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.
Source: IDC's CIO Sentiment Survey, July 2016
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.
Source: IDC's CIO Sentiment Survey, July 2016
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.
Source: IDC's CIO Sentiment Survey, July 2016
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?
Note: Respondents were IT executives.
Source: IDC's CIO Sentiment Survey, July 2016
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?
Note: Respondents were IT executives.
Source: IDC's CIO Sentiment Survey, July 2016
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
Note: Respondents were IT executives.
Source: IDC's CIO Sentiment Survey, July 2016
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.
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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
Note: Respondents were IT executives.
Source: IDC's CIO Sentiment Survey, July 2016
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.
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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)
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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.
Note: Respondents were IT executives.
Source: IDC's CIO Sentiment Survey, July 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?
Note: Respondents were IT executives.
Source: IDC's CIO Sentiment Survey, July 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
Note: Respondents were IT executives.
Source: IDC's CIO Sentiment Survey, July 2016
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FIGURE 12
Respondents by Role
Q. Which of the following best reflects your role in your organization?
Note: Respondents were IT executives.
Source: IDC's CIO Sentiment Survey, July 2016
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
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