Episode 9: What Clients Expect from IT Vendors

Anni Tabagua: Welcome to BizTech Forward, your go-to podcast for cutting-edge insights at the intersection of business and technology. Let's move forward together. Welcome back to season two and a new episode of BizTech Forward. I'm your host, and today's episode is all about clients, specifically client expectations from IT vendors. What did clients want from vendors ten years ago? What do they expect now?

To discuss all of that, I'm joined by Mike Peterson, former CTO at the API Institute and Travelzoo, and now a trusted advisor. Hi, Mike.

Mike Peterson: Hey, Anni. How are you today?

Anni Tabagua: I'm pretty good, thank you. Mike is a seasoned technology executive and advisor with years of experience leading large tech companies through transformation. What sets him apart is his unique experience as an executive on both sides - the buy side and the sell side of consulting and product companies. This dual perspective gives him a deep understanding of how businesses evaluate, implement, and derive value from technology solutions.

So, Mike, welcome to the show. I'm really excited to talk to you.

Mike Peterson: As I am to share what I know.

Anni Tabagua: Great. Then let's jump right in. Mike, as I mentioned, you have loads of experience, and you've been on both sides of the table - the client side and the vendor side. So, my first question to you is, what do you think is the biggest change in what clients expect from IT vendors today compared to, say, ten years ago?

Mike Peterson: I think the fundamentals are still the same. When you get an outsource vendor, you want them to bring the best tech talent they can bring and people who have domain knowledge. I think they look for value, and sometimes that's the cost value. But really, value is determined by cost plus skills - the best skills for the best cost.

That's what you always look for, and you want folks that are good at communicating. So communication is really important. The things that have changed is I think clients are more inclined to a hybrid team. I would say ten or fifteen years ago, it was really about staff augmentation. There were certain groups, big vendors that would come in and do project-based stuff, but the majority of it was just staff augmentation.

Another thing that's changed significantly is the acceptance of remote teams, particularly after the pandemic. People are far more accepting of remote teams now. Ten or fifteen years ago, there were probably two or three places you'd look for offshore or nearshore talent - India, EU, Ireland particularly, China in some cases. In one company I was with, we sourced a lot from Israel and Germany because we were a networking company. But with the pandemic, if you looked at the staff we put together, we had people in 20 different countries, which is remarkable.

This shows two things: people are starting to understand that good tech talent is everywhere - every country has gotten into this. And people on the buy side are excited about having that mix of cultures come in and add additional perspectives to the project.

Anni Tabagua: Was it strange at first to adjust to having people in 20 different countries work for you when we first started?

Mike Peterson: I think the difficulty - and I know we're going to talk about this in the next segment - is that when you're primarily an FTE organization, it's easier to create rapport and relationships with people you see every day in person. You get to know them. In today's world, the first time you meet people is sometimes a surprise.

I remember when I started at this one company right during the pandemic, and we decided to go all remote, even for employees. I worked with this one guy on the business side a lot, and I always pictured him as being really tall because he had this long torso when he'd sit in video calls. When I met him, he was about five-five, and I was surprised.

There's also the nuance that when you're in the room with somebody, there are body language cues and other signals. You can see the interrelationships between people, and people are generally paying attention. With everything being video, you can't tell who's really paying attention or even wearing pants.

Anni Tabagua: So that leads to where I wanted to go next. I asked about what has changed, but I also wonder - is there anything that clients miss from the "good old days"? Maybe things that were simpler or handled differently?

Mike Peterson: That's a great question. I think it's something to be aware of because there's a good possibility that a lot of people are going to be forced back into the office. People miss that human connection. Every board always asks, "Why do we have so many outsourced resources?" But when you go through the financials and explain your ability to staff up and down based on the pace of projects, they usually back off. But they always come back to it because they see it as a sort of risk.

One thing they miss is the slower pace of change. Change sort of accelerates and builds on itself. The fundamentals have stayed the same, but if you look at the things that are different now than 10 or 15 years ago, it's miraculous. We didn't have the cloud. We primarily were using relational databases. We weren't using large volumes of data. We didn't have SaaS technology or easy-to-use, self-serve analytics and BI tools.

I think the change is overwhelming at times. Whether it's the executives or the people on staff, not everybody loves change and chaos. I love it - that's what I find exciting about the field. Before I get bored, something changes.

There are also some practical things, like how executives and many people understand the whole move to data and analytics. It used to be we were well-founded in decision science, just like a spreadsheet - very factual. You could get a 100% answer. But when you moved into the type of analytics we use now, and with AI, everything's probabilistic math. You're trying to get closer and closer to accuracy, and sometimes being 80% true is what you get. I'm certain half of executives don't understand that even if they took statistics in college.

Anni Tabagua: Mike, you mentioned data briefly, and I wanted to ask you to talk more about this. Data isn't just about tech these days - it's about making decisions much faster now, isn't it?

Mike Peterson: I think we are in the era of data. The foundation of AI is data. It was probably 10 to 15 years ago when we started to move into big data and really get into data science and machine learning. That's when data became more imperative and important.

Along the way, the infrastructures got better. Compute power went from CPUs to GPUs. Instead of doing really fast serial processing using Moore's Law, you went to GPUs and got parallel processing. That's been the great push. You see this with things like Nvidia being so popular - those chips were originally for gaming, where you had to process in parallel. Somebody figured out there are other things we can do related to data and crunching numbers.

We moved out of data centers and into the cloud. Cloud storage allowed you to have a lot more data. You started thinking not in kilobytes or megabytes, but in terabytes and petabytes. You had so much data readily available, and all the techniques for cleansing that data, organizing it, and being able to access it developed.

We are in the age of data now. That's the underpinning for why we can do large language models and the type of AI that we're doing. God help us if they figure out quantum computing - when you'll be able to do a billion calculations at once.

The other thing that data has spawned is a whole new realm of cybersecurity, both on the protection side and the attack side. We have to deal with laws around the world - everybody has a privacy law. In China, they've got PIPL, we've got GDPR in Europe. Even California has its own privacy law different from the rest of the US. India has for years threatened to put something out, but I think they waited for their last election and that'll restart.

When you have these sovereign data rules and privacy requirements, you have to think differently about how you architect things and how you handle local data. We are dead in the center of the data revolution - we're neither at the beginning nor the end. But with the technology that's coming, this is only going to become more important.

Anni Tabagua: Sure. You mentioned privacy and security, and it makes me think of another word - responsibility. So I want to ask you two questions about responsibility. You often hear "you cannot outsource your core strengths." But what exactly are a company's core strengths today? For a retail company, for instance, or a hospital chain, or a financial firm, when so much is now increasingly depending on technology?

Mike Peterson: It's domain knowledge. One of the new expectations of your partners is that they walk in and understand your business. One of the things that's unique to being a technologist today versus being in the business is we not only have to understand all the technology, but we have to understand how to apply that to the business domain we're in.

The secret sauce that companies have is often the domain knowledge - how they apply a solution into their business domain. That's what makes them unique. Take CFA as an example - they're very good at credentialing and education of people who want to get the credibility of managing high-wealth individuals and assets. That's a very narrow domain knowledge that you really have to understand the nuances of in order to provide the proper technology and apply it where it needs to go.

Responsibility within a company is then protecting that domain knowledge that gives you your advantage, but also protecting your customers and clients. What kind of data do you collect from them? What do you process? How are you responsible about how you protect that, how you use that, how you share that, how you anonymize that? That is an absolute key thing within the realm of data in today's business.

Anni Tabagua: Right, Mike. And can a company outsource responsibility? In other words, can clients today really hold their vendors accountable for results and then sleep well at night, not worried about problems? Or is that never that simple because vendors rely on clients for money, clients find it too expensive to switch vendors, and so this creates a situation where neither side can push too hard?

Mike Peterson: Well, I think it comes down to trust. That's the crux of any relationship. I think a lot of that has grown with having distributed teams and hybrid teams and using video as a way to work - because you have to trust people you don't really have that personal connection with.

Some people, and this is why you're going to see a lot of people being pushed back into the office, because of how these pendulums swing. You can take anything in society or technology and there's a pendulum that swings. It says, "I'm going to go this way," and it goes so far until something happens - maybe an anomaly or two - and it scares people back the other way. They over-protect, and then realize they can't move as fast as they want to or be as dynamic as they want to. So you have to find that balance in trust.

Part of the way that a consulting firm imparts trust is through how they communicate and report against KPIs. Understanding the domain is crucial - if you're sitting in meetings, you can express results and issues in their language, relating it in a way that executives understand and trust.

Every day in our lives, we trust policemen, we trust the person who picks up the garbage. There are plenty of activities in our lives where we have to trust based on repeated success and seeing results.

Anni Tabagua: That's so interesting - you linked it back to the fundamentals that you mentioned at the very start. Trust and communication, just like it is in personal common sense.

Mike Peterson: It's real life. I have these personal three C's: communication, culture, and common sense. Common sense is the one thing that people don't rely on as much as they should. Working with hybrid teams is all about human nature and how we work together and how we apply technology. In the end, it's about working with our customers, whether that's our customers, the company's customers, or other companies. It has to have that type of relationship.

Anni Tabagua: I think, you know, I wanted to ask you from the vendor side - things are changing so much. You mentioned yourself that it sometimes feels like too much change for many clients. So change is all we've got. Technology is going at a crazy speed. How do vendors actually stay relevant without constantly playing catch-up? How can they meet all these client expectations?

Mike Peterson: I think they have to understand the reality and not the hype. Almost every company - and I'm a strong believer in the bell curve - if you look at any IT shop or company, they're probably going to be doing 10 to 20% on future things. If they're talking a lot about AI and they have this big AI movement, it's not a 100% thing. There's a small number of people who actually work on it, unless they're like OpenAI.

Probably 60% or more is dedicated to the completion of big digital transformations they're doing, or implementing a new SaaS platform, or things to support the core business that they have. That's meat-and-potatoes stuff for most technology companies. And then there's another 10 or 20% just watching over the old stuff that's still necessary but hasn't been put on the slate for change.

You can't take on too much change because it's too disruptive to your business. Most change is there to advance your business in the future. Even when you do projections on revenue, if you implement something in July or August, it's going to have relatively minimal impact on your revenue that year.

It's pretty pragmatic. As a company like DataArt, you need to come up with your formula that helps you deal with that. How many people do you have dedicated to learning or in the upskilling process that matches that transition from new effort to becoming more common? What are the skills that match up to that?

Anni Tabagua: And I want to ask you about the future a little bit. You mentioned a couple of times that we might all be forced to go back to the office, but other than that, what do you think is going to happen? Generally, but more specifically, what do you think clients will expect from IT vendors in the next couple of years?

Mike Peterson: I think the biggest expectation is related to AI. If you look at the amount of money that's pursuing AI and the number of companies trying to implement it - again, back to the hype cycle, they're way ahead of their skis, as they say. But what they expect, and the quantifiable things that boards are looking for more than anything else, are the efficiency gains and cost reductions that are going to be driven from AI.

From the business perspective of DataArt, that means having people skilled up on AI augmentation tools like Copilot and similar tools that help reduce development and test time by 10 or 15%. AI creation of test cases, monitoring and security tools - these are the things that are real and can be leveraged and provide value.

You need to be able to walk in with a staff that can bring that to bear, because a lot of companies are just throwing this at their employees. I tried to convince them that you really need to hire people out of college who have done this for the last four years and it's natural to them, then do peer programming so others can learn alongside them. But companies are just throwing it at their existing staff because they think it's really easy - "Go on ChatGPT and it'll do the coding for you" - but they don't really understand what that means.

We know what tools are really useful, and you've got to come to the client with those and be the leader, the tip of the spear, for them as they try to make that transition. That's where the efficiency is going to happen first and is happening first in companies.

Anni Tabagua: So knowledge, efficiency, common sense is what clients will always need?

Mike Peterson: And it's easy to follow and predict because just watch where the money's going. If you watch something like Bloomberg or Squawk Box, you can see who's investing in what, you can see where the VCs are putting their money. It's hard to determine who's going to win, but you know where they're spending. Typically, you know what's going to push businesses because investors aren't stupid - they're going to put their money where they have the best bet.

Anni Tabagua: Mike, I now want to ask you my last question for today, but also my favorite question I like to ask our guests - do you have any unpopular opinions on this whole topic?

Mike Peterson: I think my unpopular opinion goes back to trying to be sensible, trying to be levelheaded and not get caught up in all the hype. I've seen many people get left behind by not looking at where change is going. I've seen a lot of people fail because they overcommitted to change. So you have to know what that balance is for upskilling - where do you upskill and how do you get there?

I think the "all in" rush to ignore things because this is the new end-all-be-all - AI is that today - you've got to do it with measured steps and logical steps. There's no miracle here in learning how to do these things.

That's coupled with my pet peeve about everybody coming in to sound smart after they've gone on ChatGPT and gotten a bunch of information, then speak like they know what they're talking about. You've got to be aware of that and learn how to deal with it.

I was talking to a friend of mine who's a CIO, and they bought an AI company. They're at it right now, getting ready to get acquired by a big set of investors. Their whole push is for AI, and they have bought this AI company. I said, "Well, at least you had that segment." He said, "Yeah, but we can't get people to pay what we want them to pay to use the investment we have."

We're spending millions and millions of dollars every year on that, and the return is so nominal. That's a story that is across the market. I mean, look at the level of money going across these investments. They talk about $100 billion for Stargate - that's a lot of money.

What is the result? You need those things and that excitement to push things forward. But the actual amount of return on most of that money is going to be pretty minuscule. You just have to know what you're learning and how you can be more practical about the application.

People will start to walk away and look for the next shiny penny around the time when the usefulness of these technologies really becomes applicable.

Anni Tabagua: You're so right. It's a great reminder to differentiate between hype and reality. Mike, thank you so much. This was really interesting and insightful conversation. I really enjoyed it. Thank you for sharing all your experiences and perspectives. It's not often that we get to hear from someone who's been on both sides of client-vendor relationships.

Mike Peterson: I appreciate the invite.

Anni Tabagua: And to our listeners, thank you so much for tuning in to another episode of BizTech Forward. If you enjoyed this, please subscribe, share, like, and we always want to hear from you and your thoughts, questions, and insights. Reach out to us at biztech.forward@dataart.com. That's all for now, and we'll see you next time.

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