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Blog Digital Transformation

IT Service Providers Need Digital Transformation

IT service providers often complain about how little progress their customers are making on digital transformation projects - even though they themselves are not yet digital. Digitalization is not only a challenge user companies have to face, but also IT service providers themselves.

IT service providers are facing many new challenges. Customers demand a broad IT and consulting portfolio. If customer interfaces have to be digitalized, they often also demand creative and digital competencies.

Especially major companies combine many smaller projects to one big one and want to purchase their IT services from one source (end-to-end). This is meant to minimize project controlling complexity.

Furthermore, IT service providers have to be able to develop digital innovations and new business models and present customers with prototypes.

More and more customers want to realize their projects with agile methods; meaning that providers have to educate and train their employees.

In the IT outsourcing market, providers like AWS, Microsoft and Google have positioned themselves with public cloud infrastructure services. IT outsourcing providers are therefore experiencing a disruption of their traditional business model.

Because of “Cloud First” strategies of major companies and ever more customers, IT service providers have to provide industry-specific solutions based on cloud technologies. The number of traditional implementation and customization projects will therefore decrease.

Challenges for IT service providers

According to a Luenendonk survey, IT service providers face digitalization challenges in many areas of business. Especially new customer demands mean new requirements and change.

  • Personnel. IT service providers have to develop new processes for selecting digitally skilled candidates.
  • Organization. Employees have to work with others beyond their own department. Furthermore, IT service providers need partnerships and M&A to be able to provide E2E services.
  • Customer acquisition. To attract new customers, providers have to position themselves as companies focused on fresh ideas and innovation.
  • Delivery. Providers need to further scale their offer to remain competitive.
  • Technology know-how. IT service providers need to increasingly invest in technology partnerships (AWS, Microsoft, Tableau etc.) as well as in cloud solutions and delivery capabilities.

If IT service providers want to remain competitive, they have to realize these changes as soon as possible.

Customer requirements

Transformation services focused on digitalizing customer interfaces as well as developing a modern customer journey and digital products have become ever more important.

Customers don’t want isolated solutions anymore. Consequently, IT service providers not only need to know the needs of their customers, but also of their customers’ customers to develop comprehensive, sustainable solutions. To be able to do that, however, they need customer experience service competencies, like digital consulting, idea development, data analytics and process optimization.

According to the aforementioned Luenendonk survey, 92 percent of interviewed executive managers said that they expect their employees to be able to deliver digital customer experience services as well as digital, customer-centric business models.

Digital customer services also entail creative know-how and competencies of digital agencies. 85 percent of customers expect IT service providers to have them as well. Consequently, many providers have acquired digital agencies over the last few years.

More E2E projects for IT service providers

According to the study, 92 percent of customers expect IT service providers to have industry-specific know-how. 50 percent of major companies said that they only work with one or a handful of providers to realize digitalization projects.

Industry-specific know-how, high technology expertise, skilled employees and global delivery capabilities are standard requirements by now. Furthermore, customers expect IT service providers to be able to develop digital products and services.

Additionally, 92 percent of major companies expect providers to have creative skills like digital agencies.

Change is necessary

Not many IT service providers are able to meet these requirements. However, some have expanded their portfolio to be able to support customers in developing digital business models and automating processes.

These providers offer management and IT consulting, innovation expertise, digital skills and industry-specific know-how. Furthermore, they are able to analyze big data volumes and derive the right course of action from them.

To be able to provide customers with all of these things as E2E services will become ever more important. Especially considering how many companies are currently developing digital business models, their importance will only increase.

To remain competitive, IT service providers need to fundamentally change and embrace digital transformation – otherwise, they risk being left behind.

Source:
E-3 Magazine March 2018 (German)

About the author

Mario Zillmann, Luenendonk

Mario Zillmann is a partner of Luenendonk and an expert in management and IT consulting as well as outsourcing.

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