2016 CEO Outlook: Engage in External Partnerships

In today’s aggressively competitive business environment, fostering innovation is a top strategic priority for CEOs, who know they can’t go it alone as disruptive technologies — from automation and data analytics to robotics — evolve at warp speed. According to the KPMG 2016 CEO Outlook, two-thirds of CEOs are turning to partnerships as they implement the technologies that can give their products and services a competitive edge. They are also building alliances with external parties such as suppliers, start-ups, and academic and research institutions to drive innovation.

With this “need for speed” and the quick rise of disruptive technologies, it has become increasingly difficult for companies to “build” or “buy” because those efforts require a costly process of going through an entire business case, says Dave Brown, Global Lead, Shared Service & Outsourcing Advisory at KPMG — including determining the dynamics that go into developing and integrating the practice or solution and then building out the actual training, finding people, and worrying about protection and reinvestment. As a result, companies are now looking to leverage third-parties that already have solutions and continue to invest in next-generation solutions. “We’re seeing this more than ever, because it offers an easier way to be flexible and agile, to turn up or turn down, and react faster to marketplace changes” he explains. 

One example is automation: companies such as banks are becoming less likely to push buying licenses to implement automation software, such as for credit card transaction processing, and are instead going to third-parties to “solution” it for them, soup to nuts. “They leverage software tools and say, ‘We want you to stay up-to-date on the technology enhancements coming in the next three, six or twelve months because we know the marketplace will change that quickly,” Brown explains. “They don’t want to constantly revamp skill sets when new technology emerges — they can just leverage a third party.”

The CIO as Solution Architect

This rise in third-party partnerships requires the CIO to help CEOs and the organization work toward developing the right external partnerships, as well as to deal with accompanying security and governance issues.

“This is becoming close to the Wild West,” says Brown. “You now have many business unit owners who are able to go externally to market and select solutions that are technology enabled — we saw a little bit of that with cloud, with business units buying up storage with their company credit cards.” Now, with automation toolsets and BPaaS (business process as-a-service), it’s going to be important for the CIO to become that solution architect, to make sure the organization has security protocols in place and that third-parties are vetted. “The CIO can play a role in enterprise service management now that there are so many players in one end-to-end process,” he says.

External collaboration to drive innovation

Companies are forming partnerships of all kinds — including with their competitors, who may be at the same time suppliers, universities, or start-ups. Even customers are becoming part of the innovation process, which results in a diffusion of power and responsibilities, while CEOs find themselves managing and monitoring an incredibly complex ecosystem that extends far beyond the walls of their business.

To drive innovation, organizations are even turning to non-traditional third-parties such as colleges and universities, as well as niche research firms. “Companies are looking for non-traditional partners that can come in and do proof of concept work,” says Brown. One example, he explains, is a client in the pharmaceutical space doing a great deal of work around technology automation and cognitive machine learning for their solutions. As a result, they are eliminating a lot of entry-level positions, resulting in a concern: “If they are eliminating entry-level positions, are they creating a new kind of entry-level position? If so, what are the succession planning requirements? What organizational structure will be put in place? What management structures need to be there? What skills sets does the company need to build off of?” The company turned to colleges to conduct behavioral change research and proof of concept work on these issues. 

“It’s important to remember that disruptive technologies can also be disruptive to people’s careers — there is a human side to this,” says Brown. “Managing these issues in an agile way is real innovation.” The next three to five years will require these types of creative solutions, as organizations learn how to compete not just incrementally, but across the enterprise and the entire company’s growth strategy, he adds: “That’s something a lot of people have missed with the excitement around automation and robots.” 

CIO can bridge the gap across the business

As external partnerships become a must for organizations looking to innovate faster, more and more companies are moving to a CIO with a full, well-rounded understanding of the business as a whole. “We’re having a lot of conversations with companies moving to a CIO with a business role where they take someone from the business or from another back-office area, such as finance, that has a broader view of the organization, while a CTO focuses on the technology side,” says Brown. That new CIO can work on orchestrating different solutions as the architect, with the proper governance, with a full understanding of the impact a solution may have on some other business unit.

“That’s where the CIO can add significant value,” he says. “The CIO is able to bridge that gap across the entire organization.”

Interested in learning more about how organizations are utilizing third-party IT services to align or realign their contracts and meet their true business objectives? Listen to KPMG’s The art of IT contracting podcast and visit the KPMG Shared Services and Outsourcing Institute for further insights.