The ICT industry has always been a fiercely competitive arena, but 10 or 15 years ago we at least all knew which game we were playing, who the players were and what the rules were. That picture has changed dramatically over the past few years, with many South African ICT resellers struggling to change their businesses to adapt to new competition, new customer expectations and new business models.
Technology VARs and systems integrators of all sizes are telling me that they are experiencing tepid revenue growth and that their margins are under growing pressure. As these two trends—low sales growth and worsening profitability—converge, many more ICT resellers and dealers will find that their business models are becoming unsustainable.
This trend is not limited to the box-droppers that still live off the margins of hardware sales, though they are the ones that face the deepest challenges in restructuring their businesses. Many managed service providers and software-focused integrators are also feeling the pain as services and consulting start to become increasingly commoditised and as the cloud simplifies deployment of software.
The moment of the crisis
Though businesses in every industry have heard this warning over the past 10 years, I believe that the ICT channel is fast reaching a digital crisis moment. Those resellers that reinvent themselves for a new digital world will grow and thrive into the future; those that don’t, face a gradual descent into irrelevance.
The pressure comes from two angles: the weakness in the South African economy and the ways in which technology is reshaping the competitive environment. The first of these factors is largely outside of our control as distributors or resellers—many South African consumers and businesses are not spending money on technology because they are under financial strain.
Here, the rational response is to look at the business and identify ways to use digital technology to optimise processes and bring about greater business efficiencies. Like the cobbler’s children who have no shoes, all too many distributors and resellers are not making the technology they sell work for their own businesses.
That means many ICT resellers can—and should—unlock profitability by digitising their business processes and making better use of the data they already have at hand. A good starting point is to identify analogue or labour-intensive business processes and then look for light mobile or cloud-based automation tools to streamline them. Higher levels of automation, I believe, will be a ticket to play in the not-too-distant future.
Competition from everywhere
The second factor is about responding to the threat of ‘disruption’—the possibility that competitors will deliver a product or service that will completely change the game for everyone. This is happening in our industry, thanks to the rise of the cloud and software-as-a-service. We could all see it coming, but the trend is unfolding at a speed few of us could have predicted and with consequences we did not expect. Digital change is exponential, yet many of us still expect change to be slow and linear.
The competitive landscape today is no longer one where ICT vendors, distributors and resellers have a linear relationship and where it is clear who exactly will compete in a given segment of the market. For example, we are now seeing financial services companies and telecoms players compete with the traditional ICT channel in their quest to grow revenues and customer intimacy.
As a value-added reseller that once sold computers, antivirus software and accounting packages to small enterprises, one could as easily be competing with a bank as with another ICT reseller. Just looking at the financing options banks offer for IT hardware they deliver; others offer simple accounting software as a value-added service.
What’s more, co-opetition is becoming the industry norm. Small resellers that sell accounting or productivity software will often find that their fiercest competition comes directly from the vendors they represent or from companies in sectors like financials services and retail. Their old partners may be losing relevance as new competitors without legacy technology reshape the market.
As the popularity of AWS and Microsoft Azure show, much of the real competition is global rather than local. As the industry continues to shift towards software-as-a-service and cloud business models, resellers will need to ask exactly what value they can deliver to remain relevant.
Finding the value
For example, there is enormous value to the customer in providing business-led consulting that helps the organisation choose the right solution and in helping customers to manage and integrate different cloud services, but not as much in selling them high-volume software licences. Resellers need to protect their legacy revenue streams as much as they can while gearing up for the future.
The challenge for resellers, I believe, is to start shifting towards a more customer-centric mindset and away from a service- or product-driven approach. They should look at ways they can use digital technology to optimise their internal processes as well as how they can apply it to deliver better customer experiences via digital channels.
This may involve making some difficult decisions—Should you invest in expensive skills such as artificial intelligence and data science today? Is it wise to offer a cloud service that cannibalises some of your consulting and implementation revenues? How do you reskill your workforce?—but resellers that start now can manage the transition and some of the difficult trade-offs on their own terms.
Those that don’t might find themselves responding to existential crisis upon existential crisis as digital change accelerates in the years to come.
[Photo by UX Indonesia on Unsplash]