INFORMATION TECHNOLOGY We propose that in this time of rapid technological change, relying on a limited number of suppliers,no matter how diversified,is insufficient. the best private banks in the world.The bank in- financial industry awards for its technological vested in establishing a centralized governance innovation and emerged as an industry leader in organization responsible for designing the compa- technology.The bank emphasized the importance of ny's overall outsourcing model,supervising a small retaining and investing in architectural capability as number of major partnerships,and collaborating it moved toward a more diversified and dynamic with business units to coordinate relationships with outsourcing environment.As a senior executive of diverse long-tail suppliers.Under the management technology and operation explained: of the governance office,local business units still had the flexibility to select best-fitting capabilities. The bank retains the architectural oversight.The As one senior I'T executive at the bank said: bank has a keen interest in ensuring that we have broad design authority.We took the business up The choices about who the strategic vendors are into a multisourcing environment.We retain the and where they have a right to play,as well as high-level engineering capability and the service what top-down targets we'd like to see over time, integration role.And that's quite deliberate. about how much of a footprint is done with these vendors,are pretty centralized decisions. Changing the Outsourcing Culture The above five practices are key to successfully leverag- 5.Design for integration.With diverse suppliers ing the long-tail strategy for managing IT-supplier delivering specialized services,the long-tail strategy portfolios.While outsourcing researchersand advisors places significant emphasis on the client's integra- have pointed out the pitfalls of using only"megadeals" tion capability.At the core of this capability are and the need for expanding to some form of"multi- investments made into a strong technical architec- sourcing,we propose that in this time of rapid ture,shared data sources,and common standards, technological change,relying on a limited number of which enable the client to develop a holistic and suppliers,no matter how diversified,is insufficient. detailed view of different processes within the orga- The focus of the long-tail strategy is not managing a nization.This in turn shouldallow the localbusiness- particular number of suppliers so much as managing unit managers,the centralized IT staff,and the an architecture that permits varied numbers of suppli- sourcing-management office to make better deci- ers by regulating key standards and placing limits on sions about when to allow for a local niche solution where variability of suppliers is acceptable and where it and when to demand top-down engagement.Archi- is not.Based on the architecture,managers should take tectural investments that build capabilities for aclose look at the supplier portfolio,carefully assessing integration are expensive,but they save time and and cultivating different outsourcing arrangements money when a company attempts to extend its capa- for different types of functions. bilities with a new technology. This long-tail model allows organizations to As an example,a multinational financial services more effectively adapt to today's technology dis- company based in the Asia-Pacific region increas-ruptions.The very nature of disruptive innovation ingly embraced the long-tail IT-outsourcing is such that new players replace incumbent compa- strategy.Through effective outsourcing,the com- nies.IT-service suppliers are no exception.Some pany reduced costs,improved service levels,and forward-thinking suppliers are themselves proac- invested in collaborative innovation with suppliers. tively engaging niche technology players in open In recent years,the bank received a number of innovation projects to boost their company's 88 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU88 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU INFORMATION TECHNOLOGY the best private banks in the world. The bank in￾vested in establishing a centralized governance organization responsible for designing the compa￾ny’s overall outsourcing model, supervising a small number of major partnerships, and collaborating with business units to coordinate relationships with diverse long-tail suppliers. Under the management of the governance office, local business units still had the flexibility to select best-fitting capabilities. As one senior IT executive at the bank said: The choices about who the strategic vendors are and where they have a right to play, as well as what top-down targets we’d like to see over time, about how much of a footprint is done with these vendors, are pretty centralized decisions. 5. Design for integration. With diverse suppliers delivering specialized services, the long-tail strategy places significant emphasis on the client’s integra￾tion capability. At the core of this capability are investments made into a strong technical architec￾ture, shared data sources, and common standards, which enable the client to develop a holistic and detailed view of different processes within the orga￾nization. This in turn should allow the local business￾unit managers, the centralized IT staff, and the sourcing-management office to make better deci￾sions about when to allow for a local niche solution and when to demand top-down engagement. Archi￾tectural investments that build capabilities for integration are expensive, but they save time and money when a company attempts to extend its capa￾bilities with a new technology. As an example, a multinational financial services company based in the Asia-Pacific region increas￾ingly embraced the long-tail IT-outsourcing strategy. Through effective outsourcing, the com￾pany reduced costs, improved service levels, and invested in collaborative innovation with suppliers. In recent years, the bank received a number of financial industry awards for its technological innovation and emerged as an industry leader in technology. The bank emphasized the importance of retaining and investing in architectural capability as it moved toward a more diversified and dynamic outsourcing environment. As a senior executive of technology and operation explained: The bank retains the architectural oversight. The bank has a keen interest in ensuring that we have broad design authority. We took the business up into a multisourcing environment. We retain the high-level engineering capability and the service integration role. And that’s quite deliberate. Changing the Outsourcing Culture The above five practices are key to successfully leverag￾ing the long-tail strategy for managing IT-supplier portfolios. While outsourcing researchers and advisors have pointed out the pitfalls of using only “megadeals” and the need for expanding to some form of “multi￾sourcing,”13 we propose that in this time of rapid technological change, relying on a limited number of suppliers, no matter how diversified, is insufficient. The focus of the long-tail strategy is not managing a particular number of suppliers so much as managing an architecture that permits varied numbers of suppli￾ers by regulating key standards and placing limits on where variability of suppliers is acceptable and where it is not. Based on the architecture, managers should take a close look at the supplier portfolio, carefully assessing and cultivating different outsourcing arrangements for different types of functions. This long-tail model allows organizations to more effectively adapt to today’s technology dis￾ruptions. The very nature of disruptive innovation is such that new players replace incumbent compa￾nies. IT-service suppliers are no exception. Some forward-thinking suppliers are themselves proac￾tively engaging niche technology players in open innovation projects to boost their company’s We propose that in this time of rapid technological change, relying on a limited number of suppliers, no matter how diversified, is insufficient