Make way for new suppliers on the block! Part II

Imtech is an example of a (Dutch) Tier 3 supplier which has been successful in closing several considerable IT deals (e.g. deal of 124 million euro). One of their success factors in my opinion is their diversification strategy. They are not only strong in IT, but also in engineering disciplines like Mechanical and Electronics. This has three benefits:

• Delivering engineering services to for example companies active in the automotive industry ensures Imtech has solid knowledge of that vertical, which can be leveraged on by the IT discipline.
• The disciplines Mechanical Engineering, Electronics and IT are fusing increasingly together within many types of industry, requiring cross functional knowledge to deliver maximum added value as a company (or partner with other suppliers).
• Having a contract with a company to provide electronic systems to control the chemical processes of a company, ensures there is an existing relationship the account managers of the other disciples can build on. Increasing the work scope with an existing client requires in general much less effort compared to establishing a relationship with a new client.

Does this mean that all suppliers should follow this strategy? No, of course not, but it is certainly one of the strategies smaller supplier can use to compete with the big IT suppliers as IBM, Accenture, Atos Origin, CSC, TCS, Wipro and so on.

As stated in the previous post is an important USP of smaller suppliers their agility and capability to deliver new innovations to the market faster. With companies looking increasingly for solutions which allow them to become more competitive in the market place instead of solely looking for solutions op optimize the efficiency of back office processes (e.g. ERP), many opportunities are out there which the Tier 1 and 2 players find difficult to provision. This is why many (even larger) companies these days make two adjustments in their sourcing strategy:

• Mix large, efficiency focused contracts and single vendor contracts, with smaller contracts allocated to multiple suppliers (‘multi vendor’)
• Engage with niche players which can provide in the companies need to improve its flexibility, agility and speed to market

The main differences between the traditional ‘old school’ supplier and the ‘new kids on the block’ suppliers in my opinion:

• Economics for old school suppliers is based on high fixed cost make large volumes essential to achieve low unit cost; economies of scale are key. Culture shaped by the continuing battle for scale; rapid consolidation, a few big players dominate. Competition is cost focused; stressed standardization, predictability and efficiency.
• Economics for new entry suppliers is based on focusing on early market entry with new solutions enables charging premium prices and acquiring large market share, speed and innovation are key. Culture shaped by the battle for talent, low entry barriers, many small players can thrive. The competition is employee centered, coddling the creative stars which create the new solutions.

The trick for the company which wants to outsource is to create a sourcing strategy which can leverage on the strong points of both types and the capability to integrate the offerings within the internal organization.