What to consider for an IT Vendor Strategy? Wrong choices of today put future at risk

The new IT organizations’ mantra is to be agile, disruptive, digital. Responding to that, consulting firms and system integrators have all adjusted their offering with greenfield solutions, NextGen platforms, and awards as best employers of the year.

Altogether, they all talk about collaboration, joint investment, and value creation: the reality is that the old pricing business model still runs the show, short-term strategies prevail, pushing toward cutting cost, margin calls and, desperate offshoring as if there was no tomorrow.

Changing the business model from price to value creation is an ecosystem effort that brings collaboration to the next level.

In value-based models, Information Technology departments are not caged into a cost-saving role: they enable business functions to generate revenue.

It goes by itself that this shift in perspective calls for a review of the partners’ relationships, a fit to value exercise for future collaboration.

This is happening although not everyone is keeping the same pace:

Some IT organizations have already started reviewing their vendors’ strategy under new paradigms; others are not really equipped for the change in paradigm and keep asking to reduce cost. The same happens on the vendors’ side. Faster firms are reviewing their offering with the intent to position themselves better in intercepting this need. Slower ones look into themselves to see how they can provide discounts.

The fact is that a strategic partnership conflates the investments, visions, and objectives of all the involved. It is a journey that goes beyond short terms hurdles.

So what should IT executives look for in their vendors’ offering?

They should size the offering/need around three dimensions and linchpin their selection around them:

Diagnostics, services, and technologies

• Diagnostics is about people. The quality of a diagnostic framework (either you want to optimize the process, create value, or secure compliance) is made by experience and intuition. As the latter is not in machines, organizations should choose their IT partners considering the human factor. Diagnostics is about professionalism: the criteria for selecting a lawyer in case of a legal problem, a doctor for a disease, a bank for investment costs is trust, not affordability. In case of budget limitation, negotiating on price does not really help. Royalties strategies are the best way to get the most if coupled with execution abilities, apart from showing they are serious about the change. One more thing: mature organizations know that this cannot be done internally as the outcome would be biased by institutional prejudice and internal politics.
• Service is about culture. Good service goes beyond KPIs. No matters if management services for your planning, SaaS, or maintenance, like all commodities, their tangible value elicits from the user experience when something goes wrong. While high automation makes them competitive, providing excellent service has to do with culture and, assertive and social organization cultures have a plus. Lasting long relationships, experience gained on-premises, knowledge of their own limits are all factors that step in during hard times and, organizations should consider in their selections. Last comment: Price strategies will hit back organizations that do not preserve internally enough knowledge to control externalized services.
• Technology has to do with the investment capabilities of the provider. With organizations’ boundaries getting progressively lower (WFH, partnering, subscription revenue streams), compliance to standards, security, versioning, and upgrades create value in a long-lasting term. Keeping the technology pace is very expensive, people independent, and not much linked to innovation. It makes a lot of sense to choose partners able to scale up and out according to market needs. System integrators are best positioned for that, although they sell mainly from their shelf and might miss the latest technologies. In this case, it is worth having them manage the start-up or the technology provider and share the risk in the long run.

Conclusions

To join the digital bandwagon, organizations are shifting toward value-based models. Information Technology departments have a role to play as they will need to enable business functions to generate revenue.

This shift in perspective calls for a review of the partners’ relationships, a fit-to-value exercise for future collaboration.

Without discounting the role of complexity in the relationship, industry and, historical moment of the organization, the ones that clarify their strategic context around diagnostics, services, and technologies have better odds to create more value in the medium-long run.

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