MITSloan Management Review The Long-Tail Strategy for IT Outsourcing WINTER 2016 IT outsourcing used to be driven by cost savings.Today,it's also driven by a need for innovation-and some leading companies are reinventing their supplier portfolios to achieve that goal. Ning Su Natalia Levina Jeanne W.Ross Vol.57,No.2 Reprint#57206 http://mitsmr.com/1Py2lxN
WINTER 2016 Ning Su Natalia Levina Jeanne W. Ross The Long-Tail Strategy for IT Outsourcing IT outsourcing used to be driven by cost savings. Today, it’s also driven by a need for innovation — and some leading companies are reinventing their supplier portfolios to achieve that goal. Vol. 57, No. 2 Reprint #57206 http://mitsmr.com/1Py2lxN
INFORMATION TECHNOLOGY The Long-Tail Strategy for IT Outsourcing IT outsourcing used to be driven by cost savings.Today,it's also driven by a need for innovation-and some leading companies THE LEADING are reinventing their supplier portfolios to achieve that goal. QUESTION How can BY NING SU,NATALIA LEVINA,AND JEANNE W.ROSS companies structure IT outsourcing to deliver innovation? TODAY'S RAPID PACE of technological change has fundamentally transformed global IT outsourcing.Traditionally viewed as a cost-saving measure,IT outsourcing is increasingly lever- FINDINGS Combine a few key aged as a strategic tool for acquiring cutting-edge innovation.Many companies are expanding partnerships with their portfolios of IT suppliers to include smaller,highly innovative companies.This pursuit of many smaller contracts. emerging technologies and capabilities,however,has elevated the complexity of managing sup- Create incentives for plier portfolios.The outsourcing practices that companies have been maturing in the past decade new niche suppliers. are under a new level of duress.Today,organizations need to reimagine IT outsourcing strategies ●Pay attention to governance of the in increasingly turbulent business environments. supplier portfolio. The Downside to Traditional Outsourcing In the past,companies have been advised to op- timize their portfolios of IT service providers by relying on several major partners with extensive technology and industry experience'while lim- iting the number of ad hoc suppliers.To mitigate the significant lock-in risk associated with such a portfolio,companies have been advised to use shorter-term contracts with well-designed in- centives.Collectively,this limited set of partners could offer a comprehensive and complemen- tary set of capabilities,while competition among partners could motivate them to invest time and resources in the client.By centrally managing this"optimized"portfolio,a company could achieve the economies of scale necessary for low cost and high efficiency. Although this approach to outsourcing was designed to ensure economies of scale and gain efficiency,?companies also hoped that their out- sourcing partners would introduce innovative technologies and associated services.3 Few PLEASE NOTE THAT GRAY AREAS REFLECT ARTWORK THAT HAS BEEN INTENTIONALLY REMOVED. WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 81 THE SUBSTANTIVE CONTENT OF THE ARTICLE APPEARS AS ORIGINALLY PUBLISHED
WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 81 TODAY’S RAPID PACE of technological change has fundamentally transformed global IT outsourcing. Traditionally viewed as a cost-saving measure, IT outsourcing is increasingly leveraged as a strategic tool for acquiring cutting-edge innovation. Many companies are expanding their portfolios of IT suppliers to include smaller, highly innovative companies. This pursuit of emerging technologies and capabilities, however, has elevated the complexity of managing supplier portfolios. The outsourcing practices that companies have been maturing in the past decade are under a new level of duress. Today, organizations need to reimagine IT outsourcing strategies in increasingly turbulent business environments. The Downside to Traditional Outsourcing In the past, companies have been advised to optimize their portfolios of IT service providers by relying on several major partners with extensive technology and industry experience1 while limiting the number of ad hoc suppliers. To mitigate the significant lock-in risk associated with such a portfolio, companies have been advised to use shorter-term contracts with well-designed incentives. Collectively, this limited set of partners could offer a comprehensive and complementary set of capabilities, while competition among partners could motivate them to invest time and resources in the client. By centrally managing this “optimized” portfolio, a company could achieve the economies of scale necessary for low cost and high efficiency. Although this approach to outsourcing was designed to ensure economies of scale and gain efficiency,2 companies also hoped that their outsourcing partners would introduce innovative technologies and associated services.3 Few The Long-Tail Strategy for IT Outsourcing IT outsourcing used to be driven by cost savings. Today, it’s also driven by a need for innovation — and some leading companies are reinventing their supplier portfolios to achieve that goal. BY NING SU, NATALIA LEVINA, AND JEANNE W. ROSS INFORMATION TECHNOLOGY THE LEADING QUESTION How can companies structure IT outsourcing to deliver innovation? FINDINGS Combine a few key partnerships with many smaller contracts. Create incentives for new niche suppliers. Pay attention to governance of the supplier portfolio. PLEASE NOTE THAT GRAY AREAS REFLECT ARTWORK THAT HAS BEEN INTENTIONALLY REMOVED. THE SUBSTANTIVE CONTENT OF THE ARTICLE APPEARS AS ORIGINALLY PUBLISHED
INFORMATION TECHNOLOGY business and IT leaders,however,are satisfied with to prosper in turbulent business environments.This the level of innovation introduced by their suppliers. strategy requires a carefully designed governance Yet today,more than ever,as rapid technological framework that rewards best-performing suppliers changes disrupt industries,established companies by increasing the client's commitment while specify- need access to fresh ideas,new technologies,and cut- ing a set of policies and architectural requirements ting-edge expertise.In IT,these capabilities are often for partners.The small set of key partners assists the found among smaller,more agile suppliers.3 This is client in operating core technologies and business not surprising,as the very idea behind disruptive in- processes while integrating the local,temporary,or novation is that many established players tend to experimental capabilities of long-tail suppliers into ignore disruptive changes to their business until the company's architecture.If orchestrated effec- newer companies replace their products and services tively,this strategy can turn into a reality the by providing better value to customers.In response, seemingly unattainable twin goals of introducing savvy business leaders are devising far more proactive innovation while ensuring cost and efficiency. outsourcing practices and are not just relying on a stable,limited set of technology partners to identify Leveraging the Long Tail for Technology Leader- and introduce innovations. ship Global Bank(not its real name)is one of the These proactive practices,however,conflict with largest global financial services companies and has many companies'aspirations for consolidating been ranked among the world's most innovative their IT supplier portfolios.Having encountered investment banks multiple times by financial industry the pain of managing multiple suppliers in the associations.Global Bank has a history of pioneering past,many companies,especially those with a cutting-edge technologies in financial services.For de- well-established sourcing-management office, cades,IT outsourcing was considered a strategic tool have created policies that mandate contracting only by the company.An early adopter of global sourcing, with a small group of strategic partners.Yet even in the bank began pursuing a global sourcing strategy in such companies,business-unit leaders tend to cir- the 1980s.In the decade that followed,Global Bank cumvent policies and engage the services of niche, partnered with a small set of major IT service compa- value-adding suppliers to keep up with technologi- nies in both onshore and offshore locations.These cal changes critical to their units'competitiveness. suppliers provided IT support and maintenance for This often results in a large set of shadow suppliers the bank's worldwide business.The bank's corporate working on smaller,fragmented projects,often policies focused on promoting these key relationships under the radar of sourcing-management offices so as to achieve efficiency in operations. and enterprise architects.Absent systematic orches- In the 2000s,however,with the rapid matura- tration and proper incentives,companies will miss tion of offshore IT service markets,the bank started the opportunity to integrate the local innovations adding new outsourcing relationships to include of these diverse suppliers into the organization. suppliers from new regions,as well as smaller,local suppliers offering new capabilities.In addition, The Long-Tail Strategy through mergers and acquisitions,the bank ac- In this article,we introduce a"long-tail"strategy for quired organizations that had their own supplier IT outsourcing.(See"About the Research.")This in- relationships.This diverse portfolio,often includ- novative I'T-outsourcing model combines a few key ing hundreds of suppliers within the same service partnerships with a dynamically changing and unre- category,allowed the bank to tap into new sources stricted number of smaller contracts with other of value and to access"best-of-breed"skills and tal- suppliers to deliver specific value propositions ent across the globe.At the same time,much beyond the capabilities of the key partners.Repre- redundancy existed among the suppliers,and sig- senting a dynamic,diversified,and yet disciplined nificant value was left on the table due to unrealized approach toward outsourcing,the long-tail strategy economies of scale,scope,and expertise.The col- embraces and even fosters a flow of new suppliers of- lective cost of managing transactions with this fering new capabilities that can enable the company diversified portfolio of suppliers was also very high. 82 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU
82 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU INFORMATION TECHNOLOGY business and IT leaders, however, are satisfied with the level of innovation introduced by their suppliers.4 Yet today, more than ever, as rapid technological changes disrupt industries, established companies need access to fresh ideas, new technologies, and cutting-edge expertise. In IT, these capabilities are often found among smaller, more agile suppliers.5 This is not surprising, as the very idea behind disruptive innovation is that many established players tend to ignore disruptive changes to their business until newer companies replace their products and services by providing better value to customers.6 In response, savvy business leaders are devising far more proactive outsourcing practices and are not just relying on a stable, limited set of technology partners to identify and introduce innovations. These proactive practices, however, conflict with many companies’ aspirations for consolidating their IT supplier portfolios. Having encountered the pain of managing multiple suppliers in the past, many companies, especially those with a well-established sourcing-management office, have created policies that mandate contracting only with a small group of strategic partners. Yet even in such companies, business-unit leaders tend to circumvent policies and engage the services of niche, value-adding suppliers to keep up with technological changes critical to their units’ competitiveness. This often results in a large set of shadow suppliers working on smaller, fragmented projects, often under the radar of sourcing-management offices and enterprise architects. Absent systematic orchestration and proper incentives, companies will miss the opportunity to integrate the local innovations of these diverse suppliers into the organization. The Long-Tail Strategy In this article, we introduce a “long-tail” strategy for IT outsourcing. (See “About the Research.”) This innovative IT-outsourcing model combines a few key partnerships with a dynamically changing and unrestricted number of smaller contracts with other suppliers to deliver specific value propositions beyond the capabilities of the key partners. Representing a dynamic, diversified, and yet disciplined approach toward outsourcing, the long-tail strategy embraces and even fosters a flow of new suppliers offering new capabilities that can enable the company to prosper in turbulent business environments. This strategy requires a carefully designed governance framework that rewards best-performing suppliers by increasing the client’s commitment while specifying a set of policies and architectural requirements for partners. The small set of key partners assists the client in operating core technologies and business processes while integrating the local, temporary, or experimental capabilities of long-tail suppliers into the company’s architecture. If orchestrated effectively, this strategy can turn into a reality the seemingly unattainable twin goals of introducing innovation while ensuring cost and efficiency. Leveraging the Long Tail for Technology Leadership Global Bank (not its real name) is one of the largest global financial services companies and has been ranked among the world’s most innovative investment banks multiple times by financial industry associations. Global Bank has a history of pioneering cutting-edge technologies in financial services. For decades, IT outsourcing was considered a strategic tool by the company. An early adopter of global sourcing, the bank began pursuing a global sourcing strategy in the 1980s. In the decade that followed, Global Bank partnered with a small set of major IT service companies in both onshore and offshore locations. These suppliers provided IT support and maintenance for the bank’s worldwide business. The bank’s corporate policies focused on promoting these key relationships so as to achieve efficiency in operations. In the 2000s, however, with the rapid maturation of offshore IT service markets, the bank started adding new outsourcing relationships to include suppliers from new regions, as well as smaller, local suppliers offering new capabilities. In addition, through mergers and acquisitions, the bank acquired organizations that had their own supplier relationships. This diverse portfolio, often including hundreds of suppliers within the same service category, allowed the bank to tap into new sources of value and to access “best-of-breed” skills and talent across the globe. At the same time, much redundancy existed among the suppliers, and significant value was left on the table due to unrealized economies of scale, scope, and expertise. The collective cost of managing transactions with this diversified portfolio of suppliers was also very high
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 83
SLOANREVIEW.MIT.EDU WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 83 As the global supply market matured, the costs of such fragmentation and redundancy became increasingly 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, businessunit leaders continued to enter into small-scale contracts with new suppliers, justifying their actions 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 businessunit managers to discover and experiment with new suppliers. In this process, two issues had to be addressed. The first was how to avoid adding suppliers that did not bring unique capabilities but were added to the mix because of the local manager’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 partnerships. 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 governance 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 managers 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 whomever they wanted — do small projects offshore so that people see that it works and then encourage 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 longterm 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 enabled 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 services industry, since they automated standard industry processes. Legal agreements were negotiated as to how the supplier could sell these new software “assets” and related services while rewarding 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 supplier’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 services, technology, manufacturing, and energy sectors. The financial services industry, as a pioneer of global IT outsourcing, represented a main context of the study
INFORMATION TECHNOLOGY works.We have shown a lot of commitment Leveraging the Long Tail for Rapid Innovation to [Global Bank]in terms of making The long-tail strategy can help multinationals tap investment[s]in people and time. into the latest technologies,but in order to do so more rapidly than the competition,this strategy re- The final piece of this new approach was that pro- quires strong technology design and architecture gram managers evangelized their success stories capabilities.Toyota Motor North America Inc.has across the organization,promoting"their"successful outsourced 80%of its IT workforce,which has suppliers among other business units.Through this enabled the company to cut information-systems distributed decision-making process,a portfolio of support costs.s Several strategic partnerships are preferred suppliers emerged.The portfolio was regu- critical for maintaining the organization's com- larly evaluated by the bank's sourcing-management modity technologies and implementing office,which identified the top-performing suppliers incremental improvements.However,Toyota across the company.The top suppliers were then Motor North America's management recognized shortlisted in subsequent contracts.Over the years, that,while their core partners consistently pro- some of these"new"suppliers were promoted to the vided efficient infrastructure services and legacy list of key strategic partners.This set of strategic part- systems support,the company also wanted to lever- ners still accounted for the majority of Global Bank's age emerging technologies-often based in the IT-outsourcing activities. public cloud-to offer new services to dealers and This distributed,internal championing process consumers.Thus,management looked to smaller, enabled Global Bank to foster and proactively more agile suppliers to address their pressing need manage an influx of diverse suppliers that offered for innovation,especially in customer-facing areas. unique value propositions.Instead of seeking The consumer portal delivery(CPD)group at Toy- a static portfolio with an“optimal”number ota Motor North America was responsible for the of limited suppliers,the long tail of suppliers consumer-facing Web portal一a“big ecosystem” continually brought in new capabilities and tech- accommodating users with diverse digital devices. nologies.The diversified portfolio also helped CPD's unique technology requirements led to new hedge the risk of lock-in with strategic partners. kinds of supplier arrangements for Toyota-in The long-tail strategy,however,incurred a signifi- particular,working on one-off projects with na- cant total cost to coordinate a large set of suppliers.? scent startups instead of long-term engagements This cost was somewhat mitigated by the fact that with major partners.As Zack Hicks,chief informa- the sourcing-management office not only man- tion officer and group vice president of Toyota aged the core group of strategic partnerships but Motor North America,said: also provided support for contracting with new suppliers. CPD needs vendors that can build very quickly, As a result of the long-tail strategy,Global Bank and then tear it down the next day.And we are was able to rapidly tap into nascent supply markets dealing with smaller shops.When you were first in the mid-2000s,obtaining a first-mover advan- able to spin a car graphic,there were only a cou- tage in the global race for capability and talent.As ple of shops that could do it,and most of those digital disruption became a key concern in the last guys were working out of their garage. decade,the long-tail strategy enabled Global Bank to proactively scan and experiment with new tech- Such sourcing arrangements have demanded nology offerings from smaller,more agile suppliers, new governance approaches,because integrating allowing it to emerge as an industry leader of digital the services of these small suppliers into a seamless innovations such as enterprise social media,cloud customer experience requires access to enterprise computing,mobile technologies,and crowdsourc- data.In the past,developers supporting Toyota ing.Today,Global Bank continues relying on the Motor North America's consumer portal delivery long-tail strategy to stay at the cutting edge of group tended to create multiple new databases for global technological innovation. the applications they created locally.In the new 84 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU
84 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU INFORMATION TECHNOLOGY works. We have shown a lot of commitment to [Global Bank] in terms of making investment[s] in people and time. The final piece of this new approach was that program managers evangelized their success stories across the organization, promoting “their” successful suppliers among other business units. Through this distributed decision-making process, a portfolio of preferred suppliers emerged. The portfolio was regularly evaluated by the bank’s sourcing-management office, which identified the top-performing suppliers across the company. The top suppliers were then shortlisted in subsequent contracts. Over the years, some of these “new” suppliers were promoted to the list of key strategic partners. This set of strategic partners still accounted for the majority of Global Bank’s IT-outsourcing activities. This distributed, internal championing process enabled Global Bank to foster and proactively manage an influx of diverse suppliers that offered unique value propositions. Instead of seeking a static portfolio with an “optimal” number of limited suppliers, the long tail of suppliers continually brought in new capabilities and technologies. The diversified portfolio also helped hedge the risk of lock-in with strategic partners. The long-tail strategy, however, incurred a significant total cost to coordinate a large set of suppliers.7 This cost was somewhat mitigated by the fact that the sourcing-management office not only managed the core group of strategic partnerships but also provided support for contracting with new suppliers. As a result of the long-tail strategy, Global Bank was able to rapidly tap into nascent supply markets in the mid-2000s, obtaining a first-mover advantage in the global race for capability and talent. As digital disruption became a key concern in the last decade, the long-tail strategy enabled Global Bank to proactively scan and experiment with new technology offerings from smaller, more agile suppliers, allowing it to emerge as an industry leader of digital innovations such as enterprise social media, cloud computing, mobile technologies, and crowdsourcing. Today, Global Bank continues relying on the long-tail strategy to stay at the cutting edge of global technological innovation. Leveraging the Long Tail for Rapid Innovation The long-tail strategy can help multinationals tap into the latest technologies, but in order to do so more rapidly than the competition, this strategy requires strong technology design and architecture capabilities. Toyota Motor North America Inc. has outsourced 80% of its IT workforce, which has enabled the company to cut information-systems support costs.8 Several strategic partnerships are critical for maintaining the organization’s commodit y technolog ies and implementing incremental improvements. However, Toyota Motor North America’s management recognized that, while their core partners consistently provided efficient infrastructure services and legacy systems support, the company also wanted to leverage emerging technologies — often based in the public cloud — to offer new services to dealers and consumers. Thus, management looked to smaller, more agile suppliers to address their pressing need for innovation, especially in customer-facing areas. The consumer portal delivery (CPD) group at Toyota Motor North America was responsible for the consumer-facing Web portal — a “big ecosystem” accommodating users with diverse digital devices. CPD’s unique technology requirements led to new kinds of supplier arrangements for Toyota — in particular, working on one-off projects with nascent startups instead of long-term engagements with major partners. As Zack Hicks, chief information officer and group vice president of Toyota Motor North America, said: CPD needs vendors that can build very quickly, and then tear it down the next day. And we are dealing with smaller shops. When you were first able to spin a car graphic, there were only a couple of shops that could do it, and most of those guys were working out of their garage. Such sourcing arrangements have demanded new governance approaches, because integrating the services of these small suppliers into a seamless customer experience requires access to enterprise data. In the past, developers supporting Toyota Motor North America’s consumer portal delivery group tended to create multiple new databases for the applications they created locally. In the new