer:
Build
and Market Digital Application Offerings Primer for 2016
Key Initiative Primer: Exploit Application Software Dynamics
Key Initiative Primer: Shift On-Premises Offerings to Cloud-Based SaaS
Software Adoption Predicts
Upcoming
Research 2016Slide31
Appendix: Gartner DefinitionsSlide32
Gartner Definitions
Digital Business: The creation of new business designs by blurring the digital and the physical worlds.Digital Transformation: The execution of a digital business strategy.Digitalization:
The
use of digital technologies to change a business model and provide new revenue and value producing
opportunities.
(
It
is the process of moving 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.