Shadow IT isn't a new concept; we've been talking for years now about the impact shadow IT has on the channel. It goes hand in hand with the movement of professional services firms into traditional channel territory.
Alongside this, many other types of business, from accountants to digital agencies, are offering up tech services that weren't even heard of outside the IT world ten years ago. As all these firms move steadily into traditional channel spaces, the lines separating who does what are blurring to the point of extinction.
Professional services in particular are becoming more and more an everyday part of channel life. With digital transformation becoming an all-but-essential journey for any modern-day organization, any channel partner involved in their customers' digitization will find themselves expected to offer professional services of one sort or another.
In the same way that VARs have had no choice but to become MSPs at some level, so channel partners are finding themselves having to embrace some element of professional services in order to maintain client relationships and stay relevant.
But what exactly are professional services? Why are they a threat to the channel? And what should channel partners be doing to make sure they embrace this shift rather than fall victim to it?
In terms of what professional services are, like many channel topics, it depends on who you speak to. For Karl Bickmore, CEO of Snap Tech IT, which offers professional services, it can be the project work involved after an IT integration, as well as the change projects that are becoming more and more common as organizations embrace digital transformation.
The Arizona-based MSP says 40 percent of its business is now professional services, and it is the change projects where the lines between the channel and professional services really blur, because no change project in today's world exists without some form of IT implementation or alteration. Likewise, no IT implementation or alteration can go ahead without some element of change management.
It's important to note that change occurs as change is needed. Mike Martin, SVP for solutions and services at Logicalis points out that "the market has spoken" and the channel needs to respond.
"People are looking to consume services through an operational model. They're looking for expertise to help them solve real digital-business problems…, to help them reduce costs, reduce or eliminate risk, or grow new lines of business and new lines of revenue opportunity. That's typically what people are looking for when they're seeking out partners - they're looking for help to realize those opportunities."
This change in customer requirements demands change from the channel. Indeed, it calls into question the very identity of the channel. As such, channel players need to think about how they are going to embrace the change and be part of it. If not, they may find they are no longer part of the channel. Bickmore notes that there will be those that will fold or perhaps sell up quickly because they will no longer be relevant and "don't want to make the leap into what's current".
When it comes to how much of a threat professional services and shadow IT are to the channel, according to Jay McBain, principal analyst, channel, partnerships and alliances at Forrester, and originator of the term ‘shadow channels', it's not just real, but all-encompassing.
"There's a whole bunch of cloud providers that are coming in by the hundreds of thousands. There are ISPs, who now number 175,000. There are all kinds of people coming in to compete with traditional technology partners, because every company is a technology company. And every service company in every industry is also a technology company."
Further, he says every line-of-business executive spends 51 percent of their time on technology, meaning technology is no longer the niche it once was, and so offers opportunity to all sorts of businesses.
"Everybody is encroaching, because they see the huge opportunity," he told CPI.
He adds that accounting and CPA firms, for example, are now almost equal in number to VARs and resellers, and that 81 percent of accountants are now offering tech services, such as Sage, Intuit or NetSuite. "They're working with all these vendors at scale," he pointed out.
So the threat is real; very real. So what should partners be doing in order to compete in this new world of seemingly exponential channel players? According to Martin, it's all about how you set the business values of the client.
"When you're selling through a consultative-led motion, you're selling a business outcome, and you're going to manage that experience very differently than you do when you're just looking at managed services… All the technical stuff behind [the outcome] we still need to do, but what the customer's looking for is not to out-task all the little pieces as they're trying to solve the problem, they're saying, give me the outputs of the problem I'm defining to you, and they're assuming you're going to have all the technical expertise, systems, platforms, tooling in place to deliver that. And that, to me, is the difference: one is out-tasking and the other one is really more delivering the outcome."
Along with this, he says verticalization is key, especially for smaller players, who should look to "fine tune" their offerings in order to be able to compete with bigger players who have the scale and resource to cover every angle of a customer's business outcome requirements.
"I think smaller MSPs are going to have to find niches, because the scale of larger service providers is going to take cost structures to a point where the smaller players probably can't compete. So your value is going to have to be established differently."
McBain agrees. He has been saying for some time that channel partners need to specialize not just by industry, but by sub industry. Just targeting medical practices, for example, is not enough. Verticalization now needs to hit five layers of specialization, he told CPI.
"If you can do all mid-size clinics in Northern London, representing the marketing buyer - this is the level of detail [you should aim for] - a mid-sized clinic of 50 doctors, for example. This is a five-level specialization that Accenture, Deloitte and so on or a digital agency won't be able to touch."
But while getting narrow makes it easier to become master of your domain, as Bickmore puts it, channel partners must note that it's not necessarily a simple journey. For many, it will involve saying "I'm going to be a different company than I am today", Bickmore told CPI.
"You may have to change all your customers, or at least the vast majority of them. It's a really, really tough thing to think about, but if you are already niche focused in an industry, that gives you a leg up in being able to do the transformation."
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