IT-Sourcing-Digital-Economy

IT Sourcing in the Digital Economy: Success Still Hinges on a Strong Relationship

The digital revolution is well underway – and IT and business professionals, companies across industries and geographies, and even whole sectors and business ecosystems are racing to figure out just exactly what “digital” means for them. Concepts that were mostly theory just a few short years ago – cloud computing, big data, the internet of things (IoT) – now are commonplace.

Watch ISG’s Barry Matthews discuss sourcing in the digital era.

This is leading to profound changes in the way enterprises source and contract for IT services. Good negotiations and good contracts can build the right foundation, but to truly unlock the real value from emerging technologies and build an effective ecosystem of digital providers, the most important success factor is building strong, mutually-beneficial relationships.

Large multi-national providers have been quickly building up their digital-related services and competencies. Countless smaller companies with specific niche capabilities also are making significant inroads. For companies looking for help in expanding their presence in the digital economy, the choices seem limitless.

However, the rapid proliferation of digital tools and technologies, and the continued need to maintain large, complex and critical legacy applications and platforms, can make it quite difficult to harmonize efforts across multiple internal and external teams. Even with strong teams and the right talent, going digital can exacerbate the problem, since the driving premise is to move quickly and seamlessly across an inter-connected IT landscape while the legacy world of IT silos (which were good at hiding and/or containing issues) becomes a thing of the past.

Healthy relationships with your digital providers are imperative to realizing the value that the digital revolution promises. And healthy relationships do not happen by accident. Building, maintaining and continuously improving relationships with your providers requires discipline, open communication, executive-level involvement and a true shared desire for “win/win solutions.”

Go boldly into the digital revolution by focusing on the health of your provider relationships. Here’s how to make it happen.

1. Establish structured governance processes.

It may sound like a paradox, but having a formal, structured governance process enables better communication. Such governance often is accomplished via a three-tiered model, with focus on the executive layer, the managerial layer and the delivery/operations layer. It carefully defines roles and responsibilities, agendas, reports and scope of decision-making.

With a tiered governance framework in place, executives can focus on overall performance of the contract and relationship and ensure that the parties are aligned toward mutually beneficial objectives. Managers focus on contractual compliance, formal change management discussions, financial considerations and making sure delivery teams are set up for success. And, at the operational level, teams focus on more tactical issues such as achieving service-level agreements, managing problems and resolving root causes, prioritizing demand management and planning and monitoring projects.

The frequency of meetings varies across the tiers, with the delivery teams meeting weekly, management teams meeting monthly, and executive teams meeting two to four times per year. Teams at each level are encouraged to identify and resolve problems, but there is a defined escalation path for issue resolution. And additional governance teams can be formed to address specific high-value topics, such as technical architecture and innovation.

Another governance model that is taking root is called Coactive Governance. Coactive Governance aligns well with small agile and DevOps teams to create an environment of shared strategy and services responsibility between the client and provider. Governance topics such as issue resolution, metrics review and innovation are managed by the work teams, thus building trust, common interest and a sense of achievement from the bottom up. Because of the nature of such self-directed work teams, this type of governance requires a strong leader within each team who can collaborate well and manage rapid change.

2. Adjust the contract as business objectives change.

Unfortunately, once the contract is signed and transition is complete, many companies let the contract become “shelf-ware” and rarely look at it again. Companies and providers can both become complacent. Over time – and especially as the speed of business accelerates due to digital technologies – business objectives change, technologies change and service and scope expectations change. All these factors influence the requirements of the contract and overall relationship.

For example, robotics capabilities may be implemented that would substantially change the service levels and pricing for a particular service. Moving services to the cloud may mean that server uptime becomes less important and network throughput becomes more important. The type of resource units (and their associated unit pricing) may change drastically over time. Addressing these changes thoughtfully and proactively will help both client and provider ensure there are no surprises and that the contract remains relevant.  

3. Don’t expect innovation and strategic thinking to just happen.

One of the biggest disconnects between the sales cycle and the delivery of services is the expectation for innovation. During the sales process, a provider is likely to use its thought leadership to differentiate its services from its competitors. However, the reality is that thought leadership is difficult to quantify and can be a moving target the provider can’t really hit. Clients need to retain the expertise and bandwidth to drive innovation-related initiatives, and the provider should be prepared to fully participate with its own resources, concepts, tools and processes. Providers should nurture and facilitate the generation of great ideas with the client, and then be prepared to help vet those ideas and develop and deploy solutions to implement the best ones. Clients should listen to the provider’s ideas and lessons learned from other accounts and be open to fairly compensating the provider to enable the chosen ideas, even adjusting the contract as needed to reflect the change in objectives (as in point #2).

While the health of the client-provider relationship has been central to sourcing initiatives for decades, it is more important today than ever. The digital economy frequently emphasizes behaviors that contradict the expectations of legacy environments. For example, the concept of “failing fast” requires a new level of trust – that both parties are genuinely interested in realizing value faster, and not using the concept as a reason for sloppy coding or clunky process execution.

The benefits of a digital transformation are now known. The challenge is to take the time needed to build a relationship that can support getting there.

About the author

David Mitchell is a principal consultant with deep experience and expertise throughout the ITO sourcing process. He offers more than 25 years of IT leadership experience helping dozens of clients, within a number of industries, achieve their sourcing objectives. He has deep experience in the sourcing process, from supplier rationalization, RFP development, provider evaluation, provider selection, contract development, contract negotiations and transformation.