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Are you capturing true value from your outsourcing partnerships?
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Outsource magazine: thought-leadership and outsourcing strategy | March 6, 2015

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Are you capturing true value from your outsourcing partnerships?

Are you capturing true value from your outsourcing partnerships?

More than ever, IT stakeholders are asking tough questions on IT’s planning and execution abilities. IT departments are under tremendous pressure to deliver projects in a difficult environment where morale and budgets are at an all-time low, and business expectations are at an all-time high. Market volatility is requiring IT to plan and deliver quickly. As a general trend, most IT departments are today under pressure to:

  1. Improve the efficiency and effectiveness of IT.
  2. Reduce operational costs and channel spending to new initiatives that generate business value.
  3. Consolidate IT wherever feasible: virtualisation, data centre consolidation, technology rationalisation are some recent buzzwords in the industry.
  4. Improve decision-making abilities by implementing business intelligence and decision support tools.
  5. Leverage social media to add business benefit.

What does this mean for strategic vendor partnerships?

As business expectations from IT are changing rapidly, the strategic vendor relationships need ongoing re-alignment to meet business needs.

  1. Are your vendor partners strategically aligned to add value to your business priorities?
  2. How are you measuring business value that our partners are generating?
  3. Are your vendor partnerships focused on building long-term capabilities that address business needs?
  4. How is the knowledge and best practices gained over the course of relationships being shared across the company?
  5. How is your trust level on meeting mutual strategic commitments?

These can be some very important questions for the CIO and IT management team, especially in situations where more than 35 per cent (selective sourcing to total outsourcing) of IT portfolio is outsourced.

Vendors must do more to strategically align with clients’ business priorities

The business value alignment or ongoing re-alignment questions do not have easy answers as vendor partnerships are much more complex and sophisticated today. While the traditional expectations on technology skills coverage and domain knowledge continue to be important for operational execution of projects, more and more clients are evaluating vendors based on their ability to

  • align with business needs
  • lead transformational change management
  • innovate in context of client’s business
  • bring forward thought leadership and experience

Vendors must align and evolve their service offerings and innovate in context of their client business. The ability to offer end-to-end business facing consulting services coupled with technology execution capabilities leveraging global delivery models is becoming more and more critical to stay competitive and add true business value to client business.

Vendors should invest in strong account governance and relationship management abilities to effectively communicate and collaborate with client’s business and IT governance. The relationship management functions on both client and vendor side need to ensure that the business objectives of client and vendor partners are well aligned for a win-win success.

At the execution layer, the business value alignment might require the vendor to optimise service models and bring forward cost, productivity and other efficiencies. This may at times mean higher risk and reduced revenue in the short term. While this could lead to short-term loss, smart vendors understand that at a macro level, increased credibility and trust with clients and ability to re-align the freed up experienced capacity (if applicable) will more than compensate.

Clients must position vendors to generate value in their environment

Clients would need to define value in terms of what it means for their business (demand side) but also what that translates into in terms of partner expectations (supply side). Investments in vendor partners to make them understand the business goals will help align their service offerings for higher business impact. In a way, you determine the success of the vendor in your environment.

Strategic sourcing programs, relationship managers and client governance must play a broader role to drive this alignment. Aligning partners with your business and IT goals and objectives should be a priority. Translating an IT balanced scorecard into a cascading sourcing scorecard and using that as input into vendor scorecard can be a good strategy.

Clients should invest in processes and tools to capture true value

Clients should evolve business and IT metrics to capture outsourcing value in collaboration with their vendor partners. Strategic vendor scorecards can be designed using several parameters like service delivery, cost reduction, process improvements, operational excellence etc. which could be direct input into parameters that calculate IT-business alignment, IT-value, increased revenue, reduced cost and reduced risk metrics on balanced scorecard. Clients should also Implement process maturity and tools to generate scorecards and reporting for decision-making. Several IT planning and dashboarding tools today provide abilities to gather critical data from different sources.

IT today needs strong strategic performance measurement abilities to provide transparency to stakeholders, communicate business expectations to broader teams and motivate employees. No wonder along with strong execution capabilities, the ability to collate IT value and performance metrics accurately from all internal and external sources has become a high priority for the CIO. Most companies do not have an accurate baseline understanding of their costs of operations and struggle to determine the ROI and value from their global sourcing initiatives.

As clients embrace innovation and thought leadership in sourcing decisions, bringing forward out-of-box thinking, and coming up with acceptable, cost-effective and high-performing business solutions could provide vendors a great differentiator to gain competitive advantage in today’s highly commoditised outsourcing industry.