The SMB channel is drifting perilously close to forces that, if not tackled decisively, will change the nature of our industry.
As any industry matures, initial sources of profit erode, yet those who adapt, thrive. When product resale profits started declining, solution providers added services. When SMBs adopted DSL, becoming more IT-dependent, and MSP (managed services providers) tools dropped to solution provider-friendly prices, managed services quickly evolved.
Survival has meant flexibility and speed of adaptation; over the past 30 years few industries have evolved as quickly–indeed as headily and joyously–as IT.
Today, forces are impacting the SMB IT channel against which steps must be taken if it is to survive as a mature, profitable, entrepreneurial endeavor. These forces are the ultimate commoditization of the professionals who deliver services to our clients. We are faced with a decision as to whether the channel from now on will be a profession or a trade.
Key to our survival has been the willing participation of technical professionals. Our industry has always attracted technical people who are independent thinkers, who love continual learning and who value the respect and freedom provided by the high level of individual expertise the work requires.
Because the IT industry has expanded for so long, technical employees have often had the upper hand, a challenge their employers, the owners of solution provider companies, have been willing to meet. If anything, owners are loath to fire techies when business slows, even at the risk of their own survival as an employer.
Several factors now threaten this win/win balance:
- Growing demand for industry professionalism, due to heightened client expectations and escalating regulatory and liability consequences of availability/security/privacy failures.
- Whenever there is a recession, “trunk-slammers” flood the market, eroding profits and service levels, increasing clients’ dissatisfaction and risk.
- The likelihood that cloud computing will reduce the skill levels needed among the bulk of infrastructure professionals: “Your IT workers (will) look more like truckers and longshoremen than traditional IT workers,” Michael Manos, Microsoft general manager of data center services, was quoted as saying.
- Slowing IT innovation, placing perceived ceilings on opportunity open to technical professionals: “VCs will tell you that there is no new mega-trend in information technology now, no new 'wow' technology that will revolutionize the IT category, National Venture Capital Association President Mark Heeson has said.
- Audits by the National Labor Relations Board, compelling some solution providers to classify technical professionals as non-exempt employees. This represents a challenge to the freedom our technical people have always had to innovate by using their expert judgment as to how and when to do the work at hand.
The proactive response to these threats is to move to secure our industry as a self-governing profession rather than a trade governed by others.
The American Medical Association and the American Bar Association provide good models for establishing and growing a largely self-governed profession. Founded in 1847 and 1878, respectively, these professional associations have:
- Dealt effectively with “trunk-slammers”
- Met demands for professionalism and risk management
- Created win/win relationships with vendors, government and education
- Provided extraordinary career and income opportunities for the technical practitioners
- Raised standards of practice
Indeed, so great has been the success of professional associations that in several states, professional engineering associations protected their brand identity by lobbying legislators to stop IT companies from referring to their technical people as “engineers.”
Physicians, attorneys and professional engineers have developed industries that still – decades after “young industry” hyper-innovation has ceased – attract the most talented, motivated, independent young professionals by rewarding them with greater responsibility, extraordinary income and deeper respect from society. The IT industry historically has attracted the best and brightest, but won’t if these factors are unanswered.
Solution providers that structure themselves as practice-driven organizations – similar to the business models of legal, engineering and medical firms–have repeatedly surfaced as achieving the highest profitability and growth. This is the natural and most efficient way to capitalize on and deliver high-value knowledge services, as opposed to retailer/dealer installation services or craft services such as cabling.
It’s time for solution providers to proactively construct a long-term win/win by learning not just from the business model of these gold-standard professions, but also from their professional association model.
Paul Dippell is CEO of Service Leadership, a consultant to solution providers.
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