Delivering transformation: How IT service providers can turn the downturn into an opportunity
Increased geopolitical risk and economic instability has hit businesses with soaring costs. Predictions of a prolonged recession for the UK economy have resulted in businesses scrutinising costs and looking to rein in spend.
Service providers may be feeling disappointed – they could reasonably have expected to see a surge in digital investment after emerging from the COVID-19 pandemic. However, a closer look reveals an important opportunity. Here is a chance to redefine themselves as transformation partners. In doing so, they can position themselves to thrive as powerful waves of digital transformation continue long beyond near-term economic challenges.
IT service providers need to undergo their own transformation
To be credible transformation partners during the current economic climate, most service providers have work to do. In partnership with Whitelane Research, we took a closer look at the state of the market. When we asked client organisations in the UK to rate 26 different global service providers for their ability to drive transformational change, only one service provider achieved a rating of over 75 percent for their ability to do so.
The results made clear that IT service providers need to refresh their mindset, their culture, and their commercial models to get to where client organisations need them to be.
Here are four areas where change could bring big opportunities:
Shift to a growth mindset
Service providers currently excel in running core back-office IT functions. Of the 270-plus client organisations who took part in our survey, 91 percent were satisfied with their service providers’ current performance. Service providers have achieved this excellence through a determined focus on delivery. However, to perform as effective transformation partners, they will need a new mindset – one that’s alert to opportunities for growth and innovation.
Organisations are no longer asking providers ‘how will you do it?’ but ‘what should we do?’. As transformation partners, service providers will need to have answers. Developing a fresh mindset will involve taking an interest in the client’s wider business, thinking through the challenges, and bringing forward new ideas to drive innovation and cost optimisation.
Foster a culture of innovation
In times of economic uncertainty, forward-thinking leaders realise they can carve out competitive advantage by investing in innovation. Our recent research on breakthrough innovation identified a tranche of leading organisations who are doing just this. With innovation still a focus, transformation partners also require a culture of innovation.
Client organisations are looking to service providers to help them understand how others are using new technologies to achieve a competitive edge. So, service providers must get better at evaluating their own involvement in delivering transformation across the client space and articulating this more clearly through case studies and thought leadership.
Suppliers should also consider developing new knowledge and insights to take to clients by forming alliances with ‘hyper-scalers’ such as cloud or data platform providers. Businesses like Amazon Web Services (AWS), Google, and Snowflake all provide programmes that enable service providers to develop in-depth knowledge of market-leading technologies and approaches, which they can then share with client organisations.
Share the commercial risk of transformation
Traditional models such as fixed fee, input-based contracting, or time and material typically used for service delivery contracts are no longer suitable in an environment where providers are effectively acting as consultants. So, a shift to becoming a transformation partner requires a review of commercial models.
Better options could include outcome-based contracting, where payment is based on the delivery of outcomes such as level of automation achieved or reduction in delivery timelines. However, true transformation partners are forging more trusting relationships with their clients by investing in their growth ambitions. Service providers are sharing the ‘change’ cost of transformation projects in return for long-term ‘run’ contracts and mutually beneficial terms.
These commercial models are ideal for clients during periods of economic decline, giving them the certainty of receiving beneficial outcomes.
Strike the right balance: don’t oversell
As service providers develop their own transformation capabilities and solutions, the temptation to sell them as widely as possible may be hard to resist. But becoming a trusted partner is about building a relationship for the long-term, not about making short-term gains by pushing products or services which are not right for a client.
Transformation services need to be sold differently to core IT services. Service providers should establish internal structures which enable this. Above all, they must ensure that any proposals or recommendations they make are always in the client’s best interest.
A moment of opportunity
The emerging recession is causing organisations to scrutinise transformation spend and, in some cases, to withdraw project investments. But longer term, the economic cycle promises recovery and growth. Organisations have no choice but to invest in digital transformation to modernise their capabilities and be fit for the future.
Suppliers that step up now to support clients as transformation partners – and even share the risk of transformation delivery – have an opportunity to lay the foundations for profitable, future partnerships. As transformation partners they will have a new and expanded role at the centre of a robust and rapidly growing market for transformation.