Michał Grela (MG): Hi. Welcome to another episode of IT Leadership Insights by Future Processing. Today my guest is Lauren Duthie, and we’re going to talk about sourcing during the corona crisis.

It’s been almost three months now, since most countries introduced the lockdown and the world and the economy went from panic to, I guess, some sort of acceptation, and business is now almost used to the new normal, if we can put it that way. No one knows how long the current situation will continue. We’re now end May, early July. The lockdown eases, but definitely we can agree that the world will not be as it used to be previously.

So in this conversation, we’ll cover with Lauren today, how can the sourcing business adapt, what’s the state of art when it comes to sourcing IT products now, and what companies can do to come out of this crisis stronger than before, and if that’s even possible.

So my guest today is Lauren. You could introduce yourself please.

Lauren Duthie (LD): Thanks Michał! Hi, I’m Lauren. I’m CEO and founder of Horizon Seven. We’re a consulting firm based out of the UK, but working globally. And our expertise is in the procurement and sourcing space, particularly for technology markets. We are here to really disrupt the sourcing markets with new ways of working, faster time to market, and those kind of things.

MG: Cool. Thank you. I’m really happy to have this conversation with you. It’s not the first time you’re on IT Insights…

LD: I know.

MG: So I’m glad you still like us and you still want to talk to us. So as you said, you have hands-on experience when it comes to procurement and sourcing, and based on your observation… What are your observation? How did companies react to the new situation? What did you observe?

LD: Well, I think the technology providers… So we work with most of the large technology providers and obviously a large range of clients, buyers that are in many different markets, retail, travel… Across sectors. And they all have the same thing in common, which won’t be any surprise, which is that they had to relocate their staff very quickly. So there was at least two to three weeks where organizations just couldn’t speak to us because they were so busy moving people about and making sure that people could work from home, primarily. And the technology vendors were saying that they were spending a lot of time helping clients to emergency mobilize solutions, VPN, or network solutions, and hardware to get the staffs working from home.

So it was quite challenging to get anyone’s attention for a little while there. And it was clearly very early reactive panic phase mode. And I think immediately in that window then, we were seeing, certainly from the UK side of things, the government talking about how they would prop up business. Obviously a big concerns in the markets around how businesses would survive. And for us here, our furlough scheme came in within maybe two days. And that reassured everyone a lot. So lots of people put on furlough. I know there is a significant amount of the UK workforce on furlough right now, not doing anything. Probably doing the gardening, but really keen to get back to work, no doubt.

But I think what was really interesting was that a lot of the tech companies have to cope with their own relocation of staff, as well as responding to their client’s needs. And I think a lot of them did very well. If we’re talking about the big guys, they were relocating anywhere up to 200, 300,000 people within days. So yeah to mobilize that…

MG: These are really big guys.

LD: Yeah, absolutely. And a lot of those staff in India, and big challenges moving things around in India. So I think they did really well to sort themselves out and look after their clients simultaneously. But I think what we found is that as time has gone on, so maybe after the first two to three weeks, then we saw the technology market reacting and saying, “Okay, so now we’ve moved everyone. What are we now going to deliver? And what projects are we likely to be asked to continue or shelf?”;

MG: That’s my that’s my next question. How did the new situation, when companies got used to it, to some extent, how it impacted the ongoing projects?

LD: Well, I think it’s fair to say that the business-as-usual projects, we understand from our clients on the buy side, as well as the vendor side, were shelved. Pretty much a hundred percent of business-as-usual type projects were shelved, because just not understanding how long this thing was going to last and what the financial impact was going to be meant that most organizations felt it was prudent not to deliver nonessential projects.

So it was split really between projects that were absolutely essential to react to the situation. Maybe there were a lot of customers talking about cloud migrations needing to kind of hurry up and finish quick, or stabilization projects, or network projects. Those kinds of projects that were absolutely essential to respond to the current situation, and then everything else being parked. So we saw that. We saw new project buying… Almost a hundred percent, maybe 95% of that collapsed within the first couple of weeks. And a number of technology [inaudible 00:06:04] tell me that they had a really good April because they were spending lots of time and doing lots of work helping clients adjust, but they are not very sure about May at all.

MG: So when it comes to new projects, your observation would be that they’re being withheld, but surely procurement departments are rethinking buying strategies?

LD: Yeah. I think the emphasis that we’re seeing now is on cost optimization. So clients, maybe they’ve gone through emergency phase, immediate reaction phase, and now they’re in trying to, as you said, to adjust to some kind of new normal, I hated that term when it was first described. Because I’m like, “There is no new normal, we aren’t going back to normal.” But I think I’ve come to terms with the fact that…

MG: We’re not.

LD: …is not going to happen, but… And that’s okay. Because new normal could be good, right?

So organizations are now saying… I think nearly all of them are now looking at cost optimization unless they’re in a industry, like for us, online grocery retailers, I think experienced something like a 300% growth in the market in a month.

MG: E-commerce in general was also that way.

LD: Yeah, exactly. So unless you’re one of the fortunate ones that’s in a market that is really in demand, I think everyone is really looking at their cost overheads right now. So perhaps there’s projects, technology projects where there’s cost optimization, I think as organizations get reorganized, will come to the market a lot with those kinds of things.

Unfortunately, typically it’s the CIO or CEO that’s driving cost optimization, certainly from technology perspective. Procurement, typically within the UK and certainly across Europe, don’t have a voice within technology cost optimization. So procurement teams tend to be limited to optimizing costs out of their existing contracts. And we still… We’re seeing that behavior, which is not strategic.

MG: You said that your take is that, when it comes to new projects, it will be mostly about cost optimization, and will that require IT vendors to cut the rates down?

LD: I don’t think so. I don’t think that’s necessary. I think that’s where I see procurement doing optimization activity. I know initially when a lot of the vendors talk to me about the fact they’ve had to help clients, particularly in the worst effected industries, have mortgage holidays, like we’re personally having, Having holidays with managed service contract payments, things like that. And they may look to readjust and optimize costs.

But actually I think the greater opportunity here is to leveraging the benefits out of digital transformation that can lower overhead. And certainly what I’m seeing actually is really interesting, is that through all of this, because technology has been the big thing that has underpinned all of this relocation and enabled business to continue to work, suddenly the technology agenda shot right to the top for the board. And they’re seeing how well, for most of the people I talked to, how well technology and IT teams have been able to respond. And they’re actually getting big recognition at the moment.

And so I’d like to think that that would continue. And that organizations have perhaps learned a big lesson out of this, in that to run very slow technology transformations or to make that difficult isn’t necessary. And when you need to, you can respond quickly and get advantage out of that.

So I’d like to see… I think there’s advantage in the vendors being able to bring digital transformation to organizations, to reduce overheads. And that’s something we always saw before. It’s just that I think organizations were really slow to adopt it and to adopt the change that was required.

MG: Yeah. That’s definitely a good point. Another change I see on the market, I’m curious to see if that’s also something you observe, is that before, companies were reluctant or hesitant to source partners or to outsource… Nearshore, offshore, whatever… Just to outsource project out of the organization, because they were very keen on keeping everybody in house or onshore, whereas now we’re all working from home anyway and there’s no one in the office. So that may make some, as a result, some conversations that could never happen before are now happening because the CIO is saying, “All right, you know what? It doesn’t really matter anymore whether you’re in London or Berlin or Paris, because we’re not there anyway.”;

LD: Yeah. That’s a really good point. I think organizations, certainly like yours, where you can work nearshore, remotely. I think many organizations, and especially traditional ones that never worked in this way before, have had to just get used to that very quickly. And that’s going to be a real benefit, isn’t it? To extending relationships.

I’m finding for Horizon Seven, that we can have more conversations more quickly with more people than ever before. For example, I was waiting for a client for three months to try and see them, which was going to be an eight hour round trip, and the minute lockdown happened, it was in the diary the next day. I’ve really seen conversations, speeding up. Loads of networking as marketing organizations, in particular, organize network events, but online. And it’s so much easier than trying to go and do it in person.

MG: That’s true.

LD: So I think that will be really helpful for building offshore relationships. I do think there’ll be an impact to where offshoring or nearshoring is done. And I think that a little bit from this in terms of organizations recognizing that they can hedge their bets and balance their risk by going to more smaller organizations, which is what we saw before COVID-19, was a trend of organizations saying they wanted to work with best of breed and expert organizations. So not necessarily needing to go to very large organizations. But the challenge that raises for sourcing then, is how you integrate all of that, and the client having effective service integration. So SIAM type function.

MG: Is there anything vendor side organization can do to leverage the crisis? Because every new situation is a threat, of course, and every change is also an opportunity. Is there a way to build a competitive advantage on top of what’s happening now?

LD: Well, I think certainly for vendor organizations, there’s only really two ways to take advantage of this. One is to pivot. So to move to where the demand is, and that’s responding to new markets. So that’s organizations moving from the high street to online retail sales and things like that. Or perhaps to disrupt the market for themselves.

So one of the things that we haven’t seen enough of that we’re coaching technology vendors all of the time, is to employ differentiators. And that’s coming outside of the technology itself. So how they work with clients, how they maintain relationships, how transparent they can be with the financials, what creative financial modeling they can do. So those are the areas where we see and coach vendors to be more differential in what they do.

So to disrupt the market that there is, and as that stabilizes and comes back online, to differentiate outside the tech. Because everyone can do cloud hosting. Everyone can do software development. Not everyone can do it really well. And very few do relationship management, culture management, as well as the best. And that would be where I’d be suggesting technology organizations can gain some advantage in this scenario. And if it does anything to disrupt behaviors, then great. As long as we can put this more differential type behavior in its place, then that would be great.

MG: Yeah, there’s definitely an uncertain time and an inconvenient time for the buy side and vendors can do anything to up this convenience and trust in the way they handle things. That definitely is a good point to leverage, but hopefully sooner or later it will all be over. And I think we’re not in a position yet to think whether that will be autumn or next year. Although I see that some organizations are preparing to work over the summer, which is not going to be a touristy period anyway, to work it up and then leverage that in the autumn. Is that something you could consider realistic that the economy will move up in months, or do you expect it to be longer?

LD: I think it depends what industry we’re talking about. So if we talk about the travel industry, I heard on the news this morning that the aviation industry is saying they think it’s going to take them three years to get back to…

MG: Yeah, at least. If not five.

LD: Exactly. I think for some industries, clearly there’s bigger challenges than for others. And we’ve overcome a lot of the problems of working very quickly by working from home. If economies can restart, then businesses can start to move again. But that’s all about confidence, isn’t it? In whether organizations are…

MG: Yeah, it is.

LD: …back to the market. Certainly I’ve only really observed in the UK that organizations are talking about losing jobs in the most affected markets. So I’ve only seen it in the travel hospitality type… It’s not pervasively.

That said, and we’re obviously heading for a big recession, so that’s going to be impactful to everyone. But I think I can see, and we’re seeing lockdown move here, and that should restart the economy, certainly in the UK. And I know that’s similar across Europe. So we should start to see projects coming out of stasis within the next few months, I’d say. And the first ones will be the ones that are giving most business value most quickly, either responding to COVID or pivoting, as I was saying, to new markets or new products and services.

But I do think, in sourcing terms, there’s a real opportunity for technology vendors and buyers to overcome this traditional way of sourcing. To stop doing that by arms length RFPs. To do that in a more agile fashion. But most of all, to buy business-based outcomes.

And there are some good examples where technology vendors have bought a business problem, so example in retail, there was a big technology vendor that bought a big retailer’s digital transformation program off them, basically. Made an investment and then sold them back a transformation. And so thinking more along those lines, rather than, “Can I please have some hosting?” Or “Can I have some software development?” Thinking more about moving toward more of a JV partnership type model where organizations can come together and say, “What’s the business problem we’re trying to solve with this technology?” And then it becomes so much easier for people to get behind it and invest in it.

MG: So your predictions on the tech/sourcing post-crisis landscape is that companies will be, sooner or later, eager to source externally, but in a different way. More partnership based and more focused on outcomes.

LD: It’s certainly what I’m recommending. If everyone listens to what I’m recommending, then it’d be great but I’m not sure they will. I’ve no doubt that they’ll have some of the old ways of working, but I would like to think that organizations have really experienced fast tech in responding. And I would hope that CIO, CEOs have recognized that they can buy technology more quickly and that there are other ways. And I would advocate trying to buy business based outcomes rather than input measures and moving to a better way. I think organizations will outsource more, not less than pre-COVID.

MG: But do you think the old school RFI processes, will it be the death of it? Or…

LD: I doubt it.

MG: Because you’ve been predicting the death of RFI for a good few years now.

LD: I have. And maybe this is the time I’m going to be right. But I’m sure there will be some people that hang on to it. It’s a big comfort blanket, and depending on where you are in the organization, and I think you would cling to that because actually that supports your job, if I’m could be so cynical. But I would say that we have an opinion that the RFP just does not generate the collaborative ways of working, or the outcomes that it could possibly achieve.

So we estimate that an RFP actually… The outcome of an RFP, the solution, costs a buyer about 20 to 40% more than the same thing bought in an agile fashion. And so you asked me earlier about what organizations can do to succeed in this market. We’re trying to disrupt the sourcing market to try and help ourselves do well, prosper in this post-COVID. But we do see massive benefits for clients and buyers of technology services, taking a non lengthy RFP process and going to more agile, collaborative. And so vendors that can support that will do best.

MG: Right. Brilliant. Thanks for that. That was really interesting. I wonder how much of what we covered today will actually happen.

LD: Let’s see.

MG: I’ll be curious to find out and get back to this conversation in six months or 12 months to see where we were.

LD: Yeah, definitely. That would be fun.

MG: Yeah, looking forward to it. Thanks Lauren. That was super cool. It’s always great to have a conversation with you.

LD: You’re welcome. Always good to chat to FP.

MG: Thanks. And thank you, our listeners, for listening to another episode of IT Leadership Insights by Future Processing. If you liked it, please don’t hesitate to share it, recommend it to your friends. And please do drop us a line to have a topic covered in one of another episodes. Thanks.