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What are the requirements CIOs expect from a Tier 1 service provider?

by Mark P. McDonald  |  October 16, 2012  |  1 Comment

A significant uptick in dissatisfaction with service providers is one of the trends I have noticed in the last six months.  Many CIOs are either actively switching service providers, in the evaluation process of switching or questioning the skills and abilities of their service provider as a significant issue hampering their success.

Is there something deteriorating in the services marketplace?

This question is based on an completely unscientific, non research based, heavily biased and qualitative set of inputs  — CIOs who are raising issues about their service providers.  This is not Gartner research, nor a Gartner position, just personal observation and commentary.   

This is a heavy biased post – biased entirely by CIOs who are not happy with their current service arrangements.  That does not make for research, but it does represent a set of experiences that warrant attention.

CIOs raised issues with various providers, services and contract structures.  The broad nature of dissatisfaction expressed by CIOs who are finding: less than expected performance, deteriorating skills, inflexibility, non-responsiveness, and increasing costs.  These are some of comments made by CIOs when talking about their service providers.   This contrasts to what many signed up for and even more inherited.

Time, Technology and Talent change the context and requirements for Tier1 service providers

Dissatisfaction with service providers should be expected.  Change is the only constant.  Paradoxically, consistency is the operational and financial foundation of many service providers.  This puts pressure on the context of the original sourcing contracts and intent.  The consistency and stability service demand required delivering a lower cost; higher quality service comes up against the volatility and complexity of organizational operations and economic conditions.

Service providers recognize the need to change and adapt.  But consider how much the world has changed dramatically over the past 10 years.  We have come off a decade of IT devaluation based on a focus on IT cost cutting, outsourcing and slack demand.  It was an environment tailor made for IT sourcing models that require an overarching concern about cost (trumping innovation and change), stability in demand and achieving consistent service levels.

That world has changes with the introduction of new lightweight technologies, and increased demands for digitalization.  These corporate demands compromise the assumptions of outsourcing partners requiring them to build new skills, create new solutions, and offer new services.  Based on the comments provided by CIOs, outsource companies are having at least, if not more trouble making that transition than captive IT organizations.

Frugality is failing which raises the question of what are the characteristics of a Tier 1 service provider in a future dominated by change rather than consistency, with a focus on capability than cost, and results rather than resources.  Obviously those characteristics need to change, but change to what?

Characteristics of a Tier 1 Service Provider

Service providers need to evolve their role and their primary value proposition to incorporate more than a ‘your mess for less’ value proposition.  Instead what they really need is a service provider who has:

  • Strength in the Present, because that is where we work and how we need to transform the business better and faster
  • Relationships across industry, because that is where we live and the future is not in automating the present
  • Comparative Difference, because I no longer buy things I associate myself with others
  • Pragmatic Vision for the future, because that is where we need to go and because no one can predict the path to tomorrow
  • Financial Strength and Operational Flexibility, because we cannot get there on our own, we already have a legacy crisis and we do not need to marry into yours.

These are general characteristics to be sure, but they provide an idea in thinking about what to look for in existing or new services arrangements.  They represent a change from prior characteristics that revolved around solving a relatively simple problem – cost.   The issue now is capability, capacity and cost considered as a whole to drive growth.  That requires a different kind of service provider, one with the characteristics above.

Sourcing is here to stay. It is part of the fabric of business both within and outside of IT.  Change is also here to stay and the two are not always compatible.  If organizations need to change, then service providers need to change as well.  The only issue is that service provider business models and strategy may not adapt well to change as much of their efficiencies remain based on ‘all things being equal’.  Time, technology and talent require everyone to adapt including service providers.  These characteristics seek to describe the fundamental requirements and promises associated with this type of service – one that needs to change and adapt.

But this is just one opinion, one idea based on personal observation and reflection.  What are the characteristics you see in a Tier 1 provider?  How have they changed?  How are they living up to those characteristics?

Category: 2013  economy  lean-thinking  management  strategic-planning  

Tags: cio-leadership  cost-cutting  economic-conditions  it-leadership  operational-leadership  outsourcing  personal-musing  personal-observation  strategy-and-planning  symposium  

Mark P. McDonald
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

Thoughts on What are the requirements CIOs expect from a Tier 1 service provider?

  1. Murali says:

    Valid points made, Mark.

    The reality is that the TCO optimization play has run its life. It is time to measure the success of IT on the basis of CVC (contribution to value creation) instead. And this transition needs to be driven as much by the CIO organization as providers or anyone else in the business technology ecosystem. Also, supplier collaboration in ICT is nowhere close to even what’s there even in the brick-and-mortar space. That really has to step up for a lot of what you and I want happening in this space!

    You will find some interesting and detailed perspectives at –

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