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There Are Only Two Strategies In This Market, And Both Can Be Hazardous

A few weeks back, I was talking to former solution provider and CRN columnist Chris Lochhead, who earns his keep these days as a strategic marketing consultant. We were discussing the current state of affairs in the IT market and what lies ahead.

While bantering back and forth about the fact that IT spending accounts for almost 50 percent of capital expenditures in the United States, Chris said we are crazy if we expect it will grow to 60 percent.

With that point settled, the conversation turned to what that means to the market.

We started talking about how many companies are ill-equipped for the future and, in many cases, remain oversized for the current business climate.

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ROBERT FALETERA Can be reached at (516) 562-7812 or via e-mail at rfaletra@cmp.com.

More interestingly, we talked about how there are really only two spaces companies can occupy these days. A high-tech supplier can either focus on being a skill-based company that drives sales through innovative, leading-edge technology and products, or it can focus on scale, which requires efficiencies.

Since our discussion, I've been toying with the idea and putting the high-tech players we know and love in either of those two buckets. When you think about it in these simple terms, it's an interesting exercise.

Skill companies have leading-edge technology, spend heavily on research and development, deliver breakthrough products and generally command higher margins. They also face the danger of holding onto their core technology longer than they should,something that often ends in their ruin.

Scale companies, on the other hand, tend to be fast followers, lead on process innovation, have lower-margin business and get into trouble by scaling their own business too quickly or being displaced by a lower-cost competitor.

With that as a backdrop, let's think about some of our friends in the high-tech industry.

Microsoft is clearly a scale company. Although its margins are very high, Microsoft is the classic fast follower. The company was late with spreadsheets, word processors, network operating systems, Internet browsers,need I go on? Despite not being first, or even necessarily best, Microsoft has captured those markets through great marketing and process leadership. I would argue that Microsoft's process leadership has included leveraging solution providers very effectively to crush more than one direct-sales competitor.

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>> 'A high-tech supplier can be either a skill-based company that drives

sales through innovative, leading-edge technology and products, or a company that focuses on scale, which requires efficiencies.'

EMC is a perfect example of a skill company that unfortunately has held onto its core technology too long and, as a result, is in danger of losing its leadership position.

Intel is undoubtedly a skill company, but one that religiously abandons old technology for new.

IBM brings us back to the scale category. Despite that it registers more patents each year than any of its competitors, it's difficult to find a category where IBM is driving leadership technology. More importantly, IBM Global Services is 50 percent of IBM's entire business and IGS is a scale company.

Cisco also falls into the scale category, as does WorldCom.

Hewlett-Packard is an interesting example of a skill company that is trying to become a scale company. Its purchase of Compaq Computer was all about getting scale. We shall see which strategy wins out. I don't believe you can be both a skill company and a scale company. The structure of a company always favors one or the other over time.

The fact is, you can be a great company in either space, but I can't think of a single company that is able to do both for any extended period of time.

Make something happen. I can be reached at (516) 562-7812 or via e-mail at rfaletra@cmp.com.

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