Why Innovation Projects Need Microsourcing

The vice president of technology architecture at a multinational telecommunications company knew she needed to make radical changes. The IT architecture and sourcing approach at the 150+ year old company was making it difficult to provide real-time interactions with its customers.

“The days of the customer being at a company's whim and domination are over," she said. “Customers will only be satisfied if they are driving the interaction.”

“ Organizations reinventing themselves are using the incremental microsourcing process to enable innovation and digital transformation.”

The company needed a unified customer view across the 13 separate business unit systems. Fixing the current architecture by using an e-business suite would only introduce more complexity to an already complex system.

Instead, they created an entirely new target architecture, including a new approach to sourcing, turning to newer, component-based, highly modular players.

“Traditional sourcing strategies with long sourcing cycles no longer meet the speed-to-market expectations in digital business,” says DD Mishra, research director at Gartner.

“Long-term contracts with minor adjustments and corrections are no longer relevant,” Mishra says. “To innovate, organizations need an agile and interactive sourcing strategy that incorporates new digital providers and fast ideation options, like crowdsourcing.”

Organizations reinventing themselves are using the incremental microsourcing process to enable innovation and digital transformation.

Microsourcing in practice

Gartner defines microsourcing as the process of breaking up large projects into smaller projects and sourcing them from existing providers or relatively unknown or new providers to enable a more agile approach for a quicker turn around and better results at competitive pricing.

Digital business and the Internet of Things (IoT) are increasing business expectations of agility, flexibility and faster onboarding of providers.

To integrate providers faster, Gartner recommends three actions.

Adopt an iterative sourcing model

Move towards a more incremental and agile microsourcing process by sourcing and maintaining a separate proof-of-concept or “sandboxing” environment for trialing new and evolving digital and IoT services.

Use business-outcome-based contracting models

Sourcing organizations that have not yet adopted a bimodal mindset tend to use traditional IT evaluation and selection processes for innovation projects, which end up taking too long to negotiate. Enable fast onboarding of new, more nimble providers by continually scanning the market using a list of selection criteria and using business-outcome-based approaches.

If a vendor is willing to co-invest by providing technology for the new business model, there may be an opportunity to consider a gain-share contracting model where the client pays no upfront technology fee, but shares in the revenue.

Create partnerships with providers

Many organizations create partnerships with smaller service providers and startups for co-development and joint go-to-market strategies in specific domains. Managing these partnerships is often a challenge and requires a new sharing mindset and a governance model that ensures participation and knowledge sharing.