It’s long been said that the customer is king. Just ask most anyone in today’s IT channel, and they’ll tell you the well-worn adage is taking on even greater meaning as customers act as the driving force behind a growing wave of business transformation in the industry.
Consider: Half of the channel respondents in CompTIA’s new UK State of the Channel report identified customer demand for different delivery and IT services models as the No. 1 reason they’re taking a fresh look at how they do business. That’s followed closely by another 4-in-10 respondents who attribute their efforts to rearchitect their businesses to the rising popularity of cloud computing among those same end-users. Premier Members: Download the report here. Not a Premier Member? Consider an upgrade.
A whopping 7-in-10 channel firms report at least some degree of business transformation taking place in their organization. Business transformation can involve a move to a new business model, like cloud or managed services, or a new vertical industry specialty or technical niche. Generally speaking, channel organizations are aiming to decrease reliance on transaction-based product sales in favor of a business model predicated on recurring revenue and services. In the year ahead, roughly half expect some degree of revenue growth in recurring revenue areas. By contrast, product sales garnered less cheery expectations, with just 9 percent predicting “significant” growth there.
Channel firms will tell you that the recurring services model a smart move for them—and their customers as well. Many end-users find the services model for IT attractive because it allows for more predictable pricing, much like any other utility, and moves technology purchases from a capital expenditure to an operational expense.
Some channel firms are more aggressive than others when it comes to transformation. Of those with some business transformation underway, 20 percent described their degree of change as “very high.” This is consistent with the data collected from US-based channel firms earlier this fall.
New skills are also driving companies to adapt. Respondents said it will be imperative to attain skills around mobile app dev/MDM, cloud computing, the use of social media for marketing and customer communications and big data/business analytics.
Change Comes With Challenges
Channel firms cited a number of obstacles in their transitions. The chief struggle came with balancing existing business needs with new areas of focus, an obstacle that 4-in-10 firms reported. This makes perfect sense, especially for the smallest channel entities. It’s nearly impossible to switch to a new business model overnight; practically speaking, companies need to maintain existing revenue streams to make payroll, keep the lights and otherwise function. Devoting cash flow to a new business line can also present a problem. For these reasons, most channel firms will operate a hybrid model for the foreseeable future, possibly always. That will include a mix between conventional product sales-break/fix work and newer recurring revenue streams.
Other top challenges? Another roughly 40 percent said they needed new technical training, most likely to accommodate new skills outlined above around cloud, big data and mobility solutions. On the nontechnical front, 37 percent said they needed to hire new sales reps with experience selling recurring IT services.
A few other notable data points from the study include:
- In terms of operational efficiency today, channel firms mirrored their US counterparts in self-assessment. Twenty-eight percent gave themselves high marks (very efficient), while the majority (65 percent) acknowledged being efficient in some areas, but needing work in others. Just 8 percent said they were not where wanted to be across the board.
- The greatest threats to future business activity? Price-sensitive customers not buying (53 percent of respondents), competition from new entrants in the market (34 percent) and the industry being squeezed by declining margins (32 percent).
- The majority of UK firms plan some degree of overhaul and/or tinkering with their sales and marketing strategies and operations over the next year. Nearly two-thirds of firms say they routinely sell to non-IT LOB or managing directors/company owners, which is another dynamic at the customer level that is forcing new types of sales conversations and sales training.
Carolyn April is CompTIA’s senior director for industry analysis.
