IT Service Customers Need More Effective Ways To Contract For Innovation

Take a look at Forrester’s recent Enterprise IT Services Survey and you will find a data point that highlights an interesting challenge in the IT services marketplace.  When we asked North American and European IT services clients about their biggest challenges with existing IT services and outsourcing relationships, 52% said that “cost savings are lower than expected and 40% said “inconsistent or poor quality service”.   No real surprises here:  given the large number of companies that partner with service providers in an explicit effort to lower costs, many IT professionals simply underestimate the time and resources it takes to define and manage these relationships. 

But look at the #3 and #4 responses, and the data gets more interesting.   33% of respondents said that their biggest challenges were “lack of innovation and or/continuous service-level improvements” and 35% cited “inability of vendor/contract to respond rapidly to changing business needs”.   Don’t the first two responses, in some ways, conflict with the latter two?

These data point to a complaint Forrester hears all the time from professionals within the technology industry:  they know that their clients want a proactive business partner – one who can help the client drive innovation and business results – but they don’t know how to charge for innovation in a way that clients will be willing to pay for it.  Clients say they want greater level of business innovation from their IT service providers, but prioritize cost-reductions – which are more easily measured and which justify the investment in the IT services relationship.

How do services vendors and clients get over this alignment gap?  I think they need to come together to define, monitor, and measure, innovation in more accurate ways.  If an IT services client can say “we contracted with supplier X to provide [X type] of innovation in 2009, and here are the results they provided”  IT buyers will be able to justify the investment to their supervisors – leading to more revenue for vendors, more value for buyers, and a proposition for the IT services that goes far beyond mere cost-reduction.

In 2010, I’ll be picking up on this topic with a new stream of research focused on emerging technologies and innovation, targeted at sourcing and vendor management professionals who are seeking to move their services relationships away from cost and towards value.   

Interested in this topic?  Want to get specific questions answered?  Drop me a comment  and I’ll be listening. 

Chris

Comments

Will like to know more about your work around this topic

Will like to know more about your work around this topic...

Best,

Sunny

Data around quality

Interesting article, I was curious to see if the results especially around quality improved after a couple of years of the process being outsourced? For the folks who were happy with the quality aspect of their outsourcing, what were the key things that were in place?

Cheers
Deepa