January 2016 Feature

Talkin’ SMAC and Digital Transformation

by Hobart Swan

Norma WatenpaughLet’s start off with a definition. The Altimeter Group defines digital transformation as “the realignment of, or new investment in, technology and business models to more effectively engage digital customers at every touch point in the customer experience lifecycle.” Based on her frequent meetings with top business leaders, partner-strategy expert Norma Watenpaugh calls it “the number one agenda of CEOs across all sectors of business.”

Watenpaugh is the founding principal of PhoenixCG, a consulting group that specializes in best practice partner strategies, programs, and marketing. She is also the head of the US Delegation for ANSI (American National Standards Institute), which is working in partnership with the Association of Strategic Alliance Professionals (ASAP) to establish an international standard for managing high-performing, value-creating collaborative business relationships.

In addition to other positions in the tech world, Watenpaugh has served as Senior Director for Worldwide Partner Development at BEA Systems, Director of Strategic Alliances for Amdahl, and Market Development Manager for Sun Microsystems.

Welcome to the World of SMAC

Making this seismic-grade transformation in product and services possible, Watenpaugh says, is the convergence of SMAC: Social, Mobile, Analytics, and
Cloud. And as a phenomenon in the real world, SMAC comes to life in the meshing of connected devices, or what we now refer to as the Internet of Things (IoT).

According to an October 2014 Forbes magazine story, since 2013 more than 650 million of these new devices have come online; 3D printers have become a billion-dollar market; 10% of automobiles have become connected; and the number of Chief Data Officers and Chief Digital Officer positions have doubled. “But fasten your seat belts,” Forbes says, “In 2015, Gartner predicts, all of these things will double again.”

For companies with large channel businesses, Watenpaugh says, growth like this is a very good thing—as long as they are prepared for it. “It’s a huge opportunity, but you have to understand the solutions that will emerge and the business values they will create. And you have to shift your sales model to selling to the business buyer instead of the IT buyer. It’s the business buyer that’s driving the new demand and half the IT budget.”

In fact, the same 2014 Forbes story reported that while CIOs estimated that 79% of IT spending will be “inside” the IT budget, Gartner found that 38% of total IT spending was already outside of IT, and predicted that by 2017, it will be over 50%.

IoT Solution Opportunities Abound

“Every problem is an opportunity,” Watenpaugh says, “and this digital transformation presents channel partners with an opportunity to sell new services and solutions to new buyers.”

One example of this transformation can be found in the manufacturing industry, she says. This past December, Philips and Cisco announced that they were working together to develop an Internet-connected lighting solution. The solution will bring together Philips LED technology and Cisco Ethernet switching gear to enable more efficient lighting in the commercial market. (See It’s official: Philips, Cisco join forces to sell connected lighting for more information.)

Innovations like this, says Watenpaugh, are the result of new ecosystems being built among vendors to enable new services and solutions made possible by connected devices. In most of these cases, these integrations are vertical, enabling one solution to report data that used to be delivered by many separate devices or systems.

“I recently had a discussion with industry leaders about the concept of the smart washing machine. Using IoT, this machine will be able detect when certain parts are going to fail. It will tell you in advance, call the repair service, and order a new part. Through its data-collection function, the washer will also let the manufacturer know that certain parts are going bad at a certain rate so the design can be revisited.”

On the manufacturing floor, she says, the transformation will lead to the development of new instrumentation that will enable companies to manage the production process from a central console. “And then there’s the process of instrumenting the supply chain, using IoT devices to understand how products flow through the chain.”

Watenpaugh sees opportunities for VARS to sell highly engineered applications like smart lighting, as well as solutions for the energy grid, transportation, roads and bridges, and healthcare. But, she says, they also have the opportunity to develop their own solutions.

Finding New Revenue Streams

“Look at what’s happening to the VAR channel,” explains Watenpaugh. “It has been evolving over the years because the margin on resale is not enough to sustain most VAR businesses, particularly since most of that resale revenue is going to the cloud now.”

“VARs are looking for other avenues to create revenue streams. Increasingly, that means new IoT-related services and, in some cases, proprietary development by VARs of their own IOT services. Vendors are seeing this change and are starting to look at their products in terms of being platforms that VARs and others can develop applications for.”

VARs Must Be Prepared to Grab the Opportunity

Watenpaugh refers back to the Philips/Cisco partnership, noting that while they’ve built a transformative, solution-driven ecosystem, what they haven’t talked about is who will provide the analytics and how the solution will get to market.

“That’s where the channel ecosystem steps in,” she says. “Channel partners will need their own ecosystems to implement these complex solutions. That presents a huge opportunity for large systems integrators and the more savvy VARs.”

The emphasis is on “more savvy.” As Watenpaugh notes, the transition to IoT means more products to sell—and more sophisticated products. “Partners won’t be selling just commodity products anymore. They have to step up more to become trusted advisors. They need to learn how to sell—and sometimes build—more complex solutions. They have to be much more vertically sophisticated. And they have to know how to talk to line-of-business buyers or functional leads who are looking for solutions to current problems—or who might need solutions to problems they don’t know they have yet.”

How well individual partners are able to take advantage of these opportunities depends on their level of expertise and sophistication. Some partners are very highly skilled and have found technologies they can excel at and industries where they have a lot of deep expertise.

In most cases though, says Watenpaugh, partners will face steep technology adoption curves. “It relates to how customers adopt new technology. But it also relates to a partner’s appetite for risk and innovation. There will always be VARs or other partners who are looking for a competitive advantage, who want to get ahead of the curve and be the first to work with customers willing to adopt IOT solutions.

Fortune Favors the Bold

Then there will be those, she says, who wait until the market sorts itself out a bit. They won’t take as much risk up front, but instead will come in later. They’ll wait until vendors can give them packaged solutions they can be trained to sell, and until the vendors have created demand for the solutions. Then their role will be to deliver, and support, the product or service.

But Watenpaugh says that if she were a partner she would not “sit still and wait for the vendors to do something.” She says that some VARs that are well on the way to developing specialization in delivering IoT solutions should start marketing themselves to prospective buyers.

“But it calls for a different type of marketing. This is not about just broadcasting these new solutions to the world. Partners have to carefully identify the early adopters among their customer base—those people who are willing to take the risk of new technologies because they see the competitive advantage in doing so.”

Vendors Must Develop Complete Solutions

Vendors can help create demand through market conditioning—creating visibility for the solution and helping potential buyers understand its value. Watenpaugh says that this is an especially important role for vendors like Cisco or SAP that do the majority of their sales through the channel. These and the other more proactive vendors, she says, are already doing this kind of conditioning, while providing the education and training partners will need to sell these solutions.

“But the biggest challenge for vendors is solving the large problems around IOT—creating those repeatable solutions, solving the security issues, establishing standards, proving the business value. In these early stages they can depend on systems integrators that have put a lot of technical expertise into the deployment of new solutions. Vendors have to package these solutions so that the complexity and the risks are designed out of them and they become more consumable by a volume channel.”

Those Who Hesitate Are Lost

With so much change happening so quickly, partners are understandably concerned about the impact the digital transformation will have on their business. Making sure that the impact is a positive one will depend on each partner’s ability to integrate IoT solutions into their core business model. They need to evolve their business models, and they need to do it fast.

“I’ve had lots of people tell me that they think anyone who hasn’t made the transition by now to a recurring services revenue model is not going to make it. Partners need to have the same urgency about making these newer technologies part of their main line of business.”

Where To Now?

Watenpaugh’s advice to partners is not to panic, but to focus and specialize. “We’re still in the early days of digital transformation. Now is the time for partners to find an industry or a set of applications that they can become expert at and focus their attentions on developing their business around them. If I were a partner today, I would be looking at whether I’ve got a strong market in healthcare or retail or another industry. Then I’d look for those industry-specific applications where I can add value.”

But there are no guarantees, she says. “We work in an industry that’s driven by innovation. If you want to succeed, you have to understand the value you add to your customers. Years ago, I sat on a panel with mainframe vendors talking about the advent of the Internet. At the time they said, ‘we’re in the business of helping our customers understand new technology and how to transition to it while minimizing risk.’ We’re still in that same business today.”