Techaisle Analyst Insights

Linoleum vs. Deep Carpet Selling

There is an old story about a consultant who was advising a client about changes in his market, and what they would mean to sales strategy. The consultant went through a series of tables demonstrating that, due to increased interconnectivity with other corporate systems, products in the client’s segment were increasingly purchased by senior managers rather than shop floor managers. The consultant stressed the importance of developing new marketing material and directing the sales force to call on the senior managers instead of the shop floor, to which the client replied, “You are talking about deep carpet selling. We don’t do deep carpet selling. We do linoleum selling here.”

Most IT vendors engage in a variation of “linoleum selling”, focused on engaging IT professionals in discussions that focus on the technical attributes of their products. However, BDMs (Business Decision Makers) – who tend to inhabit the “carpeted” realms of their businesses – are more likely to be engaged by discussions about business benefits and objectives than by “feeds and speeds”. In categories where the BDM is central to the needs identification and budget process, sales reps will need to develop “deep carpet” language and skills.

The data from Techaisle’s SMB and Midmarket IT Decision Making Authority survey demonstrates that we have already reached that point in cloud applications and software in both the small and midmarket segments.

Need vs. Enhancements

Survey data shows that in both micro/very small businesses (1-19 employees) and the smaller midmarket businesses (100-499 employees), BDMs are the primary drivers for determining the need for new cloud business applications.

These findings are broadly consistent with the results from the survey question on determining the need for enhancements to existing cloud solutions. While in most cases, IT has more influence in determining the need for enhancements than it does in determining the need for new solutions, BDMs are still generally the most important voice in the discussion. ITDM’s (IT Decision Maker) influence is directly attributable to the extent that enhancements are driven by technological rather than functional requirements.

Conclusively, survey data shows that business requirements are the prime mover for identifying the need for both new solutions and significant enhancements/upgrades in micro and very small businesses, and that technology concerns play a meaningful role in instigating discussions about enhancements to existing solutions in businesses with 20-499 employees.

Interestingly, within the 500-999 segments, there is more BDM influence over identifying the need for meaningful enhancements than for new applications. Following the logic applied to the other segments, this suggests that enhancements within these near-enterprise accounts result primarily from process optimization requirements, rather than from a need to upgrade the underlying technology.

Cloud Software budget authority

“Determining the need for” a new business application or a “meaningful enhancement” to an existing application is not, of course, identical to signing off on the purchase of a new solution. When Techaisle extended its questioning to include “budgetary control and authority,” it resulted in two interesting findings:

• The proportion of SMBs where budgetary control and purchasing authority for new applications rests entirely with BDMs increases in all employee size segments, relative to the statistics for determining need in these segments. This means that BDM control over the final purchase decision is even higher than the “determining the need for” statistics suggest.

• The proportion of respondents reporting that responsibility resides entirely with either IT or business – but is not shared between them – increases in five out of seven employee size segments (missing only the 10-19 and 20-49 employees groups). This suggests that needs identification may be more collaborative than final purchase decisions.

Both findings point to the same conclusion: that BDMs are extremely important to suppliers of cloud software. Chart below provides a graphical representation of the determining need vs. final purchase decision authority balance by employee size.

Is IT losing its authority over IT expenditures and directions? Data from the Techaisle report “The 360 on SMB & Midmarket IT Decision Making Authority” suggests that increasingly, business decision makers (BDMs) make technology-related decisions and control technology-related budgets.

The report finds that SMB “Shadow IT” in the US – expenditures made by business management without IT involvement – will amount to $27 billion in 2015. Added to the “formal” IT budget that is visible to IT but under BDM management, technology spending by US SMBs that is outside the control of the IT department will reach $99 billion, a figure that is greater than Microsoft’s annual revenue, twice the revenue of Cisco, and nearly 25 times larger than the revenue recorded by Salesforce.com in its fiscal 2014.

The data clearly illustrates that the earth has shifted from underneath the IT department within small and midmarket businesses. Executives in these companies need to understand what these new spending patterns mean to IT deployment and efficiency within their operations, while suppliers to this market – business application vendors like Microsoft and Salesforce.com, hardware vendors like HP and Dell, and the thousands of services firms that help US SMBs to make sense of technology – need to adjust to the changing patterns of SMB IT investment and control.

Shadow IT is a commonly-understood phenomenon: it represents spending on IT products and services by BDMs that are made without the IT department’s approval, guidance, or in some cases, even without IT’s knowledge. IT itself generally portrays these purchases as dangerous to the organization, creating the potential for security breaches, incompatibility between corporate systems, inconsistency in corporate systems of record, and/or loss of critical data. BDMs tend to portray them differently, positioning these purchases as IT extensions to current business activities that respond to business needs more quickly and directly than the IT department is capable of doing.

Whatever one’s perspective on shadow IT, it is clearly an important force in the SMB IT market. How important has been a matter of conjecture, since by its nature, shadow IT is difficult to isolate and quantify. However, by comparing multiple data sets from surveys that capture both ITDM and BDM perspectives, Techaisle is able to provide fact-based estimates of shadow IT activity within US SMBs. Highlights of these findings include:

Shadow IT spending on business applications

Authority for “formal” business application spending varies widely between small and midmarket businesses. However, the overall level of shadow IT spending on business applications is very consistent across the two SMB segments, at 15 percent of total small business application spending and 14 percent of midmarket business spending. In addition, business management (BDMs) within SMBs formally controls over 50 percent of business application expenditures.

Shadow IT spending on infrastructure products

The infrastructure products market is much different than the business application market – both across small and midmarket businesses and with respect to the influence of IT over “formal” purchases. The influence of IT is much greater in the infrastructure category than in business applications: IT is responsible for 23 percent of infrastructure spending within small businesses and controls well over 50 percent of total spending on infrastructure within midmarket businesses.

Overall, shadow IT accounts for 56 percent of small business infrastructure expenditures. The enormous shadow infrastructure spends by small business indicates a clear problem for small business IT managers, and realistically, for small businesses themselves: the notions that shadow IT creates security and related issues are not merely an IT construct, it is a real issue. Suppliers with solutions that help address shadow infrastructure problems (such as MDM, managed app stores, etc.) will find a very substantial potential market in the US small business segment.

Shadow IT spending on IT services

BDM-led spending on IT services has different implications in different employee size categories: in small business, it often represents an authorized or “formal” spending on mainstream IT services, while in larger businesses, it may represent a means of avoiding IT department involvement in new IT/business initiatives. Techaisle data supports this perspective. BDMs control 35 percent of IT services spend in midmarket businesses. The shadow IT spending within the midmarket – pegged by Techaisle at 48 percent of the total – creates an intriguing opportunity for IT services suppliers. “Official” suppliers to midmarket businesses may continue to sell to IT, which controls a higher proportion of the formal IT services budget than their BDM colleagues. However, when shadow IT is added into the opportunity pool, BDMs are as potent a force in the midmarket business IT services market as ITDMs. This suggests that two different approaches – positioning IT services firm as an extension to IT, or as an alternative to IT – have equivalent market opportunity today.

Emerging Trend - SMB IT Specialists empowering business units, blurring the IT-Business divide

Techaisle’s study on “360 on SMB & Mid-Market IT Decision Making Authority - BDM vs. ITDM” reveals an emerging trend of IT specialists with purchase authority being resident within business units and reporting to business rather than IT management. The data is significant enough for marketers to pay close attention as the survey shows that already in 21 percent of small (1-99 employees) and 36 percent of midsized (100-999 employees) businesses IT Specialists are embedded within business units and even more are planning to hire specialists within their business units. Further, the study also shows that these IT specialists are an important influence point for new IT solutions purchase and that in 29 percent of small businesses and 49 percent of mid-sized firms that have “business unit resident IT specialists” these staff members are the primary decision makers for new IT solution purchases. This trend will naturally tilt the balance of decision making authority towards business management by empowering them with knowledge and decision-making agility.

The need for IT and business to work together to ensure that all stages of IT adoption process meet both technical and business process requirements is an important factor in IT solution success. Survey data clearly demonstrates that SMBs have taken this a step further to address the need for what is sometimes referred to as “double deep” employees (with respect to IT and business experience) by positioning IT specialists within business units reporting to business (rather than IT) management. In a way these IT Specialists reporting to Business Management in SMBs are blurring the IT and Business divide.

Small businesses - informal

The trend is widespread and informal in small businesses in the 10-99 employee size categories with 45 percent of firms reporting the presence of IT specialists within business units. In most cases this is an informal connection with IT-savvy employees responsible for IT-dependent processes.

Mid-market businesses - pronounced

However, within mid-sized businesses the trend is more pronounced and is becoming a more conscious strategy with IT support embedded within the line of business departments. As the balance of IT decision making authority continues to shift towards business decision makers the presence of IT specialists who can identify appropriate IT solutions within a mid-market business unit is gaining tremendous relevance. This also means that rogue implementations of solutions may well accelerate. More importantly, in the next 3-5 years it is highly likely that a business unit will begin to think and operate like an IT department as they learn from their missteps.

IT or BDM-led Solutions

To understand an SMB buyer’s journey Techaisle research considered nine IT solution categories and the influence of various stakeholders from needs identification to selection and adoption process. At a high-level the nine IT solutions were found to belong to one of three categories – IT-led solutions, areas where IT is generally seen as leading corporate IT initiatives; BDM-led solutions, solutions in which BDMs provide most corporate leadership, and IT is cast very much in a supporting role; and IT/BDM collaborative solutions that respond to BDM needs, but where IT is important to supporting delivery capacity. The positioning of these solutions is important to shaping the focus of IT vendor sales and marketing initiatives.

It is important for IT suppliers to understand whether their current and prospective accounts have IT specialists assigned within business units, and where they do, to establish strong relationships that will enable the supplier to understand and respond to IT/business solution demand.

About the Study: 360 on SMB & Mid-Market IT Decision Making Authority - BDM vs. ITDM

To understand the current state and implications of distributed IT influence and authority Techaisle conducted a unique survey of SMB organizations where we surveyed roughly equal numbers of business decision makers (BDMs) and IT decision makers (ITDMs) across seven employee size categories, and then analyzed results to create a unified view of the new IT decision authority realities.

The study covers:

• Stakeholders and their roles in end-to-end IT solution adoption

• ITDM vs. BDM : Balance of Authority (Needs, Budget, Purchasing)

• ITDM & BDM: Locus of Leadership in driving different types of IT Solution Adoption

• ITDM & BDM: Leadership roles in securing Cloud, Mobility

• ITDM vs. BDM: Success Attributes and Benefits of Cloud & Mobility Solutions

• SMB & Mid-Market Businesses: Shadow IT Spending

• Business Impact of BDM vs. ITDM perspectives and expectations with respect to IT Solutions

• ITDM vs. BDM: Differences in Business Issues, IT Challenges, IT Priorities

Techaisle’s unique SMB research to understand the current state and implications of distributed IT influence and authority shows that today, the DMU (Decision Making Unit) is much bigger, much more diverse, much more difficult to inform, and can be much slower to take action. Business decision makers (BDMs) are an intrinsic force within DMUs in most SMB organizations, and are the primary decision makers in some high-growth areas. These BDMs have different objectives for technology, different perspectives on adoption drivers and impediments, and tend to be influenced by different information sources. The resulting diffusion in responsibility/authority and information channels has created an environment where buyers and sellers struggle to develop the cohesion needed to promote or embrace new IT/business capabilities within existing IT and business process structures.

The study shows that both ITDMs and BDMs play important roles in the (formal and shadow) acquisition of IT products and services. However, Techaisle’s research has found that the distinctions between these roles are not evenly applicable across all types of IT-enabled solutions: in some areas, the business will look to IT for leadership, and in others, it will take direction from BDMs.

Figure below illustrates the extent to which ITDMs and BDMs are seen as solution leaders within small and medium businesses, and across nine major solution areas. The solutions have been assigned to three groups: those on the left (virtualization, managed services and IaaS) are labeled “IT led,” and represent areas where IT is generally seen as leading corporate initiatives; they are focused on the core infrastructure used by IT to deliver corporate services to users. The ones at the right (collaboration, social media and analytics) are labelled “BDM led,” and are solutions in which BDMs provide most corporate leadership, and IT is cast very much in a supporting role. The solutions in the middle – Big Data, SaaS and mobility – have been labelled “IT/BDM collaborative.” These are solutions that respond to BDM needs, but where IT is important to supporting delivery capacity.

The positioning of these solutions is important to IT vendor sales and marketing strategies. Solutions in the “IT led” category need to have strong IT-focused positioning, with detailed information on product attributes; this material should be supported with a second layer of collateral containing information on the business case for the solutions, and aimed at BDMs.

Solutions in the “BDM led” category require very different positioning: here, vendors need to make a strong case for the business benefits and relevance of the solution and orient these messages towards BDMs, supporting this campaign with accompanying technical information designed to provide clear deployment and integration guidance to ITDMs.

The “IT/BDM collaborative” category is the trickiest to address. It requires deep information on business benefits and the process steps required to capture those benefits targeted at BDMs, and deep information on how to assemble, deploy, integrate and support/optimize these solutions targeted at ITDMs – and an understanding of how to position and convey the messages to each audience.

During the survey, Techaisle explored one other solution issue that is important to understanding the different perspectives of ITDMs and BDMs. Each respondent was asked to categorize the nine solution areas as having one of two primary impacts: driving growth or containing costs/”increasing the bottom line.”

The comparison of small and mid-sized ITDM and BDM perspectives provides an instructive view of the differences between the two communities. Looking first at the small business results the survey finds that in six of eight areas (IaaS and SaaS combined into a single “cloud” category), BDMs are more likely to view a solution as contributing to growth, and ITDMs are more likely to view a solution as helping to control costs; this may reflect a fundamental difference in how each group approaches its business objectives. In the mid-market findings study reveals that the perceptions of value of ITDMs and BDMs are very closely aligned in mobility, virtualization, Big Data and managed services. ITDMs are more likely to believe that cloud will drive growth than their BDM peers, while BDMs are much stronger believers in the growth contributions of the three IT-led solution areas (collaboration, social media and business intelligence/analytics).

About the Study: 360 on SMB & Mid-Market IT Decision Making Authority - BDM vs. ITDM

The study covers:

• Stakeholders and their roles in end-to-end IT solution adoption

• ITDM vs. BDM : Balance of Authority (Needs, Budget, Purchasing)

• ITDM & BDM: Locus of Leadership in driving different types of IT Solution Adoption

• ITDM & BDM: Leadership roles in securing Cloud, Mobility

• ITDM vs. BDM: Success Attributes and Benefits of Cloud & Mobility Solutions

• SMB & Mid-Market Businesses: Shadow IT Spending

• Business Impact of BDM vs. ITDM perspectives and expectations with respect to IT Solutions

• ITDM vs. BDM: Differences in Business Issues, IT Challenges, IT Priorities