PA sourcing experts, Mikael Dahlstedt and Sarah Johansson are interviewed by CIO Sweden magazine about PA’s recent local survey which showed that the pursuit of lower costs in IT outsourcing is getting in the way of the need for investment in innovation.
Mikael highlights that suppliers often feel that they are well equipped in terms of skills to become innovative partners to their clients. Some of them invest in innovation partnerships with start-up companies, others develop their own skills. However, PA’s survey showed that 62 per cent of their clients primarily invest in outsourcing to reduce their IT costs.
He feels that this is a shame, saying, “We have interviewed a number of suppliers, and many of them are doing very interesting things. The kind of innovation varies between suppliers and as a customer you may not always notice it. So they seldom see how suppliers can be involved in helping with innovation and, as a result, are poor at capturing suppliers' innovation.”
Mikael explains that one of the reasons for this failure is that customers do not focus on this area. Their main objective for outsourcing is to decrease IT costs by 10-15 percent. This is clearly stated in the contract and reflected in the governance models and, as a result, innovation gets very little space.
A further problem is that suppliers also feel that customers do not have confidence in them. As a result, the IT organisation is often reluctant to give suppliers access and knowledge of the business’ critical needs. As Mikael says, “Many clients do not want their suppliers to walk around in their corridors. They want to own the relationship with their internal clients themselves.”
Another barrier is that companies are not willing to pay for innovation, meaning suppliers often refer to innovation as something clients are not interested in nor willing to pay for. Yet as Mikael says, “the suppliers believe they have the right skills but are not given the opportunity and chance to show them.”
Answering a final question about when he expects innovation to become a strong incentive for IT-outsourcing in Swedish IT departments, Mikael explains: “It is hard to say. Some of the companies we interviewed already have this kind of collaboration, but on a rather small scale. In these specific cases the trust between the two parties is strong. The suppliers here have direct access to the experts working with product innovation at the client site.”
Mikael Dahlstedt and Sarah Johansson are sourcing experts at PA Consulting Group