changing it leadership: part 5—partnering with …...idc futurescape: worldwide cio agenda 2017...

March 2017, IDC #US42366617

IDC PERSPECTIVE

Changing IT Leadership: Part 5 — Partnering with Vendors and Suppliers

Serge Findling Aaron Polikaitis

EXECUTIVE SNAPSHOT

FIGURE 1

Executive Snapshot: Partnering with Vendors and Suppliers

n = 152 IT executives

Source: IDC's CIO Sentiment Survey, July 2016

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SITUATION OVERVIEW

Overview

Recent IDC research shows that nearly 50% of enterprises are at the lowest levels of maturity for

digital transformation (DX). At best, these enterprises' digitally enabled customer experiences and

products are inconsistent and poorly integrated. Only 18% of enterprises create new digital markets or

provide digital products, services, or experiences (see IDC MaturityScape Benchmark: Digital Transformation Worldwide, 2016, IDC #US41092016, August 2016). In summer of 2016, IDC

conducted a CIO Sentiment Survey (July 2016, n = 152 IT executives). The results of this survey are

presented in a six-part document series. In Parts 1–4 of this series, we have explored how talent,

organization structure, and Agile development capabilities affect digital transformation. In Part 5, we

focus on vendors and suppliers and their impact on an enterprise's ability to digitally transform.

More specifically, our focus is on:

Vendor selection for effective digital transformation

Structuring vendor relationships to maximize digital transformation

Impact on digital transformation agility

The Essential Requirements

Back in the era of the 2nd Platform, sourcing executives compiled technical requirements and issued

RFPs for commodities and product categories. IT executives selected vendors based on vendors'

ability to satisfy the requirements and integrate products from different vendors to deliver a service to

the businesses they served.

The paradigm has changed. No longer does IT assemble technologies to provide services. Instead, IT

partners with vendors for integrated solutions. Accordingly, as shown in Figure 2, bringing solutions to

the table pursuant to long-term risk-sharing commitments is among the top 4 most frequently

requested vendor requirements. It is clear from the survey that enhancing and running legacy

environments is not a major priority with vendors neither is leading innovation projects — which most

CIOs still view as a core competency that cannot be outsourced. In Part 3 of this series (see Changing IT Leadership: Part 3 — DX and the Talent Revolution, IDC #US42032616, December 2016), we

established that finding the right talent in IT was the number 1 challenge for CIOs and IT executives in

relation to digital initiatives. However, as demonstrated in Figure 2, providing new difficult-to-find skills

is a lower-priority request made to vendors. The reality is that digital competencies are scarce for

everybody and cannot be easily acquired through external suppliers. So IT executives must look at

other ways to acquire this much-needed talent.

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FIGURE 2

Vendors' Most Frequent Requirements

Q. Please rate how often your company requires its vendors to do each of the following.

n = 152

Notes:

Respondents were IT executives.

Mean rating is based on a scale of 1 to 10, where 1 = never and 10 = always.


In addition to identifying the most frequent requirements for vendors, we wanted to understand which

of these requirements were having the greatest impact on the digital performance of an enterprise. As

part of this research, we designed a DX score to assess the digital ability and performance of an

organization. This DX score is based on revenue increase, percentage of business that is digitally

enabled, IT performance, percentage of the organization embracing Agile development, and

percentage of employees that are dedicated to digital transformation.

One requirement showed a remarkable and convincing pattern of association between DX capability

and vendor requirement. As shown in Figure 3, the most significant requirement of vendors for

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maximizing the impact of DX is risk sharing in a new initiative. Digital transformation initiatives are

difficult and risky ventures. Developing an ecosystem of vendors that are prepared to share the risk

(and reward) greatly enhances the customers' odds of succeeding. In fact, because of the need for

iterative approaches and the use of minimal viable products (MVPs), it is often impossible to work with

a vendor partner that wants clear up-front specifications and wants to be paid by counting worked

hours. Common goals and interests are the best way to make a partnership successful; this result is a

confirmation of the importance of risk sharing.

FIGURE 3

Most Important Requirement for Maximizing DX

Q. Please rate how often your company requires its vendors to do each of the following.

n = 152

Notes:

Respondents were IT executives.

Mean score is based on a scale of 1 to 10, where 1 = never and 10 = always.


Selecting Vendors: What Matters the Most?

As shown in Figure 4, technical competency tops the list of what matters most to the surveyed CIOs.

This should be no surprise considering the technical nature of digital transformation initiatives. Note

the importance that CIOs place on ease of doing business with vendors. This survey result

corroborates our experience through client engagements where CIOs express their concerns over

heavy-handed vendor negotiation tactics, lengthy contract negotiations, and overly complex license

schemes.

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FIGURE 4

Most Important Characteristic in Selecting Vendors

Q. Which single characteristic is the most important in selecting vendors?

n = 152

Note: Respondents were IT executives.


Furthermore, as shown in Figure 5, CIOs have a strong preference for dealing with existing vendors.

Establishing new relationships and trust takes time and energy. Accordingly, all product capabilities

being equal, it is no surprise that existing vendors are preferred over those having no track record with

the enterprise.

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FIGURE 5

Vendor Preference for Digital Transformation Initiatives

Q. All product capabilities being equal, what is your preference for the vendors you use for digital transformation initiatives?



As the number of small start-ups providing new and innovative 3rd Platform technologies increases, so

do CIO's concerns related to the companies' longevity. IDC's CIO Sentiment Survey confirms that

nearly 80% of surveyed executives prefer to work with large well-established enterprise vendors on

new high-risk/high-reward digital initiatives (see Figure 6). On the other hand, with respect to

traditional IT initiatives where the implementation risks are much lower, survey results show that CIOs

are more willing to take a risk on new, less well-established vendors.

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FIGURE 6

Supplier Preference for Innovative Digital Initiatives and for Traditional IT Initiatives

Q. Innovative digital initiatives — Which type of supplier does your company typically prefer for innovative digital initiatives and for traditional IT initiatives?

Q. Traditional IT initiatives — Which type of supplier does your company typically prefer for innovative digital initiatives and for traditional IT initiatives?



Nevertheless, the story doesn't end there. The type of vendor CIOs prefer dealing with depends largely

on the technology in question (see Figure 7). In digital marketing, for example, the survey shows a

neutral preference between small and enterprise vendors. This is to be expected as the number of

diverse technologies and vendors in the digital marketing domain is exploding. Conversely, in the area

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of enterprise systems or security, the clear preference is enterprise vendors. Accordingly, the

enterprise system vendor's ecosystem has remained steady as the large players have absorbed the

smaller start-ups.

FIGURE 7

Vendor Preference by Domain

Q. For each technology please indicate what type of vendor your company typically prefers?

n = 152



What Is the Best Deal Term?

DX initiatives require focused, long-term attention. The last thing a CIO wants to do is negotiate a

contract renewal halfway through a digital transformation effort. Accordingly, as shown in Figure 8,

69% of CIOs surveyed prefer long-term deals with vendors for innovative digital initiatives.

©2016 IDC #US42366617 9

Interestingly, the preference, albeit a slightly lower one, for long-term deals extends to traditional IT

initiatives as well. CIOs are just not interested in spending time negotiating renewals, sending a clear

message to get it right the first time to their vendor sourcing executive colleagues.

FIGURE 8

Best Deal Preferences

Q. Which type of deals does your company typically prefer for innovative digital initiatives and for traditional IT initiatives?

n = 152



Summary

As we discussed previously, digital transformation and 3rd Platform technologies are changing the way

enterprises source and manage vendors and their technologies. The shift is from commodities to

valued relationships. In addition, CIOs whose organizations are leading the way through the DX era

are requiring their vendors to provide solutions that include long-term risk-sharing engagements.

Vendor sourcing executives who support CIOs and their DX initiatives must be aware of and align with

these trends or risk alienating their internal clients. Accordingly, sourcing executives should

communicate the requirements necessary for long-term DX success to the enterprise vendor base in

an effort to separate those suppliers that are willing to share in the risk/reward and those that are in it

for the quick win.

©2016 IDC #US42366617 10

ADVICE FOR TECHNOLOGY LEADERS

Digital transformation is changing the way enterprises interact with clients as well as with vendors. The

2016 CIO Sentiment Survey offers a view into how CIOs select and work with vendors in transforming

their enterprises. Based on the insights gained from the 2016 CIO Sentiment Survey, IDC offers the

following essential guidance to help CIOs evolve the culture of their organizations and better

understand the talent challenges they are facing (see Table 1).

TABLE 1

Essential Guidance

Role(s) Timing Actions Outcomes

CIO Now Identify DX initiatives requiring vendor

technologies

DX technology outsourcing landscape

Research existing vendors Vendor competency map

Develop priorities for vendor requirements Prioritized vendor requirement set(s)

CIO 6–12

months

Communicate priorities and risk-sharing

objectives to existing vendors

Open dialog with vendors and internal

stakeholders

Align vendors with DX initiatives based on

responses

Vendor realignment/rationalization

Build strong relationship for long-term

partnership

Competitive advantage through partnership

CIO 12 months

and over

Assess risk-sharing arrangements Annual vendor partnership reviews

Assess vendor technology gaps and DX

initiative shortcomings

Annual DX technology road map review

Identify new vendors to fill technology gaps RFP and vendor evaluations

Optimize vendor relationship frameworks Minor amendments to existing agreements

Source: IDC, 2017

LEARN MORE

Related Research

Changing IT Leadership: Part 1 — 41% of CIOs Prefer to Focus on Operations Rather than Face Digital Disruption (IDC #US42032416, December 2016)

©2016 IDC #US42366617 11

Changing IT Leadership: Part 2 — Adapting the IT Organization and Leadership Structure for Digital Transformation (IDC #US42042016, December 2016)

Changing IT Leadership: Part 3 — DX and the Talent Revolution (IDC #US42032616, December 2016)

Changing IT Leadership: Part 4 — The Search for Agile Without Sacrifice (IDC #US42032516, December 2016)

IDC FutureScape: Worldwide CIO Agenda 2017 Predictions (IDC #US41845916, November 2016)

IDC FutureScape: Worldwide Digital Transformation 2017 Predictions (IDC #US40526216, November 2016)

IDC MaturityScape Benchmark: Digital Transformation Worldwide, 2016 (IDC #US41092016, August 2016)

Leading in 3D: Setting Priorities to Support Digital Transformation — Survey Findings (IDC #US41545716, June 2016)

Leading in 3D: Can CIOs Live Up to Business Expectations? — Survey Findings (IDC #US41545816, June 2016)

Methodology

Survey Respondent Segmentation

Figures 9–12 provide details into the survey respondent demographics.

FIGURE 9

Respondents by Company Revenue

Q. Please provide your best estimate for your organization's total annual revenue in 2016.



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FIGURE 10

Respondents by Company Size

Q. Please provide your best estimate for the total number of employees for your organization in 2016?



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FIGURE 11

Respondents by Industry

Q. Which industry classification best represents the principal business activity of your U.S.-based corporate headquarters (i.e., the ultimate parent organization)?

n = 152



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FIGURE 12

Respondents by Role

Q. Which of the following best reflects your role in your organization?



Note: All numbers in this document may not be exact due to rounding.

Synopsis

This IDC Perspective is Part 5 of a multiple-part series that focuses on the digital transformation

objectives with which IT organizations must align. This document explores the results of IDC's 2016

CIO Sentiment Survey to examine the importance of partnering with vendors and suppliers in the

digital transformation of the business. Given the dependence on both technology and information

required for a successful transformation, CIOs must expand their role. This series of documents

highlights the challenges inherent in the necessary continuous change in IT leadership.

These documents directly support CIOs and IT executives to:

Assess digital transformation challenges within their organizations and the CIOs' opportunities to contribute.

Look for strengths to leverage and weaknesses to mitigate.

Develop the organizational competencies to connect people, processes, and strategies successfully.

"Digital transformation is a team sport; CIOs must build strategic partnerships with suppliers and

vendors if they want IT to participate," says Serge Findling, vice president of research with the IT

Executive Program (IEP). "Successful DX initiatives require risk sharing by both the enterprise and its

vendors," says Aaron Polikaitis, vice president of research with the IT Executive Program (IEP).

About IDC

International Data Corporation (IDC) is the premier global provider of market intelligence, advisory

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