I recently completed new research on digital transformation and there were a couple of trends that I found particularly interesting.
- 64% of organizations reported that they need to make changes to their businesses to be competitive in the new economy.
- 39% of organizations are adopting the RGT (Run, Grow, Transform) model for budgeting technology purchases. This is a major departure from the traditional budgeting model where organizations were allocating resources for technology purchases as a percentage of revenues.
- 62% of organizations are reporting that lack of IT resources is the main obstacle for digital transformation.
All of these trends open up a number of new opportunities for IT performance monitoring vendors. Even though digital transformation is sometimes perceived as an opportunity for vendors that are providing solutions around some of the most emerging trends in technology (Big Data, Mobility, Cloud, Analytics, Social, etc.), IT performance monitoring solutions play a key role in enabling organizations to become digital businesses. Organizations are reporting that, on average, 72% of their technology budgets is being spent on “keeping the lights on”, meaning operating and maintaining existing services, while 28% is available to be invested in growth and transformation. This is where the 62% (number of organizations) that are struggling with lack of IT resources for transformation is mainly coming from. More importantly, 61% of organizations reported that technology started playing a more important role in gaining competitive advantage over the last 12 months.
It is becoming more obvious that these organizations have very little choice but to reduce time and resources spent on “keeping the lights” on in order to stay competitive. This provides a major opportunity for IT performance monitoring vendors in some of their core areas – proactive problem prevention, reducing time to problem resolution and automating the performance management process to free up resources for growth and transformation.
However, the value proposition of these solutions in digital economy goes far beyond reducing the “Run” portion of the GRT budgeting model. The value that these capabilities provide fits right into the goals of digital businesses for growth and transformation and making these solutions a source of competitive advantage. For example, some of the key goals for digital transformation that organizations are reporting are: 1) improve customer engagement and experience (68% of organizations); 2) visibility into customers’ buying decisions (58%); 3) testing solutions against specific business requirements (38%); 4) define API and integration strategy (39%); 5) need to speed up innovation (55%); 6) improve the decision making process (59%); 7) monetize market data (44%). IT performance monitoring solutions provide value in each of these key items on business leaders agendas through their core capabilities such as:
- Visibility into the quality of user experience
- Enabling rollouts and management of new technologies
- Data usability and analytics
- Visibility into the impact of IT performance on business metrics
- Performance testing
This shows that digital economy provides major opportunities for IT performance monitoring solution providers especially in the areas of: 1) access to new budgets and markets; 2) becoming more of a strategic partner for their enterprise customers; 3) completely changing the way they can differentiate from the competition; 4) avoiding some of the roadblocks that they traditionally have been having in the sales process. However, the majority of IT performance monitoring vendors currently are not marketing to digital businesses. There are more than a hundred vendors that provide different flavors of IT performance monitoring solutions (APM, ITOA, NPM, ITSM, IT service Delivery, performance testing, etc.) and only a handful of them have a strong focus on digital businesses, while another half a dozen or so are currently “on the fence” when it comes going after these opportunities.
Some of the reasons for not focusing on the digital transformation that these organizations are bringing up are: 1) they are not getting involved in large enterprise deals; 2) they are selling mostly to the IT and do not have much interaction with business owners; 3) their value proposition is not well aligned with a digital transformation theme; 4) their target customers are not bringing up digital transformation as one of their initiatives; 5) the terms “digital economy” and “digital business” are not well defined.
These are all legitimate reasons and ignoring digital transformation will probably not make or break their business in 2016. However, what cannot be ignored is that most of the IT performance monitoring market is fairly mature and more and more sales conversations with prospects start and end with questions such as “why do we need another monitoring tool” and “so what if your solution can do all these things?”. Having a clear story of how their solutions fit into the new digital economy, if it’s well crafted and communicated, brings a fresh wave of new opportunities into this industry and enables these vendors to leverage capabilities that they already built in new use cases, address different pain points and goals and significantly increase an addressable market for their solutions.