Supplier business models in an automated world
As the pace of progress within existing markets increases year on year there are both new opportunities and substantial challenges to the successful and established companies across many industries. One of the key pathways through this modern landscape is often summed up in the all-encompassing term ‘Digital Transformation’. The definition varies depending on who you ask, but broadly speaking is a mix of modernisation of IT infrastructure and movement to more Agile methodologies. In general, trying to establish a modern software house as part of the business. Large organisations however are a myriad of different functionalities, groupings, operational processes, and supplier companies. In the zero-margin world of high automation and digital scaling, where do these supplier companies fit in? And how relevant are their differing business models in providing value to the host business?
Any large company will know the difficulties in recruiting and retaining highly skilled personnel in a competitive market, the people they need to meet the skills profile their industry requires. But these challenges are multiplied significantly when we add in staffing a modern software development function where speed of innovation is key, and the target skillsets are constantly in motion. With internal staff, we can specialise, train, and develop highly expert digital systems that form the foundation of a modern company, but by its very nature we have to focus on the specific range of technologies within our current needs. An Azure house will lack depth of experience in AWS, Linux expertise will often mean less windows knowledge and so on.
This is an inevitable consequence of normal financial constraints and balances, there is no viable way to keep non-utiliised technical skills in-house just in case we want to pivot technologies at some time in the future. This is not to say that a technology switch will atrophy those skilled staff, we would expect to have the time, space, and the materials to give them the ability to discover and adapt to the changing IT landscape as best practice and new opportunities arise. Indeed this is core to helping people and technology to reach their full potential.
This is the space that suppliers can operate highly effectively in, bringing new ideas. A good supplier company will have people that have moved through a number of different technologies and aided companies with a range of migrations. Through placing this experience selectively within an organisation the process of moving staff skills from one arena to another can be greatly accelerated. The application of experience pointing their skills development down known good paths rather than having to move through all the discoveries that are dead-ends. Where all technical staff have a natural affinity for learning and working with new technology, introducing practical experience can help them to see deeper into them and their strengths and weaknesses in real life.
In partnership with and technology base there is an inevitable amount of operational overhead and technical debt. Over time there develops lots of manual processes in a business. Engineers can easily end up swamped with grinding work which can kill off any hopes of new innovations and development. Suppliers bringing trained and organised staff to pick up the workload and help business to focus can be invaluable, absorbing toil. It also means that retention can be improved for permanent staff who can be guided onto more productive and interesting areas for exploration instead of their development stagnating.
The automation crunch
Whether in banking, retail or any other major industry, there is no place that does not feel the pressure of new competition brought on by leaps in technology. Markets are being challenged by efficient tech-players working zero-margins, utilising highly automated processes and logistics to cut into profits and raise customer expectations of service. There is no one-shot solution to this for an established company. Transformation into a modern, digital organisation takes time, money, and a continuous drive to modernise processes and people.
In this environment, the over-staffing of companies with supplier personnel quickly becomes highly damaging. Poorly structured contracts can disincentivise the streamlining of staffing to meet the business need in the most supportable way, whereas the wrong choice of supplier can set up mis-aligned business models and drive productivity frictions. Where survival for a business in a heavily automated world depends on higher productivity and pace of innovation, too many suppliers bring with them a short-term, low productivity profit model reliant on ever increasing staff placement over the building of longer-term business-to-business relationships.
The conflict of productivity is at its core brought about by inherently opposed business models between host company and supplier. Rewarding increasing staff augmentation is at polar opposites to the businesses existential need to automate down their functions to compete. Fundamentally, if a suppliers pure billing-hours model promotes manual labour over automation, and, if the strategy can not be aligned, the host business will become uncompetitive and fail.
The need for partners
While the mismatch of business goals between suppliers and their customers can be extremely detrimental, fixing it can in itself be more productive than ever before. The same fundamentals that cause the traditional relationship to degrade the company, enhance the positive aspects of getting it right. The benefits of tactical and rapidly applied augmentation to support businesses in innovation and operations are pronounced. The pace of innovation is escalating, giving more impact to the right kind of external support for transformational programmes. The difficulty in recruiting engineering specialisms is substantial, meaning that the application of experienced consultant engineers in re-skilling talented internal staff can be a powerful speed multiplier in changing abilities and culture.
Where some suppliers have struggled to find a place in the modern IT landscape, some have adapted and thrived. Real world engagement across industries as companies have tried to evolve at pace has taught all those involved some valuable lessons. If companies want to benefit from the finding these productive supplier engagements then they need to consider what value they bring to their digital capability, and make sure that they bring the right strengths.
Technical knowledge, the depth and range that comes with practical experiences, a quick start injection for reshaping in-house capability.
Optimisation focus, automation of a businesses day-to-day functions frees up time to focus on innovation at on the horizon, where business differentiators might be found.
Symbiotic business model, if your suppliers success is reliant on goals push against those of the host business, there can be no postive outcome.
First question a customer should have is where and how their prospective supplier expects to make money, and ask the difficult questions. Those suppliers with the right model can help accelerate transformation into a bright digital future, the wrong ones could threaten the organisations viability and survival.