Digital transformation makes team players of suppliers – caveat emptor

C-level executives organising digital transformation programmes prefer their suppliers to work as a single team. But it is not all plain sailing

A little over two years ago, UK member-owned retailer Co-op opened a store in Reading, 40 miles west of London. Unusually, the store is largely frequented by employees of just one company: Microsoft.

The opening of the £1m outlet on the campus of the UK headquarters of the world’s largest software company was the culmination of two years’ work, during which Co-op sought to change its relationships with its main IT suppliers to work more closely with them and encourage collaboration between them.

Such techniques are increasing in popularity, driven by a seemingly insatiable appetite for digital transformation. However, experts warn of the complexity in governance in getting suppliers to collaborate on behalf of an IT department. For Co-op, the approach has been nearly five careful years in the making.

Bob Marchant, head of supplier management and supplier relationship management at Co-op Group IT, says the company was looking to shift away from traditional techniques of engaging suppliers, such as Microsoft.

“We picked our largest IT suppliers to start working with in a different way. Our relationship with Microsoft was based around licence agreements, as it is for many organisations. It was a question of trying to get the best deal possible, and then it’s, ‘See you in three years’. We thought, ‘That can’t be right’,” says Marchant.

“Instead of simply focusing on cost, we started to look at reciprocal value. Microsoft wanted to work with us because we have such a well-recognised, ethical brand. We wanted to use that to harness more innovation from suppliers.”

Co-op’s Microsoft store is designed to showcase the supplier’s innovation in retail technology, while at the same time giving the retailer a chance to test new developments with a technical team on hand.

Strategic alliance between buyer and supplier

But the new approach to working with suppliers extends beyond retail to include other Co-op Group businesses, in insurance, funeral care and legal services.

With its top tier of IT suppliers, Co-op shares strategic goals and forms joint account plans, which describe how their work together will develop and the value both parties will gain from it. But to get suppliers to make these commitments, Co-op’s IT team must invest time in the relationship, says Marchant.

“I’ve worked for most of my career on the other side of the fence, on the supplier side, and I know what it’s like. Customers assume that suppliers don’t want to work together, but suppliers are actually quite keen to cooperate with the competition to solve problems”
Bob Marchant, Co-op

“There is no magic; it is just hard work. You have regular meetings to provide the airtime to understand suppliers’ concerns. It’s about joining the dots across our organisation, so the supplier does not simply see a stovepipe organisation, with disjointed elements of the business,” he says.

Not only does Co-op work with single suppliers in this fashion, it also expects suppliers to come together to achieve its strategic goals. Microsoft, SAP, JDA and TCS formed a team which is building a support centre designed to replace as many as 40 of the current enterprise applications running Co-op’s business.

Co-op employed Deloitte to create the governance structures with, and between, the suppliers. The applications will be hosted on Microsoft’s Azure cloud infrastructure. Currently 18 months into the four-year programme, Co-op hopes to improve productivity and bring support close to frontline staff, rather than in a centralised service centre.

Marchant says suppliers such as Microsoft are often keen to bring others into the relationships to help customers, so long as they see the value.

“I’ve worked for most of my career on the other side of the fence, on the supplier side, and I know what it’s like. Customers assume that suppliers don’t want to work together, but suppliers are actually quite keen to cooperate with the competition to solve problems,” he says.

Weigh up risks and rewards

Co-op worked with specialist procurement consultancy State of Flux to build the supplier relationship management (SRM) framework to try to increase the value it gains from IT suppliers. The consultancy also helped implement training programmes across the IT organisation to improve relationships with IT suppliers and foster collaboration among them.

State of Flux chairman and founder Alan Day says businesses can benefit from engaging a team of IT suppliers working together to build systems which promise to solve business goals, rather than defining technical requirements and tendering to the market for each component. But the approach comes with a health warning.

“Where it works, it is fantastic, but it can go horribly wrong. If you go to a group of suppliers for a business solution or service, you move some of the management of the relationship from your organisation to that group. Normally there is a leader within that group, so you’re managing relationships via someone else. Typically, they are worse at it than you are.”

Day says managing relationships can be especially difficult if the lead supplier and the customer are much smaller than, say, the supplier of application software, which could well be a sophisticated global business.

“If you have not got the governance structure in place, they will try to sell around the lead supplier. The big IT suppliers are generally more mature at managing their customers than their customers are at managing them. And without the right governance and key performance indicators, they will try to blame each other if things go wrong. If it is not structured correctly, it can become worse than managing them separately.”

“The big IT suppliers are generally more mature at managing their customers than their customers are at managing them. And without the right governance and key performance indicators, they will try to blame each other if things go wrong. If it is not structured correctly, it can become worse than managing them separately”
Alan Day, State of Flux

However, procuring technology separately has its own risks, as the buyer is taking responsibility for ensuring it will all work together, says Day.

Step up the pace of change

Encouraging collaboration between IT suppliers and joint bidding for customer contracts is becoming more common in IT, according to some suppliers.

Leon Mangan, Salesforce vice-president, alliances and channels, for Europe, the Middle East and Africa, says a desire to accelerate digital transformation is causing the trend. Rather than meet Salesforce one day, a systems integrator the next, and then a strategy house the day after, customers want all parties in the room as part of a “whole team” approach.

“Companies want to move faster. They value their customer experience more highly and want an ecosystem of solutions to improve that digital experience rapidly. They want to move quickly in the cloud, which gives them flexibility and openness. They see it as a way of getting faster return on investment,” says Mangan.

He says it is common to be asked to work with IT consultants, digital agencies, resellers and other specialists, and bid for contracts as one team.

In particular, the retail sector wants to move more rapidly than ever before. “They are looking at their online shopping, working with a digital agency in omni-channel marketing, and so on,” says Mangan. “They want a connected digital shopping service, across multiple devices and channels. They want to personalise marketing through customer intelligence. On the service side, they want customers to be able to change orders after they buy, across channels. It takes a lot of technology to work together to make that happen.”

Clients are focused on business value and timescale to go-live, and IT suppliers have to respond to that. “It does not start with the IT procurement – people further forward in the business identify the issues and understand the need to change,” he says.

Focus on fit, not fashion

However, Ben Booth, an interim C-level technology executive, is sceptical about the trend affecting the whole gamut of business IT.

“The way you work with suppliers goes through fashions. There was a fashion to put everything with one supplier; now we’re saying work with a group of suppliers to provide answers and take the risk. The big problem is you do not know what is going on. There is a risk of being taken to the cleaners as there is no single organisation in charge of the solution and no one is in control,” he says.

Booth, who has worked at the top level of IT management at global organisations including market research firm Ipsos Mori and engineering consultancy Arup, says the approach to engaging suppliers should not be determined by trends; it should be pragmatic and depend on the size and capability of the buying organisation.

“If the supplier is too big, for example, your business may not be worthwhile for them. If you’re too big, they might struggle to deliver and manage the risks. My advice is to look at what is sensible for your organisation. Being too dogmatic is wrong and dangerous,” he says.

Especially with the rush to migrating applications to the cloud, IT organisations should we wary of the maturity of the supply market. Many of the leading cloud infrastructure providers do not have decades of experience in managing enterprise IT, he says.

“A lot of the processes are not fully developed yet. With many parties working on your behalf in the cloud it is very easy, if you don’t know what you are doing, to expose all your data to the outside world. Agile development is similar. They are new and exciting, but they don’t have the years of discipline built up doing things the old-fashioned way,” says Booth.

As organisations dash to accelerate digital transformation, for fear of being left behind, they are tempted to trust teams of suppliers to develop solutions on their behalf. Those benefiting from the whole team approach will be the organisations that have strong governance and performance measures in place to understand their relationships with the supply team and the relationships between team members. While there are rewards to new ways of working, there are also risks.

Read more about supplier relationship management in digital transformation programmes

This was last published in October 2018

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