INFORMATION TECHNOLOGY long tail,companies need to build a special set of We have a very,very close look at what's on the sourcing practices that institutionalizes both cen- market and how the market reacts.The whole tralized and decentralized decision making when it notion of having big vendors in big rooms can be comes to discovering,nurturing,incentivizing,con- turned upside down.We had a parallel internal trolling,and integrating relationships with multiple development,which we are now thinking of stop- suppliers.Through interviews with 150 managers ping because the new niche supplier is bypassing from 30 major multinational corporations,we have us.They are just moving much faster than we identified five such best practices for leveraging the can.So why don't we jump on their train? long-tail approach to IT outsourcing. 1.Distribute responsibility for scanning for 2.Nurture relationships at the tail end.One pit- new technologies.The design and evolution of the fall of the long-tail strategy is that it demotivates new portfolio,to a large extent,relies on an emergent, suppliers from investing in client relationships.In- bottom-up process.This process is driven by the deed,each supplier in the long tail may feel that its role distributed decision making of middle and senior is temporary and focus its best efforts on other clients managers who have the best understanding of their that are willing to make long-term commitments.It is business and technological needs.These managers thus important that both business-unit managers and should therefore take on a proactive role,scanning the sourcing-management office incentivize suppliers for new technologies and leaving the door open for to invest in the relationship.Top-down incentives suppliers,both existing and new,to pitch innova- shouldbe clear:Ifexperimental projects show positive tive solutions to them.These local managers are in results,the supplier will get internal referrals and po- the best position to distinguish the latest fads from tentially make its way into the mix of strategic potentially valuable innovations.Based on their partners.This was the case,for example,with cloud- analysis of promising technologies,they can start computing providers,which often started as niche identifying who can most effectively help them players but have moved into partnership roles as further probe new opportunities through experi- cloud technologies became more prominent. mentation-internal IT,incumbent partners,or Bottom-up nurturing requires more creativity new suppliers.The sourcing-management office and relationship-management skills.Business-unit should introduce informal and formal communi- managers cannot always promise long-term com- cation channels so that managers across diverse mitment,but they can design more creative business units can recommend new technologies incentives-such as invitations to work on innova- and suppliers to their peers. tive projects,strategic learning opportunities about For example,a major European insurance com- the client's industry,willingness to serve as a refer- pany historically relied on about a dozen major ence,and even financial investments in the suppliers. IT-services suppliers worldwide.Even with this It is important for managers to realize that the via- relatively large number of partners,it still had to bility of outsourcing relationships often lies in the venture into proactive search and engagement with alignment between the client's IT-sourcing strategies newer niche suppliers to keep up with digital and the supplier's long-term growth strategies.A large disruption.The sourcing director explained how U.S.financial services company,for example,had been the company was always prepared to open up its relying on a concentrated portfolio of a handful of portfolio: strategic partners.Yet over the years it also developed One pitfall of the long-tail strategy is that it demotivates new suppliers from investing in client relationships.Indeed,each supplier in the long tail may feel that its role is temporary. 86 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU86 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU INFORMATION TECHNOLOGY long tail, companies need to build a special set of sourcing practices that institutionalizes both cen￾tralized and decentralized decision making10 when it comes to discovering, nurturing, incentivizing, con￾trolling, and integrating relationships with multiple suppliers. Through interviews with 150 managers from 30 major multinational corporations, we have identified five such best practices for leveraging the long-tail approach to IT outsourcing. 1. Distribute responsibility for scanning for new technologies. The design and evolution of the portfolio, to a large extent, relies on an emergent, bottom-up process. This process is driven by the distributed decision making of middle and senior managers who have the best understanding of their business and technological needs. These managers should therefore take on a proactive role, scanning for new technologies and leaving the door open for suppliers, both existing and new, to pitch innova￾tive solutions to them. These local managers are in the best position to distinguish the latest fads from potentially valuable innovations. Based on their analysis of promising technologies, they can start identifying who can most effectively help them further probe new opportunities through experi￾mentation — internal IT, incumbent partners, or new suppliers. The sourcing-management office should introduce informal and formal communi￾cation channels so that managers across diverse business units can recommend new technologies and suppliers to their peers. For example, a major European insurance com￾pany historically relied on about a dozen major IT-services suppliers worldwide. Even with this relatively large number of partners, it still had to venture into proactive search and engagement with newer niche suppliers to keep up with digital disruption. The sourcing director explained how the company was always prepared to open up its portfolio: We have a very, very close look at what’s on the market and how the market reacts. The whole notion of having big vendors in big rooms can be turned upside down. We had a parallel internal development, which we are now thinking of stop￾ping because the new niche supplier is bypassing us. They are just moving much faster than we can. So why don’t we jump on their train? 2. Nurture relationships at the tail end. One pit￾fall of the long-tail strategy is that it demotivates new suppliers from investing in client relationships. In￾deed, each supplier in the long tail may feel that its role is temporary and focus its best efforts on other clients that are willing to make long-term commitments. It is thus important that both business-unit managers and the sourcing-management office incentivize suppliers to invest in the relationship. Top-down incentives should be clear: If experimental projects show positive results, the supplier will get internal referrals and po￾tentially make its way into the mix of strategic partners. This was the case, for example, with cloud￾computing providers, which often started as niche players but have moved into partnership roles as cloud technologies became more prominent. Bottom-up nurturing requires more creativity and relationship-management skills. Business-unit managers cannot always promise long-term com￾mitment, but they can design more creative incentives — such as invitations to work on innova￾tive projects, strategic learning opportunities about the client’s industry, willingness to serve as a refer￾ence, and even financial investments in the suppliers. It is important for managers to realize that the via￾bility of outsourcing relationships often lies in the alignment between the client’s IT-sourcing strategies and the supplier’s long-term growth strategies. A large U.S. financial services company, for example, had been relying on a concentrated portfolio of a handful of strategic partners. Yet over the years it also developed One pitfall of the long-tail strategy is that it demotivates new suppliers from investing in client relationships. Indeed, each supplier in the long tail may feel that its role is temporary