Tech Partnerships - Stick or Twist?

With rising costs, demand for improved productivity and the ongoing need to digitise and streamline businesses and processes, one area of technology that we’re seeing an increase in activity is IT Services partner reviews and selection.

Many industries and companies experienced an intense period of outsourcing and partner consolidation over the last ten years, with a significant number of organisations going through some form of legacy modernisation, often including an ERP implementation or re-implementation resulting in large scale tenders to select one main partner to implement and then maintain the new technology landscape. This led to some long-term agreements being established with some of the larger offshore IT services companies, with many of those companies seeing huge growth during that period and driving a relentless recruitment drive to fulfil all those contracts.

Like any relationship, there can be good times and, well, not so good times when at least one side questions whether the relationship is the right one for the longer term. This may be driven by missed deadlines, poor quality output or just a change in direction from the customer.

As companies rebuild their Digital and Technology strategy for the future in our new, post pandemic world, it’s also wise to also consider whether the incumbent partners are the right ones to go on the next step of the journey. For instance, if a partner was previously selected to implement an ERP solution to bring standard ways of working and best practice processes to an organisation that’s been through mergers and acquisitions, the next step of the journey may be to grow into new markets or broaden the customer proposition with new products and it can be wise at that point to develop a new technology partner strategy. Or perhaps a partnership has been in place for many years, unchallenged, and it's time to validate that it's still the right one for the future.

Sourcing Strategy

There are, of course, different approaches that can be taken and Technology Leaders will have choices to make, such as whether to work with a single strategic delivery partner, or to retain some sort of competitive leverage by working with different partners.

There are many different approaches that a company can take to outsourcing, including:

A single strategic IT services partner who will take on all development, testing and support;
A delivery framework where every significant project automatically triggers a competitive tender process;
Business domain focussed multi-vendor approach (business area aligned);
Technology discipline focussed multi-vendor approach (development, testing, support).

There are several key factors to consider in any review, here are a few examples:

Cost

Technology is generally considered a ‘cost centre’ and so unsurprisingly, this tends to be one of the most important factors for every company. An initial decision is likely to have been made to outsource based on the cost of hiring a local, in-house team which is generally cost prohibitive, but also because the cost of maintaining flexibility to scale up and down at someone else’s expense is very attractive.

A second and perhaps often overlooked factor is that as time goes on, the IT services company needs to improve its margin position and so may look for opportunities to either remove roles or add new chargeable roles to support teams to cover ‘new systems which require different skills’, however, there are different ways of getting around that problem with a little imagination and leadership.

The pandemic also drove costs up for IT services companies, with many roles able to be fulfilled remotely driving up competition for talent and with it, the wages expected by many IT workers. Those companies must recoup those costs and there’s only one place to go to bring in more cash!

‘Tech for Tech’ Capabilities

Any successful business is constantly evolving and generally that includes increasing digital capabilities to help improve productivity and streamline processes.

Another aspect of improving productivity is the use of technology to help with the delivery of new business technology (Tech for Tech), which is becoming more advanced to help increase pace and velocity and improve the quality and certainty of technology outcomes, such as the use of AI to automate development, testing and support activities. This can have a big impact on IT services companies, especially those whose success has come from increasing the size of their teams, i.e. a higher number of people on an account equals higher revenue, and so it isn’t in their interest to use sophisticated technology that actually drives down the number of people assigned to a customer’s account.

Moving to a new IT services company can bring immediate benefit as they can be incentivised by the new contract to improve productivity and automation over an agreed timeframe and the customer can select and IT services company that has chosen to put automation at the heart of their future skills strategy to get the full benefit from improved Tech for Tech.

Attrition

A high turnover of staff within the IT services company can be a sign there are other underlying issues that are not visible to the customer and in truth, it’s unlikely to ever be – until it’s too late! It may be due to something as simple as low salaries, or it may be a lack of training and development on offer compared to other employers leading to low staff morale. This can, though, cause a brain drain of experience and skills creating an impact on the quality of both delivery and support.

Flexibility

The nature of technology projects being delivered in a large business can vary on a regular basis, typically in very large businesses with hundreds of systems and applications where priorities for investment will vary periodically and means different skills will be needed from one year to the next. It can help to have one or two partners with very broad skills base (and the ability to attract new skills) to help with the regular change in skills needs.

Another reason for a flexible approach needed is that companies sometimes need the ability to pause work and stand down teams for a period whilst business cases are developed, reviewed or updated. Whilst this is unhelpful for the IT services company, it can be very helpful for a business operating on wafer thin margins.

Skills

Linked to some of the other factors, the required skillsets can adapt and change on a regular basis and that means that the original decision made on partner selection may no longer be the right decision.

Changes in direction mean that the existing partner may not have demonstrable experience and expertise and therefore have to bring in new skills into their organisation just to meet the customer needs, which may not be a big issue in the longer term if the IT services company is going to strategically invest in those skills but it’s worth considering whether another company may be better set up and have strategic relationships with original technology vendors.

Developing your partner strategy

Even if a decision hasn’t been taken yet, on whether to ‘stick or twist’, it can be helpful to carry out an initial discovery phase to assess the needs of the business against the options available.

An end-to-end approach may look something like this:

Step 1 - Discovery

This can be a short, sharp piece of work and the outcome may be a validation that the current approach is the right one or confirm that the business needs to take a different approach moving forward.

The length of time it will take will depend on the volume and complexity of the Technology footprint and the number of partners, but should be a piece of work delivered in weeks, not months.

Step 2 – Options, planning and Short-listing

If the decision, following the initial discovery, is to press ahead with a competitive tender / review, the next step would be to define the sourcing strategy and options including which companies to include in a potential tender process.

Reference calls may be held at this stage to make sure the right potential partners are included in any tender.

Step 3 – Tender Execution

Finally, once a decision is made to go ahead, then it’s into documenting and running the tender to select the right partners to help take the business forwards and deliver the digital and technology strategy for the next few years.

Whatever the outcome, it’s important to make sure a strong supplier management capability exists to hold everyone to account for the commitments made, measure the value delivered from new contracts and track the expected benefits are being achieved.

Get in touch

If you are considering reviewing your Technology partner landscape to make sure you have the right partnerships for the next stage of your digital journey, XANDR Consulting have experience in developing sourcing strategies and running multiple partner selection processes including the initial discovery phases and we'd love to help.