How Adaptive Sourcing Helps CIOs Revolutionize Innovative IT Sourcing

Author

Ben Kerschberg, Contributor

August 8, 2014

It is difficult to imagine another subject as popular in today’s business and technology press as innovation. Some debates, such as the falsely reported death of disruptive innovation, are beyond the scope of this post. One thing is certain. Innovation is alive and well, and processes such as crowdsourcing now serve not only as an innovation platform and catalyst, but also fall squarely within new, unfolding paradigms that will drive enterprise innovation for years to come.

In a recent series of research notes, Gartner examines the state of the union of both corporate innovation and open platform innovation (i.e. crowdsourcing), respectively. Kris Doering, Gilbert van der Heiden, Helen Huntley, Crowdsourcing Application Development Will Fail Without Proper Planning and Risk Mitigation (Gartner July 9, 2014); Susan Tan, Report Highlight for Market Insight: Service Providers Must Align Strategies and Capabilities with Adaptive Sourcing Requirements to Succeed in a Digital World (Gartner May 21, 2014); Gartner Says Adaptive Sourcing Holds The Key To Business Growth (Gartner Press Release May 15, 2014); Claudio Da Rold, Frances Karamouzis, Enhance Your IT Agility and Grow The Business by Optimizing the Three Layers of Adaptive Sourcing Strategy (Gartner May 12, 2014);  Helen Huntley, Ed Anderson, Kris Doering, Harnessing a Global Talent Pool Through Crowdsourcing Can Increase Speed and Deliver Innovation (Gartner Mar. 28, 2014). They believe there is a clear overlap between the two. I believe the overlap is far greater. Gartner proposes a bimodal means of innovation called adaptive sourcing. My aim here is first to look closely at Gartner’s model, and then to examine how crowdsourcing can complement it in order to enable corporations to remain long-term, adaptive market competitors.

In a 2014 survey of Chief Executive Officers, see id., Gartner found that 64% reported that business growth is their most important goal in the face of competition. Forty percent (40%) named IT as their second priority. An important disparity exists between needs and resources. These same officers report that only 51% can respond proactively in a timely manner to their IT needs. Current IT departments cannot keep up with today’s change. As a result, 70% will change their sourcing mix over the next three years in order to lower costs and increase quality, flexibility, and innovation. See id. 

CEOs increasingly see digital business as a way to drive growth and find new revenue. Digital business is no mere buzzword. It is an instrumental way of conducting business, and few companies are ready for ‟the myriad technology and business options that will define the next generation of market leaders.” Id. According to Gartner, those unprepared companies (among others) need a fundamental change in philosophy. Companies must focus less on the traditional metric of ‟built to last” and shift towards a continuum on Gartner’s notion of built to adapt. Few business priorities today match Gartner’s paradigm.

Gartner’s Forward-Looking Adaptive Sourcing Paradigm

Gartner recommends adaptive sourcing in order to respond to digital opportunities in a timely and competitive manner. Gartner asserts that adaptive sourcing helps organizations move away from traditional, static, layered sourcing strategies to a more nimble position that can respond to market forces.

Perhaps counterintuitively, this shift leaves IT in an enviable position. With marching orders in hand, ‟this is clearly an opportunity for IT to demonstrate its increasing value to the business and to reinvent itself as a driver of growth.” Id. 

Gartner’s adaptive sourcing paradigm depends on a bimodal structure that simultaneously accounts for both traditional growth and the need for digital business to spur the enterprise. Adaptive sourcing looks at the overall view with a keen eye on the prize — innovation. Moreover, as we shall see, the need for agility-driven innovation lends itself perfectly for enterprises to use crowdsourcing as a means to fulfill Gartner’s charter of building to adapt.

The transition to an adaptive, IT-driven enterprise is not an easy one. As set forth above, the number of CEOs and CIOs who see business growth as their top concern is far outpaced by the number who believe they will not be able to harness digital business to fuel growth. At the same time, the past few years have seen the office of the CIO held increasingly accountable as a member of senior management charged with strategy and growth.

Existing one-size-fits-all sourcing strategies are insufficient. IT must focus on being agile enough to shift gears and direction in uncertain markets. It must focus on enterprise’s most challenging business (not just IT) issues; and it must foster a corporate spirit of innovation that matches its sourcing model.

One critical question is whether enterprises have the expertise within their four walls to effect the necessary focus on agility — i.e. to build to adapt. By their own reckoning, such companies are few in number, and even those must develop a strategy to look to the crowd to find the talent they need. Forty-nine percent (49%) of CIOs responded that the competencies to address the demand for digital transparency do not exist within their companies. They are correct.

While today’s business challenges have never been so difficult and in such a competitive and rapidly shifting landscape, the solutions have in fact never been so available to the enterprise. The linchpin of any digital business and sourcing strategy is the use of open innovation platforms to harness global expertise.

Crowdsourcing addresses the fundamental tenet of adaptive sourcing — the need to remain agile. According to Gartner, crowdsourcing provides an ‟almost limitless pool of cost-effective resources providing access to innovation beyond expectation.” Id.  This is not theoretical chatter. Gartner predicts that by 2017, application service providers will have used global crowd-based expertise to replace 20% of their internal application management staff. Over the same period, 60% of technology companies will engage their targeted consumer segments through crowdsourcing. These movements are critical vis-a-vis Gartner’s agility-focused adaptive sourcing model.

Adapting to Crowdsourcing

Imagine an executive in a medium-sized city outside of any of the technology belts in the United States (e.g., Silicon Valley, Austin, Northern Virginia, New York City, Boston, The Research Triangle). He has been charged with innovation and spearheads a project that requires a healthy number of iOS developers. Locally, that particular skill is rare; supply does not even approximate the demand for this particular project alone. In years past, that executive had various options. He could move forward with limited supply and obtain a sub-par result. He could outsource the project abroad. He could go through the time-consuming (and profit-eating) motions of finding an iOS shop. Or he could abandon adaptive sourcing altogether in favor of other options. None of those options is viable — or even conceivable — in today’s business world. Digital business and the power of crowdsourcing make charging (reasonably) forward with a project not only feasible, but less expensive than ever.

By means of a community-based open innovation platform, hundreds of thousands of the world’s best data scientists, developers, and designers compete in contests to solve issues ranging from building CRM applications that allow established, non-technology-based companies to fundamentally change the way they work with their customers to changing the way in which Harvard Medical School conceives of its research in immunogenomics — a world-class shift. See id. 

In the iOS example above, there is no longer what one might label ‟just” a local search. From one’s office in the aforementioned city, one can find among a crowdsourcing community expert iOS developers (global supply) to meet local demand. Moreover, seven iOS developers in five different locations can work together by means of cloud-based technology to provide a solution for an agile competitive enterprise built to adapt. According to MIT Professor and co-founder of the MIT Initiative on the Digital Economy Andrew McAfee, [topcoder] ‟identifies and taps into sparks of genius in a way that we have never been able to before.” Sourcing managers should pilot the use of these communities to get a competitive edge from innovative experts while reducing development cost and implementation efforts. Finally, innovation is not a one-stop rodeo. Rather, the process of innovation is a cycle whereby novel courses of action are discovered over time and the enterprise constantly gathers knowledge therefrom in order to develop innovative courses of action that make the company build to adapt over the long term.

Gartner’s advice to become agile innovators cannot be ignored. Progressive business leaders make innovation a core competency the principles of which should permeate all enterprise decisions about corporate growth. When a large pool of talent competes to produce a world-class solution to an enterprise’s needs, your company will capitalize on and reap the collective knowledge of a community of global experts. It will also be able to use that technology — now its intellectual property — as the basis to address newly arising issues.

American scientist and co-founder of Sun Microsystems Bill Joy made a simple assertion. No matter where you work, he hypothesized, the smartest people in your field work somewhere else. This is known as Joy’s Law. If this is true, then the only way to find that talent is to look beyond your enterprise’s boundaries — hence my disagreement with the 51% of CEOs who believe that the talent they need resides within their four walls.

Crowdsourcing is the most effective way of sourcing IT in order to adapt over the short and long term. Moreover, crowdsourcing achieves something profound — it eliminates corporate boundaries in the era of digital business. The notion of looking merely inside the enterprise no longer passes muster. One must also look over the horizon to find the finest global talent available.

Gartner believes that service providers that align their strategies with adaptive sourcing will be better positioned to participate in their clients’ digital journey. I propose taking Gartner’s premise a step further. Adaptive sourcing is characterized by the need for digital business to drive innovation. The enterprise must remain dynamic and act quickly. Innovation represents the pinnacle of adaptive sourcing, having left behind both the sometimes slow evolution of IT production and the medium-term life cycle powered by process in demand. I believe that the innovation so critical to Gartner’s adaptive sourcing overlaps significantly within [topcoder]’s model of innovation through crowdsourcing.

Crowdsourcing is not a new process, but it is relatively new to IT outsourcing. With the cloud as a medium to look outward to the crowd, crowdsourcing has exploded. Tapping into the community collective offers an agile, low-cost sourcing option to meet demand, corporate goals, and the need to innovate. Notwithstanding these possibilities, the talent pool is still there. Costs are dramatically lower than other options — for example, outsourcing — or an internal full-time employee (‟FTE”).

Innovation remains the pot of gold at the end of the rainbow. Why innovate? Some wish to disrupt entire industries and engagement models. Others wish to advance internal research and development. Still others see innovation as a means to become a more agile enterprise — one built to adapt. Whatever the motivation, it is difficult to fathom an enterprise that openly states that it does not wish to innovate. Whether it actually does so is another story with serious consequences.

Crowdsourcing provides the means to bypass the linear IT sourcing process of the past in favor of agility. The greatest paradigm shift in IT since the Internet’s ubiquity has not been purely tactical, but rather a strategic means of effectively shifting innovation paradigms in the manner undertaken by Harvard Medical School in immunogenomics or how the International Space Station now aligns its solar arrays to capture energy within highly prescribed limitations. [topcoder] undertook both projects with extreme value outcomes. Traditional innovation between four walls no longer suffices for a company to compete on equal footing with adaptive competitors around the globe. Why? Because its four walls are gone. Outside lies a big world with hundreds of thousands of experts ready to solve its most pressing business challenges. The promise of IT sourcing has never been as strategic and accessible.

Build to adapt. Crowdsource to force multiply your own enterprise’s talent. Remain agile. Examine your strategies in terms of the long game. Seize your pot of gold.

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