IT Services Marketing in Asia - Understanding the Confucian Business Culture

In the IT services business, the propensity to purchase services is often different to what might logically be expected. This is particularly obvious in the extremely diverse Asia Pacific region.

For example, organizations in the Philippines, a relatively immature economy with lower labour costs, are more likely to purchase services than organizations in Korea, a mature economy with relatively high labour costs. Why is this? Nobody knows for sure but it appears that the propensity of organizations in a country to purchase services is heavily influenced by 3 cultural and economic variables as follows:

#1 The cost of labour. In mature economies, the cost of employing people with technical skills is often significantly higher than the cost of buying access to skills from a third party. Hence, the countries in the world with the highest propensity to purchase IT services are those with high labour costs. In the Asia Pacific region, the best example of such a country is Australia. 

#2 The influence of the Anglo Saxon business culture. Buying IT services from third parties is most widespread in countries that are often described as Anglo Saxon, led by the United States and the United Kingdom. The business culture in these countries has, over the last 25 years, focused on outsourcing ‘non core’ activities. A common belief in the Anglo Saxon business culture is that sourcing services externally can drive down costs, give organizations access to ‘best of breed’ services and offer greater flexibility.

#3 The influence of the Confucian business culture. In the Confucian business culture, which exists in most of Eastern Asia, service is widely perceived to be something that is free. Services are considered to be critical to the differentiation of products. The loss of control associated with sourcing services from third parties is thought to remove a key differentiator from corporate control. Furthermore, paying for such services is anathema to many organizations in East Asia.

Organizations that wish to understand how to sell services into countries in the Asia Pacific region must consider these variables carefully as they develop their marketing strategies. This is particularly important for organizations that generate the bulk of their business from parts of the world that are heavily influenced by the Anglo Saxon business culture.  

In a country where the cost of labour is low, the influence of the Anglo Saxon business culture is low and the influence of the Confucian business culture is high, such as Vietnam, the challenges of effectively marketing IT services are profound.

Conversely, in a country where the cost of labour is high, the influence of Anglo Saxon business culture is high and the influence of Confucian business culture is low, such as Australia, the propensity to purchase IT services is extremely high.

A lot of American and European firms are particularly interested in countries in which the cost of labour is high, the influence of the Confucian business culture is high and there is also some Anglo Saxon influence seeping into the business culture. Perhaps the best example of such a country is South Korea. South Korea is Asia’s fourth largest economy and offers significant opportunities to foreign firms. However, selling services in South Korea is proving to be a highly vexing challenge to many US-based IT firms which have the Anglo Saxon business culture in their DNA. 

So how should a US-based IT firm, market its services offerings in South Korea? Firstly it must recognize that South Korean customers will expect services to be free, and will show little willingness to pay for them. Thus it makes sense to describe services offerings as products. Perhaps, services offerings could be descried as ‘value enhancement products’. Maybe, if service is bundled with a product, the combined offering could be described as a ‘premium or platinum product’. 

Basically, services marketers must consider the Confucian influence on buying behaviour in South Korea and act accordingly. How does the convergence of Anglo Saxon business culture, Confucian business culture and the cost of labour, impact the propensity to buy IT services in China, India and Japan?

Cloud and Mobile Technology Set to End Innovation 'Drought'

It is often stated by senior management figures within large enterprises, that innovation is a key area of focus for them. Despite this focus, the past 50 or 60 years has witnessed a distinct lack of breakthrough innovations. Indeed, there has been an innovation 'drought'.

Innovations made between the late nineteenth century and about 1950 are the ones that are having the most profound impact on our lives today. To be specific, I am referring to innovations and discoveries such as the internal combustion engine, the jet engine, the electric light bulb, the television, the telephone, the radio, modern computing and antibiotics. For a London, Paris or New York City resident who travelled in time from 1910 to 1960, the future would be completely unrecognisable. For a resident of one of these cities who travelled in time from 1960 to 2010, there would be few surprises. In fact, the 1960 time traveller may be disappointed that people were not flying to work, using their own personal jet packs.

Since the 1960s, we have seen some major innovations and discoveries but less than in earlier years. Why has innovation slowed down? Well, there are many views on this matter. Some say that it because of too much regulation. Others say the opposite. My view is that there are several key reasons for this change. 

Firstly, as wages increased in the late nineteenth and early twentieth centuries, there was greater focus on finding innovations that could replace labour. This wage growth, in developed economies, slowed dramatically in the 1970s. In mature economies, real wages have not grown significantly since the 1970s. Firms have focussed, to a greater extent, on increasing shareholder value by controlling real wages as opposed to engendering innovation. 

A second reason is that firms are also focussing on extracting the largest possible amount of value from existing assets. Since the 1970s, a popular way of doing this is by entering new markets around the globe. So, innovations made in Western countries and deployed in the 1950s and 1960s have been sold into emerging economies in the 1980s, 1990s and 2000s, greatly enriching large multinational organizations, but shifting emphasis away from innovation.

Another key point is that new innovations may impede the ability of large enterprises to maximize the value they get from existing assets. For example, is it in the interests of pharmaceutical firms to develop more effective treatments for cancer, which may affect their ability to fully profit from existing treatments? Is it in the interests of a plastics manufacturer to support research into 3D printing?

Today, breakthroughs in IT are creating enormous opportunities for innovation. We have seen rapid incremental innovation in the IT industry itself. But, new technology has yet to be deployed in a manner that fosters significant innovation across different industries. This is set to change. In any industry, from the automotive industry to, discrete manufacturing to healthcare, the combination of high speed networks, cloud computing and mobile technologies are driving change and, yes, innovation.

I’d love to write about the impact of these technologies on all industries. To make my point, I will focus on examples in the automotive industry, discrete manufacturing and healthcare.

In the automotive industry, GM and others spent years trying to develop autonomous (self driving) cars. By taking advantage of recent IT developments, Google demonstrated how the convergence of IT and the automotive industry leads to innovation. In August 2012, Google announced that a fleet of autonomous vehicles had completed half a million kilometres of accident free test runs. Autonomous cars are expected to become common over the next 10 years. Further innovation around transportation is inevitable and IT is enabling this.

In the manufacturing sector, 3D printing allows designs and techniques to be sourced from the cloud by any device, in any location. This could potentially drive a new industrial revolution and move the world away from mass manufacturing towards the customization of products in locations that are close to the source of demand. Will people make their own goods, to their own specifications, from home? The potential is enormous.

In the healthcare sector, high speed networks and cloud computing can potentially enable care to be delivered to patients in any location. We can expect care to increasingly be given in the patient’s location. At the same time, a decreasing proportion of care will be given in hospitals. Technology can totally change the dynamics of healthcare provision. As these dynamics change, the opportunities for radical new innovation will be immense.

In summary, the last 50 years have witnessed a slowdown in innovation. However, as IT becomes embedded into industries and high speed networks and cloud computing become commonplace, we can expect to enjoy a sustained period of rapid change and innovation.

The Normalization of IT Skills

IT skills shortages have been an issue of concern for businesses and governments for more than twenty years. This will change over the next few years as IT skill levels increase, and become embedded into business activities.

In recent years, IT vendors have worked very closely with businesses and governments to ensure that training investments are made, which are centered around their products. Cisco’s Networking Academy is a great example of this. Cisco has partnered very closely with educational institutions and governments, around the world, to promote training around its products. This has created a situation in which people trained in IT networking feel comfortable working with Cisco products. More importantly, it has helped to address the shortfall in IT networking professionals.

However, as IT products become more standardized, cloud computing becomes mainstream, and software takes over from hardware in many areas, demand for IT skills will fall. Cloud computing typically involves the automaton of processes that were once relatively labor intensive. It also engenders the provision of services where users can configure software much more easily than was the case in the past. For example, a user can configure an ‘Amazon style’ storefront very easily for their ecommerce needs. Only a few years ago, the setting up of such a storefront was a highly complex activity that required specialized technical skills.

The skill levels required to carry out tasks that were once considered to be highly complex are falling. Simultaneously, the IT skill levels of the typical white collar worker are increasing. This is leading to less need for IT skills and for a need for ordinary workers to steadily improve their IT skills.

Thirty years ago, the individuals that worked with technology tended to possess comparatively high IT skills levels. Anybody that sought to work with technology required a significant amount of training and most ordinary workers did not touch computers. To many, computers were perceived to be devices with which only scientists worked.

Fifteen to twenty years ago, IT became democratized. PCs were found on the desks of most white collar workers. They became essential tools for carrying out tasks at work. It was soon assumed that ordinary workers would be able to operate PCs and undertake basic tasks with the programs that they were using. 

Today, technology is much more embedded in the activities of the ordinary worker. The IT skill level of today’s ordinary worker is much higher than before and the technology tasks that they perform would have been considered to be highly complex in previous years. Assuming that this trend continues, we can assume that ordinary workers will be undertaking even more complex tasks in the years ahead. 

In a few years’ time, we can expect ordinary workers to be procuring and managing their technology devices. Additionally, they will be leveraging cloud services to support their activities at work. This will increasingly be done without support from an IT organization. 

Obviously, younger workers will come to the workplace with a higher level of IT skills than most of their older colleagues. However, these skills will need to be enhanced throughout their working lives. Older workers have had experience of acquiring new technical skills and will need to continue this until the end of their careers. Organizations will need to ensure that IT training is available to staff throughout their careers.

In summary, IT will become embedded in business activities. The IT skill levels of ordinary workers will continue to rise as IT becomes critical to their day to day activities. Skills that are seen as specialist today or ‘the preserve of the millennial generation’ will be normal in the next few years. This, of course, will have a profound impact on both buyers and sellers of IT products and services.

2013 Predictions: The Consolidation of IT

It’s that time of year again. The time of year where the world’s IT commentators offer their predictions for the following year. For the past few years, predictions have focused very much on cloud computing, ‘big data’ (a misnomer if ever I have heard one), mobility, social, and consumerization.

All of these technology trends are now having a profound effect on business. I expect that in 2013, these terms will be used less often as cloud/big data/mobility/social/consumerization fatigue kicks in.

2013 will bring us closer to 'the end of corporate IT', a process that has being going on for some time. Indeed, Nicolas Carr wrote about 'the end of corporate IT' in 2005. Cloud computing, social media, analytics and social media are accelerating this trend.

2013 itself, will witness the consolidation of IT, as IT departments shrink and convergence kicks in across the industry. By 2020, will IT departments exist? Will IT be fully embedded into business activities? Will IT have become a utility?

Here are my three predictions for 2013.

#1 IT departments will shrink

The use of cloud services will reduce the need for many traditional IT activities. Cloud services drive automation, self service, and self provisioning to the extent that the need for support services provided by IT departments will decline dramatically.

Consumerization and the use of devices chosen by the employee rather than the employer (BYOD) will also eliminate procurement tasks, traditionally performed by IT departments.

Business and consumer services are increasingly being delivered by apps from mobile devices. The development of basic apps will become a standard skill among the next generation of workers in much the same way as using mobile technology, and office productivity software are standard skills for today’s employees. In other words, a growing number of IT activities will become embedded in non-IT roles.

The complexity of technical tasks being performed by workers, without IT support, is growing while the skills needed to perform complex tasks are less difficult to acquire. This means that ordinary workers will soon be generating outcomes that were once the domain of IT staff. For example, a typical marketing manager will soon be able to develop a basic ‘Amazon style’ store for their company with little or no technical support.

CIOs and their teams will increasingly focus on enabling the use of technology across the organization. Their focus will be on ensuring that when employees use technology, they comply with policies and regulations. They will also seek to add business value by working with other employees and stakeholders to integrate new services and processes into their businesses. Furthermore, today’s developers and technical professionals will be forced to focus on ways that their skills can be used to foster innovation within diverse business activities.

#2 The IT industry consolidates rapidly as convergence occurs

A clear trend has emerged over the past several years whereby, IT firms seek to control and manage the complete user experience. Apple is the best example of this approach. But, others such as Oracle, Cisco and most recently Microsoft, which once focused on specific solution areas, are also becoming more vertically integrated, and offering end to end solutions to their customers. Some call this convergence. Who would have expected Cisco and Oracle to enter the server market a few years ago? Indeed, who would have expected Microsoft to sell hardware products just a year ago?

Infrastructure software and hardware products have become commodities. Growth in these markets will come largely from acquisitions. A growing number of independent IT vendors will struggle to survive as it becomes extremely difficult to differentiate their offerings. Today’s large IT vendors can be expected to acquire remaining point solution vendors that provide differentiated offerings.

There will also be fewer remaining large IT vendors, as they compete with each other for a greater share of shrinking markets for their traditional products and services. The market will be dominated by a handful of technology titans by 2014. These enormous firms will engineer the ability to enter new industries. They will ‘shape shift’ in the manner of some of their more successful and newer competitors. In addition to convergence within the IT industry, convergence between the IT industry and other industries will become more common.

Smart cities, smart grids and telehealth are examples of areas where convergence between IT and other industries will occur more frequently.

Examples of technology firms competing outside their industry include, Apple in the music industry, Google in the financial services industry and Microsoft in the gaming industry.

As technology firms seek growth outside their industry, non-technology firms will increasingly offer industry-specific cloud services. ADP is a very early example this trend. It is an HR services firm that has been offering HR-related cloud services for many years. Financial services firms, governments, retailers and many others are already beginning to offer their own cloud services without significant levels of support from IT firms. As mentioned earlier, IT is becoming embedded into everyday business activities.

Technology is destroying the traditional boundaries between industries. Some of the world’s most successful firms such as Amazon, Google and Apple recognize this. These firms use their brands, their customer relationships and their ‘state of the art’ technology to seamlessly move from one industry to another, terrorizing incumbents in the process.

#3 Apple’s relative decline becomes apparent

Apple has been a pioneer in the IT industry. The company’s phenomenal success has been driven by its focus on user experience and its lack of respect for industry boundaries. It will continue to grow, without a doubt, but the loss of its leadership position in the smartphone market will spread to the tablet market.

In recent months, the company has made a few notable errors. Dropping Google Maps and forcing its customers to use an inferior Apple version is a tipping point for Apple. This is the point at which the company ceased to focus on offering the user the best possible experience. It knowingly forced an inferior experience on its customers so as it could challenge the success of Google Maps.

When Apple launched the iPhone in 2007 and the iPad in 2010, there was a lot of marketing hype around these launches. Arguably, this hype was justified, given that these new products offered customers a new and refreshing user experience. However, the hype surrounding more recent launches has in no way been matched by reality. This damages Apple’s reputation among its loyal followers, who expect significant enhancements, or the use of breakthrough technology, with each Apple launch.

Samsung has already surpassed Apple as the world’s leading manufacturer of smartphones and Google’s Android ecosystem has many more users than Apple’s ecosystem. Apple continues to dominate the tablet market but, with increasing competition, this dominance will not last for much longer.

Apple will no doubt learn from these mistakes, and will continue to flourish for the foreseeable future. But, the errors that it has made have allowed competitors to take market share from Apple at a faster rate than most commentators predicted a year ago.

This brings us to one of the big questions in the IT industry today. Will Microsoft be successful in the world of mobility in 2013? The company has recently launched its own tablet as well as a completely new operating system, Windows 8. Windows 8 promises to offer a common user interface across devices, from traditional PCs to tablets to smartphones. It can allow the corporate user of Microsoft software to seamlessly transition between devices. This is potentially a major breakthrough that could put Microsoft in a very strong position.  The company is clearly beginning to shift its focus back onto the overall user experience.

Microsoft has the opportunity to regain some of its previous success, if it remains sufficiently focused on its customers, and does not allow internal disputes to slow its decision making. If these initiatives had taken place one year ago, Microsoft would stand an even better chance of success in the mobile world.

By 2020, the technology firms that remain will be those that can successfully cross industry boundaries while remaining focused on customer experience. This means that technology firms will need to target their offerings to non IT buyers (i.e. not the IT department) In the technology industry, Apple, Amazon and Google have done this.  Who else will demonstrate this capability in 2013?

Cloud Computing: The Road to Disruption

When the subject of cloud computing is raised, there is often a healthy suspicion from IT buyers that cloud is a marketing term which is used as a new way of selling complex, unproven solutions to them. This is not surprising, considering the history of the IT business. There is an alarmingly high incidence of IT projects failing to meet expectations and running massively over budget.

Cloud commentators, myself included, tend to focus on the transformative and disruptive impact of cloud computing. We tend to talk a lot about Apple, Amazon and Google and how they have completely disrupted the media and music industries, using cloud technologies. This makes a lot of sense when engaging with executives from these industries. However, executives in other industries have yet to see a profound disruptive impact caused by cloud computing and few of them truly believe that their industries will be impacted in the same ways as businesses that involve the trading of digital content. This is a huge mistake on their part.

Within most enterprises in mature markets, cloud computing is still at an early stage of adoption. Technology infrastructures within these enterprises are characterized by the increasing use of virtualization and ad hoc public cloud use. This public cloud use is usually driven by business units and not IT departments. For these enterprises, cloud services augment their existing non cloud-based technologies. 

There is increasing evidence to suggest that this is the first stage of cloud computing adoption and that most of these organizations will soon shift sizeable workloads onto cloud platforms. In this phase, cloud use permeates throughout the organization, supported and enabled by IT departments. IT departments may initially seek to block the ad hoc use of cloud services by business units. But, over time, as senior executives become exposed to cloud services that offer them benefits, IT departments are usually forced to find ways of enabling the use of cloud services across the enterprise. As this happens, IT departments typically develop policies and procedures relating to the use of cloud services within the organization. These policies and procedures enable more extensive penetration of cloud services. Extensive use of cloud-based technologies, in many cases, creates more complexity for enterprises as they need to find ways of integrating these technologies with their legacy investments.

The third phase of cloud computing is characterized by cloud-based technology becoming the norm, and business agility being realized. In this phase, cloud technology has worked its way through the organization. It underpins innovation and is used to differentiate one organization from another. It can be termed the innovation phase. For example, in this stage, organizations discover that cloud technologies can automate more processes and engender more self service. A great example is the low cost airline business. Low cost airlines such as Jetstar are constrained by assets in small airports. They have limited space to manage the check-in process. Their business model also drives them to ‘sweat their assets’ as much as possible so they seek to maximize the use of their aircraft by limiting the amount of time that they are idle.  Jetstar aims to be a 100% self service airline as soon as possible and pioneered self service check-in. Self service check-in enables the airline to optimize limited space in smaller airports and hence to maximize the use of its aircraft. It is cloud-based technology that enables this. Cloud-based technology can enable the airline to handle increases and decreases in demand seamlessly. It can eliminate queues. It also allows the airline to provision new products and services such as insurance products or gourmet meals much more easily than would be the case with traditional IT implementations. Progressive organizations across industries are using cloud-based technology to transform the ways they engage with their customers. This is leading to significant innovation.

The fourth phase of adoption is characterized by cloud technology disrupting industries. As mentioned earlier, this has already occurred in the media and music industries. How will it disrupt other industries? It is clear that the agility which cloud computing offers can significantly lower barriers to entry across industries. Legacy infrastructures and inflexible processes paralyze organizations and make them unable to innovate and create new opportunities. Google, Amazon and Apple each show a healthy disrespect for the boundaries between industries. Each one of these companies continues to cause disruption in other industries. Recently, Google entered the credit card market. It can use its brand, scale, customer relationships and agile technology to do this. Some in the financial services industry are aware of this threat and already see Google as a potential competitor. Indeed, the technology used by Google makes it increasingly easy for non financial services firms such as retailers to enter the financial services industry. The financial services industry is ripe for disruption. Expect to see some financial services firms enter the ‘innovation phase’ soon. This will act as a precursor to disruption in that industry. Other industries including healthcare, education, utilities and retail will also be disrupted by technology over the next few years.

In summary, most enterprises are at a phase where cloud computing is being added to their existing technologies. This is the beginning of a process that will inevitably lead to significant disruption in most industries. Executives across industries should take note.