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 costs and 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).