Today’s rapid technological changes have transformed the role of global IT outsourcing in companies’ strategies. Traditionally viewed as a cost-saving measure, IT outsourcing is also increasingly being leveraged as a strategic tool for acquiring cutting-edge innovation. This pursuit of emerging technologies and capabilities, however, has elevated the complexity of managing supplier portfolios. In this article, the authors introduce the “long-tail” strategy, an innovative IT outsourcing model that combines a few key partnerships with a dynamically changing number of smaller contracts with other suppliers that can deliver specific value propositions beyond the capabilities of the key partners.
Representing a dynamic, diversified, yet disciplined approach toward outsourcing, the long-tail strategy embraces and even fosters a flow of new suppliers, so companies are continually acquiring new capabilities that enable them to prosper in turbulent business environments. The authors’ extensive in-depth interviews with major companies in financial services, business services, technology, manufacturing, and energy suggest that the long-tail strategy can help diverse organizations achieve their business goals. For example, the long-tail strategy helped a major global bank establish and maintain technological leadership in the financial-services industry, and allowed Toyota Motor North America to realize rapid innovation.
In order to implement the long-tail strategy successfully, companies should institute five key practices: (1) distributing responsibility within the company for scanning for new technologies; (2) nurturing relationships with new “long-tail” suppliers; (3) encouraging sales pitches from suppliers; (4) governing the entire outsourcing portfolio; and (5) designing for integration. When implementing these practices, organizations should seek to create a more proactive, entrepreneurial, and dynamic culture in IT outsourcing. If executed well, the long-tail strategy can transform IT outsourcing into a driver of innovation and value creation in an age of globalization and digitization.