INFORMATION TECHNOLOGY business and IT leaders,however,are satisfied with to prosper in turbulent business environments.This the level of innovation introduced by their suppliers. strategy requires a carefully designed governance Yet today,more than ever,as rapid technological framework that rewards best-performing suppliers changes disrupt industries,established companies by increasing the client's commitment while specify- need access to fresh ideas,new technologies,and cut- ing a set of policies and architectural requirements ting-edge expertise.In IT,these capabilities are often for partners.The small set of key partners assists the found among smaller,more agile suppliers.3 This is client in operating core technologies and business not surprising,as the very idea behind disruptive in- processes while integrating the local,temporary,or novation is that many established players tend to experimental capabilities of long-tail suppliers into ignore disruptive changes to their business until the company's architecture.If orchestrated effec- newer companies replace their products and services tively,this strategy can turn into a reality the by providing better value to customers.In response, seemingly unattainable twin goals of introducing savvy business leaders are devising far more proactive innovation while ensuring cost and efficiency. outsourcing practices and are not just relying on a stable,limited set of technology partners to identify Leveraging the Long Tail for Technology Leader- and introduce innovations. ship Global Bank(not its real name)is one of the These proactive practices,however,conflict with largest global financial services companies and has many companies'aspirations for consolidating been ranked among the world's most innovative their IT supplier portfolios.Having encountered investment banks multiple times by financial industry the pain of managing multiple suppliers in the associations.Global Bank has a history of pioneering past,many companies,especially those with a cutting-edge technologies in financial services.For de- well-established sourcing-management office, cades,IT outsourcing was considered a strategic tool have created policies that mandate contracting only by the company.An early adopter of global sourcing, with a small group of strategic partners.Yet even in the bank began pursuing a global sourcing strategy in such companies,business-unit leaders tend to cir- the 1980s.In the decade that followed,Global Bank cumvent policies and engage the services of niche, partnered with a small set of major IT service compa- value-adding suppliers to keep up with technologi- nies in both onshore and offshore locations.These cal changes critical to their units'competitiveness. suppliers provided IT support and maintenance for This often results in a large set of shadow suppliers the bank's worldwide business.The bank's corporate working on smaller,fragmented projects,often policies focused on promoting these key relationships under the radar of sourcing-management offices so as to achieve efficiency in operations. and enterprise architects.Absent systematic orches- In the 2000s,however,with the rapid matura- tration and proper incentives,companies will miss tion of offshore IT service markets,the bank started the opportunity to integrate the local innovations adding new outsourcing relationships to include of these diverse suppliers into the organization. suppliers from new regions,as well as smaller,local suppliers offering new capabilities.In addition, The Long-Tail Strategy through mergers and acquisitions,the bank ac- In this article,we introduce a"long-tail"strategy for quired organizations that had their own supplier IT outsourcing.(See"About the Research.")This in- relationships.This diverse portfolio,often includ- novative I'T-outsourcing model combines a few key ing hundreds of suppliers within the same service partnerships with a dynamically changing and unre- category,allowed the bank to tap into new sources stricted number of smaller contracts with other of value and to access"best-of-breed"skills and tal- suppliers to deliver specific value propositions ent across the globe.At the same time,much beyond the capabilities of the key partners.Repre- redundancy existed among the suppliers,and sig- senting a dynamic,diversified,and yet disciplined nificant value was left on the table due to unrealized approach toward outsourcing,the long-tail strategy economies of scale,scope,and expertise.The col- embraces and even fosters a flow of new suppliers of- lective cost of managing transactions with this fering new capabilities that can enable the company diversified portfolio of suppliers was also very high. 82 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU82 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU INFORMATION TECHNOLOGY business and IT leaders, however, are satisfied with the level of innovation introduced by their suppliers.4 Yet today, more than ever, as rapid technological changes disrupt industries, established companies need access to fresh ideas, new technologies, and cut￾ting-edge expertise. In IT, these capabilities are often found among smaller, more agile suppliers.5 This is not surprising, as the very idea behind disruptive in￾novation is that many established players tend to ignore disruptive changes to their business until newer companies replace their products and services by providing better value to customers.6 In response, savvy business leaders are devising far more proactive outsourcing practices and are not just relying on a stable, limited set of technology partners to identify and introduce innovations. These proactive practices, however, conflict with many companies’ aspirations for consolidating their IT supplier portfolios. Having encountered the pain of managing multiple suppliers in the past, many companies, especially those with a well-established sourcing-management office, have created policies that mandate contracting only with a small group of strategic partners. Yet even in such companies, business-unit leaders tend to cir￾cumvent policies and engage the services of niche, value-adding suppliers to keep up with technologi￾cal changes critical to their units’ competitiveness. This often results in a large set of shadow suppliers working on smaller, fragmented projects, often under the radar of sourcing-management offices and enterprise architects. Absent systematic orches￾tration and proper incentives, companies will miss the opportunity to integrate the local innovations of these diverse suppliers into the organization. The Long-Tail Strategy In this article, we introduce a “long-tail” strategy for IT outsourcing. (See “About the Research.”) This in￾novative IT-outsourcing model combines a few key partnerships with a dynamically changing and unre￾stricted number of smaller contracts with other suppliers to deliver specific value propositions beyond the capabilities of the key partners. Repre￾senting a dynamic, diversified, and yet disciplined approach toward outsourcing, the long-tail strategy embraces and even fosters a flow of new suppliers of￾fering new capabilities that can enable the company to prosper in turbulent business environments. This strategy requires a carefully designed governance framework that rewards best-performing suppliers by increasing the client’s commitment while specify￾ing a set of policies and architectural requirements for partners. The small set of key partners assists the client in operating core technologies and business processes while integrating the local, temporary, or experimental capabilities of long-tail suppliers into the company’s architecture. If orchestrated effec￾tively, this strategy can turn into a reality the seemingly unattainable twin goals of introducing innovation while ensuring cost and efficiency. Leveraging the Long Tail for Technology Leader￾ship Global Bank (not its real name) is one of the largest global financial services companies and has been ranked among the world’s most innovative investment banks multiple times by financial industry associations. Global Bank has a history of pioneering cutting-edge technologies in financial services. For de￾cades, IT outsourcing was considered a strategic tool by the company. An early adopter of global sourcing, the bank began pursuing a global sourcing strategy in the 1980s. In the decade that followed, Global Bank partnered with a small set of major IT service compa￾nies in both onshore and offshore locations. These suppliers provided IT support and maintenance for the bank’s worldwide business. The bank’s corporate policies focused on promoting these key relationships so as to achieve efficiency in operations. In the 2000s, however, with the rapid matura￾tion of offshore IT service markets, the bank started adding new outsourcing relationships to include suppliers from new regions, as well as smaller, local suppliers offering new capabilities. In addition, through mergers and acquisitions, the bank ac￾quired organizations that had their own supplier relationships. This diverse portfolio, often includ￾ing hundreds of suppliers within the same service category, allowed the bank to tap into new sources of value and to access “best-of-breed” skills and tal￾ent across the globe. At the same time, much redundancy existed among the suppliers, and sig￾nificant value was left on the table due to unrealized economies of scale, scope, and expertise. The col￾lective cost of managing transactions with this diversified portfolio of suppliers was also very high