Learning to Love Commoditization

Organizations need to make decisions about where they will fit on the commoditization curve.

The art and craft of information technology has changed – and is rapidly changing even more. For decades, bleeding edge technology morphed quickly into leading edge technology with the help of the wizards in IT. This fostered a priesthood mentality that sometimes made IT professionals seem unapproachable and expanded the divide with business. It reinforced the habit, at one time a necessity, of building-your-own.

Today, we’ve moved away from that paradigm. For example, there are far fewer occasions when organizations have to build their own infrastructure. We have standard Java / .NET app servers and even complete web frameworks. Where organizations once had to implement and manage their own processes in order to deploy applications, DevOps tools now automate many of these processes. Similarly, packaged applications and outsourcing options speed the introduction of functionality and reduce or eliminate the need to manage IT infrastructure.

These trends can be summarized by the word commoditization; in economic terms, commoditization is what happens to any good or service that becomes standardized, interchangeable and differentiated, mostly by price. Of course, advanced skill sets will always be crucial to successful IT organizations, but clearly more and more functions will be commoditized. Therefore, organizations need to make decisions about where they will fit on the commoditization curve. If they don’t leverage commoditization effectively, they will spend money, time and resource on activities that won’t deliver value. On the other hand, if they rely too heavily on commoditization or take a lowest common denominator approach, they risk outsourcing their differentiation or missing out on a potential competitive advantage.

Making the cut

Commoditization is already well established for servers, networking, storage, virtualization and databases, and most of the time, it doesn’t make sense to spend time reinventing these wheels.

On the other hand, applications present a somewhat more complex picture. Most organizations will be well served to leverage packaged or SaaS solutions for standard functionality like HR, ERP and inward facing CRM. However, when it comes to applications that drive the customer experience, or applications that provide process speed, business agility, or support business innovation, there may be advantages to building and managing these applications more directly.

Forrester talks about these choices in terms of “systems of record” and “systems of engagement.” The former are applications that store customer transaction history and other content, and business processes, and include systems of automation, which control physical products and infrastructure. The latter –systems of engagement -- are the software systems that help people (customers) identify and take action at their moment of need.

Increasingly, systems of engagement are mobile but they can also include things like cutting edge call center functionality.

Forrester’s parsing can be a useful way of determining where to leverage commoditization – perhaps outsourcing elements of architecture and infrastructure where there is little likelihood of adding big value and instead concentrating on apps that can showcase agility and meaningful innovation. Those are the places where app dev investments can really make a difference!

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