Tuesday, July 29, 2014

Customers Purchase Benefits, Not Products

Business organizations have core competency in certain areas and are more likely to have strong capabilities in those areas. Firms are also likely to look for outside consultants in areas where they do not have enough home grown talent and more likely to outsource capabilities such as IT in case of an internal gap. This article is a quick overview of some of the decision challenges faced by the firms while trying to decide what capabilities to outsource.

Businesses are facing a challenging landscape. The customer is connected and empowered. The customer can compare healthcare insurance plans at the click of a button. He or she can search for the best price for consumer goods online and order it online to have it delivered the same day. The customer is purely shopping for benefits while the firms are selling products/services to provide those benefits. Consumer needs have changed, since they are exposed to products from across the globe. A customer's access to information is unbound, thanks to internet. This has resulted in firms re-evaluating their business model to see if they are still serving the evolving customer needs. An insurance company offering high deductible plans with a wide coverage might no longer be relevant in a new target market. The new market demand, due to changing demographics, might be for lower deductibles with a smaller specialist network. An historically well-performing video game with MP3 song playing capabilities might no longer be relevant because of the availability of music on smartphones.

Under such scenarios, the firm has to re-think its business model and make key decisions about how best to leverage its existing capabilities to meet the new market demands. After the firm has decided to revamp its product/service to best meet the new consumer needs, it has to review its existing capabilities - human resource capabilities, IT capabilities, supplier capabilities etc. Because of the competitive landscape, the time to market for modified products/services has to be very short. Productivity of its employees becomes critical in order to achieve high speed to market. IT systems play a key role in increasing the productivity of a firm's employees. During the process of selecting a suitable IT product, the firms have to select a product that best compliments its employees’ skills. Not every "out of the shelf" product will meet the needs of the firms. Especially since the changing business needs require updated employee skills, it is rare for "off-the-shelf" products to meet the new needs of the firms exactly. The IT products needs to be customized to the needs of the firms. Under such a scenario, it is critical for the firms to engage with IT product & consulting companies that have worked with firms from various industries and effectively understand the changing needs of its clients. Firms such as IBM have worked with clients from various industries for a long time and collected extensive domain knowledge. This knowledge is helping IBM and other firms in its ecosystem to quickly develop products and solutions to effectively deal with the emerging challenges. IBM products such as IBM BPM 8. X (Business Process Manager), Cognos, ODM (Operations Decision Management) carry with them an history of experience with business clients with evolving needs. This experience has resulted in development of features that are applicable and adaptable to various business needs. E.g.: The business process design and integration capabilities are as adaptable to a retailers in-house legacy mainframe systems as they are adaptable to a newly on-boarded supplier’s web services. Cognos data analytics capabilities can “talk” to an insurance firm’s legacy data source systems as well as capture real time data generated by the process.

When the time to market is so short, it might be difficult for firms to build the IT capabilities in-house. Firms are more likely to benefit from outsourcing IT development in areas where the internal employees have not yet matured at. Besides, the key upside of outsourcing an IT skill is quick development of IT applications and helping in the final goal of delivering a firms product/ service to market faster. Before making the decision to choose an IT consulting firm, the business firm has to evaluate the client portfolio of the IT consulting firm, it's nature of projects implemented historically and breadth of domain expertise. IT consulting firms that have worked with key players in a particular industry have better exposure to industry challenges. Consultants that have a shorter learning curve will achieve higher productivity while helping to design and build an suitable IT application.

Bottom Line: When businesses choose the right, flexible IT application and partner with consultants with right skills, they increase their chances of effectively catering the evolving needs of their customers.

N.R. Vijay is a Solution Architect in the Business Process Management division of Prolifics. He has over 10 years of consulting experience across domains such as Retail, Healthcare and Banking. Specializing in technology, management concepts and enterprise strategy, he is focused on change management and process improvement initiatives. He co-authored a whitepaper titled "Improving Customer Loyalty through Business Process Optimization and Advanced Business Analytics"