As the global supply market matured,the costs ABOUT THE RESEARCH of such fragmentation and redundancy became in- We have been studying portfolio strategies for IT outsourcing since 2005 creasingly noticeable.This resulted in a decision to The main objective of the research program is to understand the changing nature of IT services in today's increasingly digitized and globalized business strengthen the bank's global sourcing governance. environment.We have conducted 150 interviews with 30 companies- By the mid-2000s,the bank started to consolidate including 15 buyers of IT-outsourcing services,mostly Fortune Global 500 smaller contracts into larger partnerships with companies,and 15 major technology-services suppliers.The 30 companies multinational IT companies.However,business- are based in North America,Europe,Australia,New Zealand,Latin America, unit leaders continued to enter into small-scale Russia,Japan,India,and China,and span the financial services,business ser- vices,technology,manufacturing,and energy sectors.The financial services contracts with new suppliers,justifying their ac- industry,as a pioneer of global IT outsourcing,represented a main context of tions by the need for skills and innovation.Instead the study. of banning these practices or looking the other way, Global Bank's sourcing-management office started Second,the bank incentivized the program implementing policies that allowed local business- managers to develop their own "best-of-breed" unit managers to discover and experiment with suppliers by helping suppliers acquire valuable new suppliers.In this process,two issues had to be knowledge about the financial industry,facilitating addressed.The first was how to avoid adding sup- the suppliers'market competitiveness and their pliers that did not bring unique capabilities but likelihood of winning further business from Global were added to the mix because of the local manag- Bank.These "groomed"suppliers viewed Global er's personal preferences.The second issue was how Bank as a strategic client and were willing to invest to motivate new suppliers to invest in relationships in the relationship without being promised a long- with Global Bank when they viewed the bank as term commitment. committed to its existing partners. Such mutual investment created strategic value What ensued was the creation of a long-tail for both Global Bank and its suppliers.For example, sourcing strategy that leveraged carefully designed in one business unit,managers spent significant organizational practices to combine the advantages time educating their new suppliers about the bank's of accessing the innovative capabilities of niche work flows in risk management.Such teaching en- players with the efficiencies offered by major part- abled one supplier to rapidly create a series of highly nerships.To implement this strategy,Global Bank successful software applications supporting this mobilized distributed,bottom-up decision making business function.Both the program managers and among its large number of“program managers'” the supplier recognized that these new applications middle-level managers responsible for creating and could be offered to other clients in the financial ser- maintaining IT systems serving particular business vices industry,since they automated standard functions-while using multilevel,top-down gov- industry processes.Legal agreements were negoti- ernance to continually evaluate and consolidate the ated as to how the supplier could sell these new supplier portfolio.Specifically,several initiatives software"assets"and related services while reward- were taken across the organization. ing Global Bank for its intellectual property. First,the bank gave its program managers from In a similar mode,an award-winning customer diverse business units a high level of autonomy in relationship management system was developed in supplier selection for smaller projects.In search of partnership with another supplier,although Global capability and cost advantage,these program man- Bank decided to keep IP rights.One of the suppli- agers experimented with hundreds of different er's senior managers described the bank's mode of niche players.As one of the leaders in the bank's working with new suppliers: global sourcing office explained: At [Global Bank]there is a willingness to We let people make relationships with whom- experiment with new types of partnerships. ever they wanted-do small projects offshore The bank has also shown us a significant so that people see that it works and then en- commitment.They have shown a tremendous courage them to do bigger projects. willingness to educate us about how a bank SLOANREVIEW.MIT.EDU WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 83SLOANREVIEW.MIT.EDU WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 83 As the global supply market matured, the costs of such fragmentation and redundancy became in￾creasingly noticeable. This resulted in a decision to strengthen the bank’s global sourcing governance. By the mid-2000s, the bank started to consolidate smaller contracts into larger partnerships with multinational IT companies. However, business￾unit leaders continued to enter into small-scale contracts with new suppliers, justifying their ac￾tions by the need for skills and innovation. Instead of banning these practices or looking the other way, Global Bank’s sourcing-management office started implementing policies that allowed local business￾unit managers to discover and experiment with new suppliers. In this process, two issues had to be addressed. The first was how to avoid adding sup￾pliers that did not bring unique capabilities but were added to the mix because of the local manag￾er’s personal preferences. The second issue was how to motivate new suppliers to invest in relationships with Global Bank when they viewed the bank as committed to its existing partners. What ensued was the creation of a long-tail sourcing strategy that leveraged carefully designed organizational practices to combine the advantages of accessing the innovative capabilities of niche players with the efficiencies offered by major part￾nerships. To implement this strategy, Global Bank mobilized distributed, bottom-up decision making among its large number of “program managers” — middle-level managers responsible for creating and maintaining IT systems serving particular business functions — while using multilevel, top-down gov￾ernance to continually evaluate and consolidate the supplier portfolio. Specifically, several initiatives were taken across the organization. First, the bank gave its program managers from diverse business units a high level of autonomy in supplier selection for smaller projects. In search of capability and cost advantage, these program man￾agers experimented with hundreds of different niche players. As one of the leaders in the bank’s global sourcing office explained: We let people make relationships with whom￾ever they wanted — do small projects offshore so that people see that it works and then en￾courage them to do bigger projects. Second, the bank incentivized the program managers to develop their own “best-of-breed” suppliers by helping suppliers acquire valuable knowledge about the financial industry, facilitating the suppliers’ market competitiveness and their likelihood of winning further business from Global Bank. These “groomed” suppliers viewed Global Bank as a strategic client and were willing to invest in the relationship without being promised a long￾term commitment. Such mutual investment created strategic value for both Global Bank and its suppliers. For example, in one business unit, managers spent significant time educating their new suppliers about the bank’s work flows in risk management. Such teaching en￾abled one supplier to rapidly create a series of highly successful software applications supporting this business function. Both the program managers and the supplier recognized that these new applications could be offered to other clients in the financial ser￾vices industry, since they automated standard industry processes. Legal agreements were negoti￾ated as to how the supplier could sell these new software “assets” and related services while reward￾ing Global Bank for its intellectual property. In a similar mode, an award-winning customer relationship management system was developed in partnership with another supplier, although Global Bank decided to keep IP rights. One of the suppli￾er’s senior managers described the bank’s mode of working with new suppliers: At [Global Bank] there is a willingness to experiment with new types of partnerships. The bank has also shown us a significant commitment. They have shown a tremendous willingness to educate us about how a bank ABOUT THE RESEARCH We have been studying portfolio strategies for IT outsourcing since 2005. The main objective of the research program is to understand the changing nature of IT services in today’s increasingly digitized and globalized business environment. We have conducted 150 interviews with 30 companies — including 15 buyers of IT-outsourcing services, mostly Fortune Global 500 companies, and 15 major technology-services suppliers. The 30 companies are based in North America, Europe, Australia, New Zealand, Latin America, Russia, Japan, India, and China, and span the financial services, business ser￾vices, technology, manufacturing, and energy sectors. The financial services industry, as a pioneer of global IT outsourcing, represented a main context of the study