Achieving Evergreen Innovation with Managed Services Providers
Mark Twain said, “to stand still is to fall behind,” and that witticism is more accurate than ever. In today’s ultra-competitive environment, no business can afford stagnation – especially in IT. Technology is the backbone of the digital business and the digital business demands continuous improvement and innovation. If you rely on managed services providers (MSPs) to deliver IT services, then they share this challenge with you. Yet, all too often these providers are not pulling their weight. We hear from IT leaders all the time, comments such as:
I get no innovation from my “strategic” suppliers
When I outsource I don’t get as much innovation as I would if I kept services in-house
Unless you hold a supplier’s feet to the fire, you’ll never get innovation!
Innovation and continuous improvement is a process that requires careful planning and active management. In the case of driving continuous improvement via an MSP, there is a formula WGroup leverages when supporting clients in building sustainable, high-value partnership. There are seven vital elements to this formula.
Competition creates efficiency. Splitting your work requirements among several suppliers, by tower, creates a healthy competition within your supplier community. Competition drives behavior that will drive down costsand create constant pressure to deliver higher quality services.
In a multi-supplier model, you’ll need to incorporate two critical elements to create a cooperative, while still competitive, environment. First, you’ll need to establish shared KPIs (key performance indicators) when suppliers are jointly responsible for delivering business outcomes-based results. Second, it’s beneficial to set performance thresholds and predefined bundles of work that can be shifted from supplier to supplier based on predefined, agreed, and transparent performance achievements (or lack thereof).
Continuous improvements do not need to be revolutionary. Evolutionary gains are acceptable and often preferred. Evolution KPIs – such as the reduction in application code complexity, the percentage of automation, or the elimination of legacy technology – create a model for measuring gains. In addition, value can be derived by measuring progress against a defined future blueprint architecture, or capturing the quantity and impact of ideas from vendors via an innovation program.
Innovation is the early funnel of ideas that feed continuous improvement, and your supplier should be submitting ideas and recommendations just like your employees. It’s difficult to expect innovation from suppliers if your business does not have an innovation culture or an innovation process to capture and act on ideas. An innovation program should include participation of employees and vendors. The program should capture new ideas, objectively vet them, and have authority to act.
In fostering an innovation environment, sharing the benefits from new ideas is a vital incentive. As part of contract development, establish a model to share gains from ideas that deliver results, either cost savings or revenue improvements. Gain-share agreements incentivize continuous new thinking.
Stagnation yields complacency. Setting shorter-term contracts with vendors as well as negotiating no fees for termination keeps your vendors in a state of repeatedly earning your business. Don’t include auto-renewals in contracts and take the services to market every few years to get a new perspective.
World-Class Vendor Management
All of this requires that you take responsibility to drive suppliers to deliver greater value. This is the principal function of a world-class vendor management office (VMO). The old thinking that vendor management is solely about contract management has passed. Vendor management today is about driving improvements and innovation. It’s about value management. This process requires that you tier your vendors by value. For those that are strategic, you treat them as true partners and provide full transparency to priorities and strategies. In return, suppliers continuously share their roadmaps and their ideas, and they are included in your planning processes. A world-class VMO is the linchpin of supplier value, and, in our view, it’s the most strategic competency in the technology group.
Utilizing outside managed service partners is smart business. Unfortunately, unlike pitchman Ron Popeil’s Showtime Rotisserie, you can’t simply “set it and forget it.” Transforming your supplier relationships from static services to active value-add requires the right levers, the right contract, the right processes, and the right management to succeed. Don’t settle for stale services (or a stale sourcing advisor).
Four New Sourcing Strategies: Overcoming Regulatory Limitations
As the costs of foreign labor and political pressure against offshoring increase, many companies are seeing declining benefits to labor arbitrage. New regulatory pressures are also making it more difficult to hire foreign workers to work locally. H1-B visa expediting is being halted and it is likely that there will be a lowering of the cap on total H1-B visas issued. These two factors are leading to a rapid increase in competition with many companies looking for new opportunities to control costs and deliver better products and services to their customers.
In order to be successful in this new regulatory environment, companies must look to strategies that allow them to source the labor and services they need while controlling costs and increasing productivity.
1. Increase flexibility
Old sourcing models often lock companies into long commitments that aren’t adaptable to changing environments. An uncertain future for sourcing means that these commitments are no longer feasible. Avoid agreeing to price increase clauses that allow outsourcers to raise the price for service rendered in the event that their costs increase. Contracts should also allow companies to shift the work delivery location and terminate services if the deal becomes uneconomical.
2. Invest in recruiting
Local recruiting will become increasingly important as regulatory pressure grows. There is a coming war for talent, and companies that haven’t invested the necessary time and resources into developing a comprehensive talent acquisition system will be left behind. Forming relationships with US based staffing firms and developing strong recruitment programs is a critical component of future success.
3. Diversify vendor mix
Sourcing models that exclusively leverage offshore labor have an elevated risk profile. In many cases, it makes sense to use a mix of onshore and offshore labor to attain the optimal level of risk vs. profit. In many cases, it may be possible to leverage multi-shore service providers that allow companies to take advantage of multiple locales through a single vendor.
4. Emphasize automation
As the value of labor arbitrage declines there is increased opportunity to reduce the need for offshore labor by increasing the productivity of the existing workplace through automation. Repetitive, highly standardized tasks with high turnover make ideal targets for automation. Although some automation technologies have the potential to replace human workers, their greatest power is their ability to optimize and accelerate functionality. Virtual assistants, predictive analytics, language translation, data entry and dynamic upsell recommendations are all areas where automation solutions excel. In many cases these solutions surpass the capabilities of human workers, allowing for increased productivity while reducing costs.
Will automation be taxed?
Many experts are speculating that as automation increasingly replaces a human workforce, governments will begin taxing these automation systems to make up for losses in revenue from income tax. Although this is certainly possible, and perhaps even likely on a long enough timescale, it is not something that companies should overly concern themselves with right now. By the time an automation tax is put in place, it is likely that technology will have progressed to the point that gains in efficiency will far outweigh any tax that could reasonably be placed on the technology. Regardless of what future policy holds, investing in automation today is almost certainly a sound strategy.
Labor arbitrage can no longer be relied on as a viable business model. With increased regulatory pressure and rising wages abroad, offshoring work is becoming increasingly risky. In order to survive, companies must make increasing use of onshore labor augmented by automation. By implementing these strategies, companies can continue to enjoy the cost and productivity benefits of outsourcing while still maintaining low costs.
See the related slide deck, as presented at the Philadelphia IAOP meeting, by clicking here or visiting https://www.slideshare.net/ThinkWGroup/strategies-to-address-regulation-in-sourcing.
IT can always use more money to build better systems, increase reliability, improve speed and deliver new features. However, many companies see IT as a major cost center and many IT leaders don’t do enough to prove the business value of their work. This creates a dynamic in which getting approval for the IT budget becomes extremely challenging. Some CFOs will balk at any increase in budget and look for every way to cut costs, even at the expense of system reliability and performance. This is a dysfunctional way of operating and IT leaders must do more to ensure that the relationship between business and IT is strong.
Build a better relationship
IT leaders shouldn’t only go to the CFO when they want something. Instead, they should be constantly working with other business executives to develop strategies that use IT to drive business goals, improve efficiency and meet the demands of end users. When the CFO has an active working relationship with IT, they will better understand why they are asking for resources and be more likely to grant the request. The CFO will also likely have insight into how to improve efficiency within the IT organization and optimize the resources given to them. The most effective relationships should be mutually beneficial.
Make the business case
No CFO will grant a budget increase unless they can see a clear business case for doing so. It is the IT leader’s job to gather data and develop arguments that convince the CFO in terms they can understand. This means that IT should be collecting data on performance and reliability, user satisfaction, costs and revenue and other key business points. This helps show why getting money for transformation and improving performance is critical to driving business goals. Every request should be framed not just in terms of the technical outcome, but in terms of the outcomes for the business and end users.
Stress the importance of innovation
Not every CFO understands that IT is the driver of innovation and competitive advantage in the modern enterprise. That’s why it’s critical that the CIO show them how innovation and transformation can dramatically change the way a company does business. Technologies can allow companies to offer new products, capture new markets and lower costs. In many cases, this can mean the difference between a company surviving or being overtaken by a more nimble competitor. IT leaders need to make sure that the CFO understands that not investing in IT is incredibly risky and will likely cost the company many times more in lost revenue.
IT leaders must understand that they are an integral component of the business and all of their activities should be directed towards driving business goals. If they approach budgeting with this mindset, they will be in a much better position to negotiate with the CFO and prove to them that their requests are reasonable and necessary. By developing strong working relationships with business leaders and framing their requests in terms of how they help the business, IT can get the resources it needs to improve service and innovate. This direct approach enables IT to react swiftly when the budget is approved so they can begin to implement changes with speed throughout the enterprise. In the end, IT’s transformational initiatives benefit the entire organization’s bottom line by enabling the company to stay at the forefront of technological innovation in its respective industry.
For an in-depth exploration of the changing dynamics between IT, the CFO, and all of the business leaders, download IT’s Role in the Survival of the Enterprise by clicking here.