Re-Imagining IT Supplier Strategy

Re-imagining IT Supplier Ecosystem to Enable Digital Transformation

CIOs need to take a coherent approach to digital transformation to ensure that their organization plans, delivers, captures, and sustains the benefits of such efforts. A coordinated approach to digital transformation ensures consistency and fit across four foundational activities: 

1. Creating the strategic transformation roadmap 
2. Implementing transformation initiatives 
3. Establishing a digital IT operating model 
4. Restructuring the supplier ecosystem 

Restructuring the supplier ecosystem to ensure that supplier capabilities, services, contracts, and incentives are aligned with the organization’s digital transformation needs is a critical step. The IT vendor management organization (VMO) needs to target three primary goals and related activities, as detailed in the table below: 

VMO Goal	What’s Changed	Key Activities
Rationalize Suppliers & Services	Importance of virtualized operations and customer engagement requires a re-thinking of which services to outsource, service delivery processes to change, and service locations to use for resiliency AI/ML tools can speed up the analysis of supplier contracts to identify overlaps, inconsistencies, and opportunities Service performance and service level agreements need to be adjusted to address business continuity, robustness, and resiliency	AI/ML enabled supplier rationalization IT services & locations rationalization Supplier performance optimization
Create Digital Supplier Ecosystem	It may be useful to classify suppliers based on their role and ability to advance the digital transformation program, as this has implications on services, service levels, contract structure, risk-sharing, etc. There are three broad categories of suppliers, though some may have capabilities across multiple categories: Emerging technology solutions provider Digital transformation and project services provider Operational and managed services provider Assessing and closing any capability gaps within the current supplier base may require onboarding of new suppliers or restructuring of current supplier roles and services	Supplier ecosystem re-classification Supplier ecosystem capability alignment Supplier role & services restructuring
Explore New Contractual Frameworks	Aligning the contractual framework with the supplier classification and/or the type of services and relationship being considered is necessary to align incentives to create value Suppliers and projects involving emerging technologies require flexibility to pilot new technologies and manage the risks of new technology adoption. A contract framework with rigid operational SLAs and a rigorous ROI-based funding model is more likely to stunt innovation as opposed to one based on shared risks and rewards based on comparative responsibility Digital transformation that enables new business models may provide revenue-sharing or joint go-to-market opportunities, thus requiring a framework to share these benefits equitably Existing contracts must capture economies of scale, efficiency improvements, and the impact of advancing technologies (e.g., automation, etc.) and also evolve in response to disruptive forces	Develop shared revenue & products contractual framework Develop shared risk & reward contractual framework Evolve existing contracts