Organizational Design – Page 15 – IS Survivor Publishing

Yet more ITaaS business models

We’ve been talking about ITaaS — IT as a Service, which doesn’t mean an IT organization that lives in the Cloud, and does mean an IT organization that runs itself as a separate business that views the rest of the enterprise as its internal customers.

Which means with ITaaS you have broader responsibilities than the head of a business division or department. Starting with the past two weeks’ topic – deciding on your business model, of which we covered about half the ones on my list. To continue … and let me emphasize, I’m not saying these are all good ideas. I’m not going to even try to connect these to anything IT might want to pursue — I’ll leave that to your imagination. But they are common business models, so what the heck:

Size/growth. Whatever it takes to get bigger. The usual end-game is to dominate a market or distribution channel to the point that doing business with you is either unavoidable (de facto monopoly like Microsoft with desktop Windows and Office) or just a lot easier than the alternatives (Amazon).
Do the deal. Live to sign big, interesting contracts. This is an entrepreneur’’ business model. Think Donald Trump and Ross Perot. It’s a business model for people with chutzpah. Not for the faint of heart.
Amoeba. Try a bunch of stuff. Do more of whatever sells and less of whatever doesn’t. This is just the ticket for entrepreneurs who are too prudent to base their futures on doing big deals. Big-deal entrepreneurs will say “risk-averse” or something stronger rather than “prudent,” but they’re pretty much the same thing.
Landlord/Tenant. Also known as the Hollywood Studio Model. You provide facilities for entrepreneurs, internal or external. They take most of the risks; your risk is that they might not succeed well enough to pay the rent.
Return/profit. Whatever it takes to improve the bottom line. Not a good idea, because it encourages business leaders to take their eyes off the ball. Profit should be a consequence of the business model, not the model itself.
Shareholder value. Whatever it takes to drive up the stock price. You know that eyes-off-the-ball thing? Focusing on shareholder value makes focusing on profit look like a good idea.
Wait ’em out. Sure, your marketplace has changed. But if you batten down the hatches and hoist up the landlubbers, maybe big competitors will die first and you can inherit their customers, thereby putting off the inevitable. Think Best Buy, inheriting Circuit City’s customers, thereby looking like it was succeeding even as it was becoming little more than “Amazon’s showroom.”
Charybdis. The business spiral of death, aka “eating the seed corn.” Revenues are declining. Rather than fix the problem, cut costs enough to maintain profit margins. The business will fail, but you’ll pocket enough bonuses to retire in comfort before the inevitable happens.
Find a buyer. Give up. Suck in your gut, put on lipstick and makeup, and find someone with a lot of cash to take you in and give you a nice home.

There you go. If you want to head down the ITaaS path, ask yourself: Just how seriously are you going to take the idea that you’re running a separate business? If you mean it, start with the business model. If it’s just a metaphor, you’ll have to decide how far you’re going to take it.

Which gets to Mike Riddle beating me to the punch on a couple of points he made in last week’s Comments, namely: “If it is really going to be ITaaS, then it must be subject to market forces:

1) It must compete with outside vendors to keep its business, and

2) It must be free to sell to outside business. If it cannot, then the separate run as a profit making unit fails because it is not allowed to develop a full market.”

Yup. If you’re serious about running IT as an independent business, the rest of the business is going to want you to compete with outside vendors for their trade. Then there’s the other side of the coin, namely, that you’ll be dividing IT’s time between the rest of the business and other corporate customers.

Oh, and one more thing — you and your staff will have to get into the habit of responding to the various informal requests for favors you all get from your non-IT colleagues every day, “I’ll be happy to do this. Here’s what it will cost.”

They’ll love that.

More business models for ITaaS

A couple of years ago I “reported,” in InfoWorld that “… the Silicon Valley Rabbinical Society is reportedly experimenting with services as a service, and the Conjunction Society of America will soon offer “as” as a service.”

While we haven’t sunk quite that low … not yet, at least … we do have IT as a Service (ITaaS). This isn’t, fortunately, an attempt to package everything IT does into software you can access through your browser. It is, somewhat unfortunately, the resurrection of the old idea that you should run IT as if it is an independent business, selling to its internal customers.

Last week’s column pointed out a logical consequence — that if you’re going to run IT like an independent business you’ll have to actually run IT like an independent business. Among the ramifications: You’ll have to run IT according to a clearly enunciated business model — a well-defined account of the levers and buttons you pull and push to gain profitable revenue.

In real businesses the “big three” business models are product innovation, customer intimacy, and operational excellence. Likewise ITaaS.

But while these are the most common models, they’re hardly the only ones, and so, in response to popular demand, here’s the first half of the rest of my list of business models employed by real corporations, along with a suggestion of how they might apply to ITaaS.

Business models

Product/service innovation variants

We covered the basic version of product innovation last week, but there are three variants that deserve special mention:

Razor/blades — give away the core product to create a captive market for renewables. ITaaS might, I suppose, “give away” PCs, smartphones and tablets in order to create demand for applications, charging enough for access and use to make a profit on the spread.
Financing — break even on the core product; make money on financing the purchase. Back in the day, GM made more money financing car purchases than it did on vehicle sales. Many health clubs finance memberships and make more on the financing than on the dues. It’s a dangerous play, though. As GM demonstrated, once you head down this path it’s easy to stop caring whether you sell competitive products. ITaaS should blow this one off.
Media — use content as bait; sell content consumers to advertisers. I don’t even want to think how ITaaS might make use of this business model.

The rest

Production capacity/capability. Most hotels and airlines follow this model — they do everything they can to fill rooms and seats.On the apps side of the IT house I’ve heard this called the “leverage” model and it’s a seriously bad idea. It means assigning everyone to enough projects that they’re always busy. The theory: doing so minimizes unit costs by eliminating wasted down time. The reality: According to Tom Demarco, along with just about every developer I know, every interruption and task switch from one project to another costs 15 unproductive minutes. Do the math.On the ops side of the IT house this strategy can make more sense — keeping networks and servers near but not beyond capacity minimizes unit cost. If you’re interested in pursuing this model, two words: hybrid cloud.

Technology/competency. This means finding new uses for something you’re good at. In the world of ITaaS this might have some tactical value, for example, renting out business analysts to help business managers figure out more effective ways of doing things, or renting out project managers to lead non-software-related projects.
Sales/marketing method. Think Amway and Mary Kay — it doesn’t matter what you’re selling, so long as you can use your established selling techniques to sell it. If there’s application to ITaaS I’m not ingenious enough to spot it.
Distribution method. This usually means dominating a distribution channel, and at a minimum means mastering one. For example, you know those nasty companies that trick you into installing adware? That’s an unsavory example. Convenience stores are a non-unsavory example (I nearly said “savory,” but the food they sell isn’t that tasty. Except, of course, for Nut Goodies.)The ITaaS version might be interesting: As IT already has relationships with literally everyone else in the company, figuring out more services that might have business value and could be provided through those relationships has potential.

Natural resources. The extraction industries — forest products, mining, coal, oil … We could push the boundaries, I suppose, and think of everything in the company’s databases as natural resources, making data mining directly analogous to actual mining. But if we did, the Metaphor Police would hunt us down like dogs.Had enough? Too bad — we’re only about halfway done. But it is enough for this week.Stay tuned.