Four Tips For Doing a BTO Deal

Look in the mirror, and clearly define your goals and objectives. What are your strategic goals and requirements? What’s core to success in your business, and what’s not? What technology innovation do you need to leverage during the next five years to compete successfully? Develop a vision that includes a technology investment road map and a clear understanding of the transformation you want to achieve.

Develop the right deal structure. Leverage an experienced third party to help you design the right structural deal framework. Give the vendor financial incentives for finding creative ways to drive technology innovation to support your business. Set strategic goals in addition to financial targets, and measure success by outcomes rather than inputs. Use a gain-sharing mechanism to achieve the right risk-reward balance.

Build strong relationships and governance. Find a BTO vendor that fits your value system and one for whom you will be a significant (but not necessarily the biggest) client. Build strong relationships between your executives and the vendor’s. Treat it like a partner, let it make mistakes, and take a long-term view on sharing risk and reward. Bake flexibility into the governance mechanism so that you can modify the agreement as you go.

Keep control. Retain control over core strategy, planning, decision making, product definition and key IT outcomes. Focus on retaining and motivating key internal IT talent. Make sure your vendor is precluded from working with your key competitors. And take your time to make decisions when negotiating the deal—there’s a lot at stake in getting it right!

-D.M.