As
tech-stock crashes, dot-com burnouts, IT spending
slowdowns and company overhauls continue, many solution
providers are wondering where the technology sector is
headed. One road map of their business fortunes may lie
in the automobile industry.
The auto industry may provide a glimpse
into the future as the tech sector rolls toward
consolidation. |
Just
as the Big Three car manufacturers,Ford, General Motors
and Chrysler,emerged as that industry's dominant
players, high-tech will have its own winners as it rolls
into a consolidation phase. And the companies that heed
the lessons of the past by setting the pace in products,
services, standards and processes will steer their
markets, while the others will run out of gas.
In the e-business software realm, for example,
several vendors,including i2 Technologies (supply chain
management), Ariba (e-marketplaces), Vignette (B2B
e-commerce), Check Point Software (network security) and
Siebel Systems (CRM),have already raced into pole
position in their market segments. (For more on these market
leaders, go to crn.com.)
"We don't go into a market unless we think we can be
No. 1 in that market," says Kurt Olnhausen, general
manager at Siebel, San Mateo, Calif. "If we feel we
can't get to that point, we don't go in,or if we are
already in, we get out."
In the embryonic years of the auto industry, many
manufacturers opted to get out. Between 1900 and 1905,
267 firms produced gas-powered vehicles. During that
time, half of those left the industry as standard
designs and consumer tastes took shape. But other car
makers took their places, and the market expanded as
manufacturing processes and products improved.
The number of auto makers peaked at 274 in 1909, a
50-fold increase in just 13 years. But as large,
established companies like Ford began leveraging their
market positions and production innovations, the number
of car makers plunged, dropping to 121 companies by 1918
and to just 44 by 1929.
After that period, the industry saw few new entrants
and a greater number of manufacturers exited the market.
Today, only the Big Three remain in the United States,
and Chrysler,now merged with German auto maker
Daimler,is on shaky financial ground.
High-tech is traveling a similar route. Already, the
ranks of systems integrators, distributors, Web
integrators and ASPs are thinning as the smooth ride
fueled by the Internet's inception in the mid-1990s
turns bumpy.
"Focus, alignment and execution will be
the keys in the next wave of e-business." --Mike
Troiano, president, Primix
Solutions |
The
channel landscape has seen its share of changes, too.
Inacom, born via consolidation in 1991 when Valcom
merged with Inacomp, agreed to buy Vanstar in 1998,
making it the largest PC integrator. But last year,
whipsawed by an e-commerce-hungry economy, Inacom
declared bankruptcy and ceased to exist. Consolidation
and market flux have been no less kind to distributors.
CHS Electronics, Merisel, Pinacor and others have fallen
by the wayside, leaving two global distribution giants:
Ingram Micro and Tech Data.
As shown by the auto industry, market forces can get
brutal when customers decide what works and what
doesn't. Internet services firms such as Scient,
Razorfish, marchFirst and iXL saw an onslaught of Web
design and integration work in 1999 and 2000. In turn,
their market capitalizations soared and their businesses
mushroomed. Then the dot-com bust hit, and customers
demanded vertical-market expertise and strong track
records. In the past six months, a parade of Web
integrators have announced layoffs and industry watchers
now predict a shakeout.
The ASP arena also stands to contract. Analysts say
the ASP model is having trouble gaining broad
acceptance, and the slowing economy and dot-com failures
have hurt sales, as shown by the demise of ASP Pandesic.
By 2002, 60 percent of all ASPs will fail or be
acquired, AMR Research predicts. In addition, Gartner
forecasts that 60 percent of the 480 ASPs it tracked in
2000 will disappear by year-end because of mergers,
competition, bankruptcies or a lack of funding.
"Focus, alignment and execution will be the keys in
the next wave of e-business," says Mike Troiano,
president of Primix Solutions, a Watertown, Mass.-based
e-services firm. "What used to be called bold action is
now considered reckless. You now have to prioritize,
make hard choices and extract maximum profit from your
assets."
To that end, the ability to anticipate and react to
marketplace changes,as dictated by customer needs and
wants,goes a long way. Companies that fail to do so
often pay a high price. For example, in the early 1920s,
Ford made no changes to the Model T even though its
rivals were establishing new standards in production,
design and marketing. By not meeting those challenges
immediately, the company lost its market dominance. GM
passed Ford in sales in 1927 and again in 1931, and
thereafter Ford never regained the lead.
Ford did, however, set a cardinal business rule:
Leverage core competencies and don't try to be all
things to all people. Company founder Henry Ford's
simple business plan was to sell cars to everyone and
mass produce them from interchangeable parts. Likewise,
high-tech firms should be able to boil their business
strategies down to several primary goals. "[This] is
absolutely essential to success in the future," Primix's
Troiano says.
|
10
Lessions For High-Tech
Companies |
 |
1 Develop a clear, focused business strategy
that leverages core
competencies.
2 Set a core objective,establishing an
industry standard or enhancing an existing one.
3 Use other factors, such as marketing
channels and branding, to help develop an industry
standard and get a leg up on
rivals.
4 Maintain a secure financial
base.
5 Develop an intimate knowledge of your
products, markets and
customers.
6 Don't be afraid to partner with other
companies,even rivals,to further your
goals.
7 Think ahead. What will keep your company
in a favorable market
position?
8 Don't hesitate to discard one technology
or solution for another. Constant innovation is
needed to establish a
standard.
9 Select personnel carefully. Hire top-notch
staff that have specific, necessary
skills.
10 Consider staying private, at least early
on. It can avoid some of the problems associated
with stock market
changes. |
What's more,
those core objectives should reflect a single one: To
establish an industry standard or enhance an existing
one. An "industry standard" can be defined as the
product, service or business practices that ultimately
win the loyalty of the market. Ford, for instance,
became the early leader in the auto industry by
establishing both product (the Model T) and production
standards (the assembly line).
Companies such as Check Point and Ariba are following
suit in the technology arena, solution providers say.
"Check Point got in early and hit on the right formula,"
says Tim Carney, founder and CEO of The Network Guys, a
Fremont, Calif., network solution provider. "Now they
have the name, momentum and market share. They will
continue to dominate their market space, and in a couple
of years they could be the only independent, stand-alone
network security provider left."
Darius Vaskelis, vice president of the digital
markets group at Inforte, a Chicago-based Web
integrator, cites Ariba as setting the standard in
e-marketplace products and support.
"We want to deliver advanced technology for our
clients that will give them a real competitive
advantage, and Ariba is one company that offers new and
developing technologies that provide such an advantage,"
Vaskelis says. "Their product lines change very quickly,
with maybe three new releases a year. And each new
release offers significant increases in functionality.
They also support our ability to better service
customers by supplying the training we need, as well as
providing broad access to support. These are the kinds
of companies that we want to partner with."
Once established, a standard can thrive for a long
time. After its debut in 1908, the Model T ruled the
auto world for well over a decade, in some years
accounting for nearly half of U.S. auto sales.
Similarly, Microsoft's ability to establish Windows (and
previously DOS) as the standard operating system for PCs
has kept Apple Computer, whose Mac OS only runs on its
Macintosh computers, a bit player in the PC market.
High-tech firms offering proprietary products,even if
they are technically superior,are doomed to failure or,
at best, marginalization, industry executives say.
"Companies with a proprietary architecture cannot
adapt and modify as readily to customer needs," says
Dave Shirk, senior vice president and general manager at
Vignette, Austin, Texas. "With an open architecture and
technology set, you have the ability to quickly adapt to
changing market conditions and make your business model
that much more efficient."
Of course, the ability to gauge market directions,
set business goals and develop bellwether products stems
from intimate knowledge of one's industry,especially
customers. Auto pioneer Walter Chrysler was famous for
keeping his ear to the ground, ensuring that he grasped
how the cars were made, what types of them were being
produced and what products customers wanted.
"These days, we keep a fixed team on-site at our
largest clients," says Neil Isford, president and CEO of
Plural, a New York-based Web integrator. "This gives us
realtime feedback and puts us in position to immediately
solve problems and needs that arise," he says. "Staying
ahead of the market, anticipating customer needs,
wrapping in new technologies,it's all part of the
process of establishing close, long-term customer
relationships."
For most IT vendors and service providers, the source
of in-depth industry knowledge lies in channel
partnerships. In the early days of the auto industry,
successful manufacturers demonstrated an ability to
partner with other companies,even rivals,to meet
business goals. And in high-tech, the companies that are
finding out what works best with customers are doing so
through their solution provider partners.
"Solution providers are critical in terms of
operational support and global reach," says Vignette's
Shirk. "They understand the deployment models, have lots
of expertise in specific verticals and give us a lot of
feedback on how to change poor products and services to
keep our customers satisfied."
Partnerships are a must in establishing marketplace
momentum, Siebel's Olnhausen says. "If you want a 50
percent or 60 percent market share, you need partners in
the marketplace. Solution providers, being closer to the
customers, are instrumental in delivering products and
services. We view these relationships as something to be
leveraged, not exploited," he says.
The Network Guys' Carney says Check Point also got to
the top of its class by tightening its ties to solution
providers. "What distinguishes Check Point from its
competitors is not only how good their product line,
support and co-op programs are, but also how they have
solidified their channel relationships," he says.
Outside help is key to developing
market agility,
says Henry Guy, CFO and marketing director at Ephibian,
a Tucson, Ariz., Web infrastructure provider. "These
days, you need a strong technology partner to help you
evaluate a technology up front so that you don't waste a
lot of time," Guy says. "But you must make sure your
partners are objective and not married to any single
technology. Chasing technology off a cliff can be
disastrous."
Over the past year, financing topped the list of
concerns of many high-tech executives as they watched
stock prices swing. Early car makers shared similar
concerns. GM was a day away from bankruptcy and
dissolution when company executives met with creditors
on Sept. 10, 1910. GM executives, however, had developed
solid relationships with leading financiers, which
allowed the company to survive.
In the same way, high-tech firms need to maintain a
secure financial position and ready sources of financing
to withstand hard times and acquire other companies or
technologies that can raise their market standing.
"Financial relationships are a key, not just from a
current operations standpoint but also for future cash
infusions if they become necessary," Ephibian's Guy
says. "Having multiple [venture capital] partners can
pay off by providing alternative sources of financing
and a more diversified range of business experience and
contacts."
To raise capital and establish a market position
quickly, many high-tech companies have gone public. But
the moody stock market has some firms thinking twice
about that move. As a result, staying private,at least
early on,has taken on renewed luster. In the auto
industry, Ford remained private for 53 years after its
founding, allowing executives to maintain total control
over business operations.
Solution providers, however, come down on both sides
of the issue.
"Staying private has given us the flexibility to
carry out our business plans the way we want to," says
Plural's Isford. "Your credibility in the marketplace is
damaged when share prices drop as much as some
companies' have, and this is something we have avoided."
But Primix's Troiano has a different take. "Being
public and going though difficult times is like growing
up on stage where everyone can see you. It increases the
pressure on you to perform," he says. "But going through
this baptism of fire makes you a better company in the
end."