several relationships with other suppliers,mostly for 4.Govern your entire outsourcing portfolio.The cost-saving reasons.The company gradually discov- portfolio of suppliers emerging from the distributed ered the significant potential of some ofthesesuppliers decision-making process needs to be effectively or- and allowed them to work on more innovative proj- chestrated at the enterprise level.The critical role of ects.Leveraging these projects as incentives,the governance is to distinguish between the company's company achieved significant success in outsourcing. core processes-which long-term strategic partners As one senior procurement executive said: can manage for efficiency,security,and scale-and temporary,experimental,local processes that local You always want to be a customer of choice.And business or IT managers can outsource to nichesuppli- to be the customer of choice,you want to have the ers.This distinction will clarify accountability for kind of partnership where you are making your sourcing decisions.Governance must also specify supplier work on some of your most innovative standard,repeatable processes for due diligence,con- activity.And if you do that consistently and hon- tracting,and performance measurement.In addition, estly,the suppliers will give [your organization] governance is needed to periodically rationalize the the most talented resources [it has. portfolio to increase the client's commitment to the top-performing players while ensuring competition. 3.Encourage sales pitches from your suppliers. This rationalization requires a deep understanding of Capitalizing on the suppliers'investment in the out- value drivers of different types of outsourced services.2 sourcing relationships,the client's program It requires asking questions such as the following: managers should encourage the suppliers to actively Does this service benefit more from scale and propose innovative services.Suppliers'technology scope economies or best-of-breed approaches? capabilities,coupled with knowledge acquired from Would using a one-off niche supplier for this ser- the clients,can become a driver of value creation.Yet vice create significant risk of lock-in without clients often express disappointment with their ex- proper control mechanisms? isting suppliers'capacity for innovation.A key idea Is this a business-critical process that requires sig- of the long-tail strategy is to stimulate innovation by nificant redundancy,with at least two suppliers inviting both existing and new suppliers to propose that can substitute for each other? new services and win new business.While client The portfolio's precise breadth and depth can managers sometimes institute policies precluding vary significantly depending on a company's indus- proactive sales pitches from current suppliers,invit- try and strategy,as well as external supply markets. ing these proposals is an effective way of learning To evaluate the performance of the portfolio,a com- about innovative technologies and service offerings. pany should look into its unit costs for IT services. As an example,the global technology company Continually decreasing costs with sustained or im- EMC Corp.,headquartered in Hopkinton,Massa- proving service levels are indications of effective, chusetts,successfully leveraged suppliers to strategic partnerships.A company should also be introduce innovations ranging from new business able to calculate the increasing revenues from tech- processes to emerging technologies.During sup- nology innovations as a measurement of the success plier evaluation and contract renewal,EMC of the long tail.Overall,a company should closely emphasized innovative capacity as an important monitor the evolution of its portfolio,ensuring the differentiator.A former senior vice president and company's survival and competitiveness in an ever- IT chief operating officer explained: changing technology landscape. Large corporations with complex outsourcing Suppliers have got to demonstrate that they are portfolios will need a dedicated outsourcing-gover- bringing something different to the table that is nance office that works together with business-unit strategic to EMC.I always say to them,they've got managers to understand value drivers for each ser- to make me a hero.So they proactively suggested vice,institute proper controls,and support specific ways to change the process and the technology relationships.For example,a multinational finan- platform,and then we have a mobile app. cial services company has been recognized as one of SLOANREVIEW.MIT.EDU WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 87SLOANREVIEW.MIT.EDU WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 87 several relationships with other suppliers, mostly for cost-saving reasons. The company gradually discov￾ered the significant potential of some of these suppliers and allowed them to work on more innovative proj￾ects. Leveraging these projects as incentives, the company achieved significant success in outsourcing. As one senior procurement executive said: You always want to be a customer of choice. And to be the customer of choice, you want to have the kind of partnership where you are making your supplier work on some of your most innovative activity. And if you do that consistently and hon￾estly, the suppliers will give [your organization] the most talented resources [it has]. 3. Encourage sales pitches from your suppliers. Capitalizing on the suppliers’ investment in the out￾sourcing relationships, the client’s program managers should encourage the suppliers to actively propose innovative services. Suppliers’ technology capabilities, coupled with knowledge acquired from the clients, can become a driver of value creation. Yet clients often express disappointment with their ex￾isting suppliers’ capacity for innovation. A key idea of the long-tail strategy is to stimulate innovation by inviting both existing and new suppliers to propose new services and win new business. While client managers sometimes institute policies precluding proactive sales pitches from current suppliers, invit￾ing these proposals is an effective way of learning about innovative technologies and service offerings. As an example, the global technology company EMC Corp., headquartered in Hopkinton, Massa￾chusetts, successfully leveraged suppliers to introduce innovations ranging from new business processes to emerging technologies.11 During sup￾plier evaluation and contract renewal, EMC emphasized innovative capacity as an important differentiator. A former senior vice president and IT chief operating officer explained: Suppliers have got to demonstrate that they are bringing something different to the table that is strategic to EMC. I always say to them, they’ve got to make me a hero. So they proactively suggested ways to change the process and the technology platform, and then we have a mobile app. 4. Govern your entire outsourcing portfolio. The portfolio of suppliers emerging from the distributed decision-making process needs to be effectively or￾chestrated at the enterprise level. The critical role of governance is to distinguish between the company’s core processes — which long-term strategic partners can manage for efficiency, security, and scale — and temporary, experimental, local processes that local business or IT managers can outsource to niche suppli￾ers. This distinction will clarify accountability for sourcing decisions. Governance must also specify standard, repeatable processes for due diligence, con￾tracting, and performance measurement. In addition, governance is needed to periodically rationalize the portfolio to increase the client’s commitment to the top-performing players while ensuring competition. This rationalization requires a deep understanding of value drivers of different types of outsourced services.12 It requires asking questions such as the following: • Does this service benefit more from scale and scope economies or best-of-breed approaches? • Would using a one-off niche supplier for this ser￾vice create significant risk of lock-in without proper control mechanisms? • Is this a business-critical process that requires sig￾nificant redundancy, with at least two suppliers that can substitute for each other? The portfolio’s precise breadth and depth can vary significantly depending on a company’s indus￾try and strategy, as well as external supply markets. To evaluate the performance of the portfolio, a com￾pany should look into its unit costs for IT services. Continually decreasing costs with sustained or im￾proving service levels are indications of effective, strategic partnerships. A company should also be able to calculate the increasing revenues from tech￾nology innovations as a measurement of the success of the long tail. Overall, a company should closely monitor the evolution of its portfolio, ensuring the company’s survival and competitiveness in an ever￾changing technology landscape. Large corporations with complex outsourcing portfolios will need a dedicated outsourcing-gover￾nance office that works together with business-unit managers to understand value drivers for each ser￾vice, institute proper controls, and support specific relationships. For example, a multinational finan￾cial services company has been recognized as one of