A new service paradigm puts value at the center of the relationship and uses outcomes-based commercial models to create alignment.
Pivot is the operative word for businesses in 2020 and two new reports from Forrester discuss changes the research firm is advising service providers and CIOs to make to meet the future needs of the enterprise.
One report, "The Future Of Services Is Value Orchestration," describes how "old plan-build-run models of services with time-and-materials pricing are poorly aligned with the needs of a future-fit enterprise." CIOs need a better model, said Forrester Vice President and Principal Analyst Ted Schadler, the principal author on the reports.
Placing value at the center of the partner relationship
A new service paradigm is being formulated that puts value at the center of the relationship and uses outcomes-based commercial models to create alignment, according to Schadler. This is called a co-innovation partnership, where each party takes on a new set of responsibilities with shared benefits.
A co-innovation partner brings an experienced and researched point of view to help organizations transform, Forrester said. It also orchestrates the value inherent in an organization's internal and external ecosystems with the goal of achieving resilience, differentiation, and agility.
A co-innovation partner also shares risk and rewards to align work and outcomes. Lastly, this partner relationship "emphasizes trust, transparency, and value alignment to keep all parties on track," Schadler said.
Both the organization and the partner will benefit from this model, which Forrester said should be led by CIOs.
"Traditional sourcing and vendor management practices won't create the right value alignment," Schadler said. "CIOs are in a unique position to reinvent the protocol for managing providers as co-innovation partners."
IT service providers must overhaul their business models
The second newly released Forrester report, "For Service Providers, the Pivot to Co-Innovation Partnership Hinges on a Better Business Model," takes aim at old service provider models that it said are "ill-suited to the task" of transformations.
"The old world of point projects, single-stakeholder engagements, and paying for provider labor is disappearing as technology redefines the meaning of success and fuels a calculus of continuous improvement," Schadler said. "Service providers are seeing their fee-for-service models stretch and crack and sometimes break as the pandemic accelerates their enterprise clients' digital maturity and leads enterprises to demand more."
Forrester advocates for CIOs and digital leaders to find a better partner that brings more to the table. "Providers are trying with assets and outcomes-based pricing, but it's not clear they can explain what they're doing."
A co-innovation partner is any type of service provider that embraces a business model with a clear point of view on transformation. The co-innovation partner "focuses on helping its clients by tapping the innovation inherent in digital ecosystems." To accomplish this, the co-innovation partner will invest, monetize, and operate differently, according to the report.
This report also discusses how, in the co-innovation partner approach, providers are overhauling their business models to create, drive, and participate in the value creation that stems from platforms and ecosystems.
The list of demands on service providers continues to grow as enterprise clients ramp up their digital business transformations. This puts pressure on every aspect of firms' business models: Investment strategy, commercial approach, and operating model.
Client outcomes fuel the operating model, Schadler said.
"In the near term, providers will continue to ride the cloud boom and acquire to build capacity and breadth. Over the longer haul, the market will shake out to reward those that invest aggressively in the assets, alliances, analytics, and automation that create new economic value for their clients and partners."
Some of the winners will structure new types of relationships, from joint ventures to reimagined outsourcing programs, Schadler said.
CIOs will embrace co-innovation partnerships that put pressure on the traditional business models of service providers. Schadler believes that over the longer haul, the services sector will bifurcate into services-only (many agencies, some consultancies, and a few technology service providers) and platform-centric providers.
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