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Cannibals, Capabilities and Trust – Why Providers Don’t Push for Transformation

I recently had the distinct pleasure of participating in a webinar organized and moderated by Phil Fersht, CEO of HfS Research. The panelists – who included the CEOs of Cognizant, Concentrix and Wipro, along with some of our worthy competitors – engaged in a lively and far-ranging discussion. Prompted by recent findings of Phil’s research into the state of the as-a-service economy, we as a group debated how far along the industry is on the transformation journey, prospects for the future and obstacles both clear and unanticipated.

One particularly provocative finding from Phil’s survey concerned C-Suite attitudes to service provider willingness to change legacy service delivery models. Basically, C-level executives seem to view providers as the primary obstacle to progress towards the as-a-service economy. More specifically, many in the C-suite say providers are unwilling to cannibalise existing revenue models, are slow to offer “plug and play” services and are generally unsupportive of risk and gain-sharing initiatives.

In debating this point, one panelist cited increasing pressures faced by the C-suite to drive transformation in response to competitive threats, while another argued that this pressure has led to a greater willingness to fire incumbents and assume the accompanying risk. This high-pressure, high-stakes environment was seen as fueling C-level frustration regarding the pace of change being driven by their providers.

From a different perspective, one could ask, if there’s nothing in it for them, why should providers willingly cannibalise their revenue? The expectation that the provider should proactively bear the brunt of a competitive environment suggests that, rather than being viewed as a win/win partnership, an outsourcing relationship is still seen by many as a zero-sum game with winners and losers. In this sense, the issue may have less to do with the nuances of current business conditions than with an entrenched view of clients and providers as an us-versus-them proposition.

Years ago, when advising on traditional outsourcing deals, clients would sometimes grumble about how a contract was going to result in their provider turning a tidy profit. I had to remind those clients that that was indeed a good thing, and that the nickels and dimes one might save in negotiating a one-sided deal are never worth the cost, risk and disruption that result from a strained or failing relationship.

A successful win/win transformation strategy is similarly characteried by meaningful benefits and incentives for the provider. These can include a better margin that maintains profits off lower revenues, or an opportunity to fill the revenue dip through new projects or a more strategic conversation, or through more creative and attractive risk and gain-sharing initiatives. The win for the client in this scenario is an engaged and committed partner, as well as the mitigation of the risk involved in bringing in a new team.

The fundamental enabler here is not negotiating strategy or specific incentives but rather the establishment of underlying trust. The key to establishing that trust is for each party to see the world through the other party’s eyes. If both can be clear on what a positive outcome looks like, they can work creatively to arrive at a solution together that delivers for both. As Stephen Covey put it, “When you show deep empathy toward others, their defensive energy goes down, and positive energy replaces it. That’s when you can get more creative in solving problems.

And if you’re rolling your eyes right about now, let me dispel the notion that this is achieved by sitting around the campfire singing kumbaya. Far from it. Building trust as defined here involves clearly defined processes, a rigorous methodology and senior-level commitment and leadership from both sides. Perhaps most importantly, it requires the willingness to look at this in new and different way.

About the author

Eleanor is a recognized IT and sourcing expert who has extensive experience in onshore and offshore outsourcing across IT and various other business processes. She is one of the co-founders of Source, now an ISG company, responsible for implementing sourcing deals for a wide range of global clients.