We were having a lively conversation a few weeks ago about the calamity that struck the auto industry last year and whether there might be some early warning signs that we in the IT industry might heed; some lessons we might want to learn, some thinking we may want to revisit, some strategies we might want to embrace.
While these two gargantuan industries, with combined global sales of $6trillion, are sufficiently different in many respects, they do share some broad similarities that bear considering as IT executives plot and plan the future of their companies.
Chief among them is the business model that defines how they go to market. In both industries there is a cluster of global manufacturers, (GM, Ford, Chrysler, Toyota, VW, Microsoft, Oracle, SAP, etc) that sit atop the pyramid, selling their products and services to a vast network of dealers and partners/resellers.
In the automotive industry, the number of dealers now stands at about 18,800, having been pruned from 30,500 in 1970. In the case of the IT industry, the number of partners/resellers that make up this vast network in the US is in the hundreds of thousands. Therein is the "aha."
The $2.6 trillion automobile industry couldn't sustain itself with the number of dealers it had, so last year the industry had to shed thousands of dealerships as it sought to find a more profitable marketplace equilibrium. What does this say, or portend, about the $3.4 trillion IT industry and the hundreds of thousands of partners and resellers that make up this market?
We think it portends, in a word, consolidation.
We also think it means that IT executives who want to flourish will have to acknowledge the inevitability of consolidation and arm themselves with a well-defined M&A strategy. Many executives are doing just that, which explains the red-hot M&A market that is reshaping the industry.
While it was the credit crunch that ultimately broke the back of the auto industry, the calamity also revealed one of the industry's underlying fault lines. There were simply too many GM dealers selling the same Chevys and Caddys to the same customers, and too many Chrysler dealers selling the same Town & Countrys and Sebrings to the same customers, wreaking havoc on profitability as dealers were forced to compete with each other primarily on price.
So, you have to ask yourself, is the prologue for the IT industry to be found in the past of the auto industry? Will the IT industry of the future have to have fewer, stronger, larger, more profitable partner companies that can withstand the agony of a calamity like that which befell the auto industry? It seems the industry is heading that way.
As the 19th century French politician Alexandre Auguste Ledru-Rollin is supposed to have said, on seeing a crowd marching through Paris, "There go my people. I must find out where they're going so I can lead them."
Today, in America, you'll find a number of IT executives who see where the industry is going and have smartly, courageously, and tenaciously decided to get ahead of the trend and lead their companies to a more commanding position in the market, where they will prosper fewer, bigger, stronger, and more profitable.
We interviewed three of these leaders to get their insights and experiences on the role and value of M&A as a growth strategy component, warts and all. They are:
Founder and President
Director, Business Development
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We'd be interested in hearing from you about your views on and experiences with M&A in the IT Services space. You can reach me at 952-835-2333 ext. 101, or contact me via email at email@example.com .