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In 2020, the end of low-cost tech service providers?

A Picture of Alex Robbio
March 10, 2020 | Topic: Software development  
In 2020, the end of low-cost tech service providers?

I recently came across a post on LinkedIn that stated (unfortunately I couldn’t find the original author to give credit):

You don’t pick the cheapest car
You don’t pick the cheapest house
You don’t pick the cheapest doctor
You don’t pick the cheapest vacation
You don’t pick the cheapest education
Why pick the cheapest business partners or solutions?

This got me thinking about the role of price and cost in the technology services industry. It goes without saying that every organization wants to reduce costs and it will always remain a factor when choosing a partner. But at the same time, to achieve success in a world that is changing rapidly, particularly due to new digital technologies, organizations need to invest in building world-class digital experiences. In many cases this requires making fundamental changes to the structure of the business, your processes, the technical environment and capabilities, and of course the skills that your organization possesses – the digital transformation that every enterprise needs to be in the process of conducting.

The usual strategies for addressing business uncertainty won’t work in 2020

In a similar vein, in Forrester Research’s 2020 predictions for CIOs, analyst Brian Hopkins writes that businesses will continue to face constant uncertainty. But if they address this uncertainty in the usual way of hunkering down and cutting costs, this will lead to failure. Instead organizations need to “lean into constant change and uncertainty” and use digital technology to transform their customer experiences.

Forward-thinking organizations have recognized that the importance of digital for businesses to achieve success and create compelling customer experiences means that they need to invest in building digital experiences. In many cases this will require working with partners to find the skills and capabilities to help build these experiences.

Talent shortages are at an all time high, with 67% of CIOs struggling to find the right talent. This means choosing a partner on the basis of cost is a sure-fire way to end in failure. Rather, organizations need to evaluate everything from a partner’s familiarity with leading-edge technologies, to a company culture based on innovation, their attrition rate, and the satisfaction of the people who work there.

I believe most executives understand this argument. The challenge comes when going through vendor management processes, which unfortunately continue to weigh cost factors disproportionality above more important factors (but sometimes harder to measure), such as flexibility, innovativeness, and culture.

It is also important to distinguish between the need for businesses to create world-class software skills, and continuing to lower costs in areas that provide no differentiation. This means looking to cloud-based solutions to reduce infrastructure and on-going maintenance costs, and then investing these resources into high-end solution development capabilities.

Digital experiences require a high-performing software development team

To create compelling customer experiences in 2020, which have technology at their heart, requires a tech team that is capable and familiar with what your business needs to achieve success. And here you will benefit from an agile way of working. Importantly this includes everything from how your software development teams work together to using the principles of Agile development to transform your business to become more customer-centric.

It also means working with a services provider that itself continually evolves – a provider that shares best practices, and helps with new developments in technology. It probably means that your provider can’t be the cheapest, because they themselves need to be continually investing in their people and capabilities to provide you with the services your business needs to achieve success. Ultimately you receive more value for money. And it means your partner acts as an advisor and true collaborator in making your digital vision a reality.

For this collaboration and partnership to provide true business value, cultural alignment between the corporation and the vendor is paramount. Unfortunately too many large organizations, in their efforts to be “objective and unbiased” use RFI and RFP processes that are better suited for purchasing commodities rather than choosing a long term business partner that will help the company transform its business. We are always surprised when potential customers refuse to meet early on in the selection and process and prefer to make the candidates go through lots of filters first, with costs being one of the highest weighted factors.

This approach potentially leaves out innovative vendors, which at face value may look more expensive but in the long run could provide solutions that could provide such a high return on investment that costs would not matter as much. My take is that the process of selecting a partner should NOT be objective, it should actually feel very good subjectively because you will need to work so closely with that team that corporate culture, values, etc. will have a profound effect on how much you can achieve together!

Service Design: Providing meaningful end-to-end experiences

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