Speaking
I speak on topics related to business, strategy and technology. From conceiving and implementing FAST strategies to pragmatic technology approaches, I seek to challenge traditional assumptions and help uncover simple, yet profitable solutions best suited to your company's situation. Get details >>

Papers
- Moving from Push to Pull - Emerging Models for Mobilizing Resources (PDF)
John Hagel and John Seely Brown

- Capturing the Real Value from Offshoring in Asia (PDF)
John Hagel

- The Agile Dance of Architectures – Reframing IT Enabled Business Opportunities (PDF)
John Hagel and John Seely Brown

- Overview of Working Paper Series (PDF)
John Hagel and John Seely Brown

- Break On Through to the Other Side: A Missing Link in Redefining the Enterprise (PDF)
John Hagel and John Seely Brown

- The Secret to Creating Value from Web Services Today: Start Simply (PDF)
John Hagel, John Seely Brown and Dennis Layton-Rodin

- Service Grids: The Missing Link in Web Services (PDF)
John Hagel and John Seely Brown

- Some Security Considerations for Service Grids (PDF)
Martin Milani and John Seely Brown

- Control versus Trust: Mastering a Different Management Approach (PDF)
John Hagel and John Seely Brown

- Orchestrating Business Processes - Harnessing the Value of Web Services Technology (PDF)
John Hagel and John Seely Brown

- Orchestrating Loosely Coupled Business Processes: The Secret to Successful Collaboration (PDF)
John Hagel, John Seely Brown and Scott Durchslag

Viewpoint
December 30, 2002

When Will Tech Spending Revive?

As we slide from one year to the next, pundits in the press are all peering into their crystal balls trying to predict when tech spending will finally revive. Maybe they should step back for a moment and reconsider the question. All too often, insights (not to mention accurate answers) come from reframing questions.

Is the question really when will tech spending revive? If so, we must wade quickly into a morass of macro-economic and geo-political speculation on a global scale. Will we go to war in Iraq, North Korea or any other country that appears to challenge our dictates (and is small enough that we might actually have a chance of military victory)? Will consumers continue to prop up the U.S. economy with retail spending? Will European economies return to higher growth rates? Will Japan finally confront the structural barriers that have led to prolonged economic stagnation? Will regional trading zones reverse the long-term trend towards freer global trade? Will fiscal and financial policies encourage or retard capital investment?

Given the abysmal record of economic forecasters, we should tread carefully in trying to disentangle the various economic and political forces that will shape our global economy in the years ahead. If this is really what will determine tech spending, we might just as well sit back, watch the news and be prepared to act as events unfold.

But that's the problem with the way the question is worded. It contains an implicit assumption: the problem is with companies that previously spent loads of money on technology and now have sealed their purses. There's another assumption buried beneath this one: companies won't start spending on technology again until the broader economic and political environment becomes more conducive to investment.

What do these assumptions do? They take the technology companies off the hook. Technology companies can only sit and wait for things to get better. There is nothing that they can do to affect the outcome. They can only hope for that elusive "visibility" that technology CEO's keep focusing on in their earnings statements. If only customers were more predictable in terms of their investments, technology companies could act with confidence.

Before we sit back and wait for those unpredictable customers to signal their intentions more clearly, perhaps we should try to reframe the question. Maybe we could come up with some more actionable (and insightful) answers.

What if we pose the question as follows: what must technology companies do to sell more effectively in this challenging economic environment? Two things happen. First, we begin to look more closely at what technology companies can do to counter, or at least dampen, the drop in technology spending, rather than simply concentrating on the customers who buy technology. Second, the focus shifts from trying to predict an uncertain future to taking a more active role in shaping the future.

From this perspective, we begin to see that a significant part of the current gridlock in technology spending may in fact be due to a growing gap between what customers urgently need and what technology vendors are selling. Of course, we could wait and hope that customer needs will change again so that this gap can once again close. Or, technology vendors could take a hard look at customer needs and overhaul our marketing and sales approaches to more effectively address these needs.

What do technology customers need? They are looking for technology that can be bought in small increments with modest investment and that can deliver tangible business benefits (especially operating cost and asset savings) with short lead-times (six months preferable, twelve months at the limit). In short, they want a compelling, short-term business case focused on helping to take cost out of operations.

What are technology providers offering? They continue to offer grand visions in the quest for mega-sales. They promise fundamental new architectures, massive business change and untold wealth for those brave enough to march down the long path ahead. After all, you can't change the world overnight.

Here's the disconnect. Grand visions sound expensive. Implementation tends to be very complicated with lots of risk of failure. If that weren't enough, they also require long lead-times with difficult to quantify pay-offs. This is exactly what executives don't want right now.

There's another disconnect at work as well. The focus of decision-making in technology customers is shifting. CIO's and the IT departments used to be the key decision-makers that had to be convinced to buy. Increasingly, CIO's are becoming more risk averse in purchasing technology while non-technology executives (especially Chief Financial Officers and senior line managers) have become more involved in making major technology purchase decisions. These are the executives who are least receptive to grand visions and most demanding in terms of clear and compelling business cases. Yet, technology vendors continue to focus on the CIO and IT departments. This is where they tend to have the best relationships and where they have had the greatest success in the past.

Of course, many factors contribute to the current downturn in technology spending. But, based on my discussions with senior executives of large companies, the disconnect between what customers need and vendors sell looms as a significant factor. Companies are buying technology, even relatively new, untried technology, but only if they can be convinced there is a compelling short-term business case. This in fact is driving the rapid pace of early adoption of Web services technology. Contrary to the prognostications of many technology analysts, Web services are being deployed in production environments very rapidly in a broad array of industries. For a discussion of the economics driving early adoption of this technology, see my new book Out of the Box: Strategies for Achieving Profits Today and Growth Tomorrow through Web Services.

Yet, this early adoption is occurring almost in spite of the efforts of the technology vendors. Both large and small vendors are spinning elaborate visions of dynamic composition of applications using Web services technology and the advent (finally) of the virtual corporation. Rather than paying attention to these visions, line executives are beginning to see the opportunity to get operating costs and assets quickly out of the business by using this new technology in small, surgical increments to create connections across existing applications. These mundane plumbing uses of Web services technology often bore the technologists, but they excite line executives who are under growing pressure to deliver short-term results to the bottom line.

How can technology vendors overcome this disconnect? It won't be easy. It begins with changing mind-sets of the senior management. Senior managers of technology vendors rose to their current positions by riding the waves of vision after vision targeted primarily to IT executives. Visions like client-server architectures, enterprise architectures and electronic markets helped to drive significant technology spending in the 1990's. Moving away from the search for the next grand vision to a much more pragmatic marketing proposition will go against the grain of many senior technology executives. As one executive recently told me: "John, if you are right about all this, this is going to become a much more boring business and I'm not sure I want to be a part of it."

Changing such deeply engrained mind-sets will not be easy. But that is only the first challenge. If you look at most technology companies today, their organizations are deeply grooved to support "vision-based" selling. Salesforces have been built to support major technology platform sales. Salespeople have deep relationships with senior technology executives. They are heavy hitters that focus all their attention on sales worth tens of millions or hundreds of millions of dollars. Smaller sales opportunities fall by the wayside in the quest for "the big one". Compensation systems tend to reward this focus on the mega-sale. Advancement depends on it. The economics of the business, hooked on large implementations of broad-based technology platforms, requires it. Marketing departments support the salesforce efforts by churning out white papers, position papers and press events outlining the grand visions.

Significant restructuring of the organization and economics of these companies will be required to effectively make the transition to address current customer needs. But here's the good news. Technology vendors can start with small steps to make the transition. They can begin by setting up small, specialized SWAT teams in the salesforce with the mission to target promising segments of non-technology executives that are under pressure to deliver significant near-term business results. These SWAT teams could quickly pull together compelling examples of companies deploying small increments of technology to deliver short-term business impact. They could create simple economic models to quantify the business benefits for each prospect. They won't make big sales (at least at the outset), but they should start making a lot of smaller sales that will begin to add up. As these SWAT teams begin to show results, their organization and approach could be fine-tuned and extended to broader parts of the salesforce.

Of course, technology vendors could continue to sit on the sidelines and wait for more "visibility" into the macro-economic and geopolitical forces shaping the broader business landscape. But those who do so are likely to be disappointed. Of course, aggregate technology spending will eventually pick up again (although probably not at the pace of growth we became accustomed to in the late 1990's). But that spending will likely take a very different form than it did during the 1990's.

Non-technology executives will continue to be more active in driving major technology purchases. They are likely to be much more demanding in terms of compelling business cases. They are also likely to insist upon much more incremental approaches to IT deployment. They will want to define clear, short-term benchmarks for performance improvement to determine whether deployments should be expanded. They will also be more willing to discuss longer-term visions, but only after they have been convinced that the near-term benefits are compelling. Technology companies that continue to pursue the old approach to selling will find that they are capturing a smaller and smaller share of the growing technology spend.

On the other hand, technology companies that move now to reposition their sales and marketing efforts will reap the near-term benefit of increasing sales. They will start to build the momentum that Ron Ricci and John Volkmann analyze so perceptively in their new book: Momentum: How Companies Become Unstoppable Market Forces. They will be far more credible when they present their vision for the future direction of technology because they will already have demonstrated their understanding and commitment to addressing the needs of their customers today. Most importantly, these few early moving technology vendors may in fact help to catalyze a broader revival of technology spending.

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Blogs
- The Big Shift (HBR)
- EdgePerspectives blog

Books

The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion
by John Hagel III, John Seely Brown, and Lang Davison

ALSO

The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization
by John Hagel III and John Seely Brown
- Out of the Box: Strategies for Achieving Profits Today and Growth Tomorrow through Web Services
by John Hagel III
- Net Worth: Shaping Markets When Customers Make the Rules
by John Hagel, III and Marc Singer
- Net Gain: Expanding Markets through Virtual Communities
By John Hagel, III and Arthur G. Armstrong

Deloitte

ongoing research:
The 2009 Shift Index
The Big Shift Index: Uncovering the Emerging Logic of Deep Change
www.edgeperspectives.com

Cloud Computing working papers

BusinessWeek

The Next Wave of Open Innovation
April, 2009

Does the Experience Curve Matter Today?
April, 2009

Peer-to-Patent: A System for Increasing Transparency
March, 2009

How World of Warcraft Promotes Innovation
January, 2009

Harrah's New Twist on Prediction Markets
December, 2008

Innovation for Hard Times
November 2008

How SAP Seeds Innovation
July 2008

Student Activism Can Change the World
May 2008

Myelin Repair Foundation's Institutional Innovation
May 2008

Learning from Facebook
April 2008

Learning from Tata's Nano
February 2008

Catching the Innovation Wave
January 2008

Phoning from the Edge
January 2008

Embrace the Edge - or Perish
November 2007

Funding Invention vs. Managing Innovation
February 2006

Articles

- Creation Nets: Harnessing the Potential of Open Innovation (co-authored with John Seely Brown) April, 2006

- Connecting Globalization & Innovation: Some Contrarian Perspectives (Prepared for the Annual Meeting of the World Economic Forum in Davos, Switzerland January 25 – 30, 2006; co-authored with John Seely Brown)

- "The Benefits of a Long Distance Relationship" (co-authored with John Seely Brown), August 9, 2005

- "Feed R&D - Or Farm It Out?" (HBR Case Study with Commentary co-authored with John Seely Brown), July 2005

- "Productive Friction: How Difficult Business Partnerships Can Accelerate Innovation" (co-authored with John Seely Brown), February 2005

- "From Push to Pull: The Next Frontier of Innovation" (co-authored with John Seely Brown), 2005, No.3

- "Innovation Blowback: Disruptive Management Practices from Asia" (co-authored with John Seely Brown), 2005, No.1

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