Rethinking I.T. Strategic Sourcing

My client came to me the other day and asked me to put together a category management plan for the company’s Information Technology Department for the next 18 months.

Always helpful, my client who is a senior leader in the company’s finance department, put his thoughts on paper regarding the various areas of I.T. that could benefit for a strong sourcing and procurement presence. However, when I looked at the list the first item that popped up was the company data center and its co-location facility, I kind of had to shake my head.

While looking at how procurement can work with an I.T. infrastructure team in reducing costs for servers, storage appliances, networking gear, and telecom is a no-brainer, my client forgot that the company is beginning to migrate its data center to the cloud next month. Within the next 6-12 months, there will be no more data center. (Cue sad trombone music)

It got me to thinking about how IT Strategic Sourcing pros need to reflect on the changing landscape of technology, and how we need to both lead and support our stakeholders in I.T.

We all know the big changes that have occurred over the past several years in the enterprise technology space. The jump to the cloud, supporting the end-user via outsourced, off-shore MSPs, and SaaS platforms are just a few. But when thinking about I.T. as a category, and how it should be managed, what should be doing differently from what we’ve done in the past?

SupplierRelationship Management is as important as ever – As companies continue to outsource key technology resources to remain lean and effective, its vital to have constant and effective communications with your business-critical vendors. As technology rapidly changes, the resources supporting that technology may need to change as well. I.T. leaders and their strategic sourcing partners need to know in real-time if SLAs are being met, if there are any skill gaps in the talent a supplier is bring to the table, and ensure that the supplier has a qualified bench of personnel who can jump into the mix when a new technology is deployed. And as the marketplace of MSPs increases, the opportunity to negotiate rate cards downward increases. Sourcing must regularly be benchmarking hourly rates for developers, DBAs, help desk talent and the like.

Another aspect of SRM that needs to be pushed is innovation. The large MSPs have thousands of clients and have a pulse of the innovative, game changing trends in dozens of industries. Working closely with your supply base can provide ample opportunity to co-innovate applications, processes, and strategies that automate day to day activities, reduce overhead, and utilize budding technologies to get products and services to market faster.

Long Term Relationships, Short Term Contracts – I am a huge advocate for consolidating suppliers in the Information Technology space as much as possible. The outsourcing landscape is constantly changing, so retaining the flexibility to change direction rapidly is key. Of course that can be difficult to do when different leaders in I.T., such as Enterprise, Commercial, and Infrastructure, have maintained relationships with their preferred suppliers for years. But it makes sense to leverage the most strategic suppliers in your organization’s portfolio and get the most from their wide swath of technological expertise.

And, with the ever-changing needs of a business’ tech requirements, gone should be the days of multiple year contracts. Depending on the size and scope of a particular project, contracts can be shortened to six to twelve months. This applies pressure on those key suppliers to stay on time for deliverables and budget and offers the business the convenience of swapping out resources, or switching to a secondary supplier should the need arise.

Yes, the burden of managing contracts and processing purchase orders will increase, but with the improvement of automation tools in the sourcing and contracting space, this can be managed so that category managers are not overwhelmed with day to day paperwork minutiae.  

Focusing on the value proposition – Particularly in I.T., it is not always in an organization’s best interests to award contracts based on lowest bid price alone. Instead, sourcing and their business stakeholders should award contracts based on the principal of creating and sustaining value, while balancing cost factors and quality of delivery. An organization can secure suppliers with whom they can innovate to transform the underlying costs and value of IT services. This will help to achieve meeting annual savings targets and optimize the contribution of the supply base to the organization’s strategic objectives. By awarding contracts based on ‘lowest price’ only, organizations may miss opportunities to work with IT product and service suppliers who offer superior technical expertise, longer-term “shift right” opportunities, and longer-term strategic relationships.

Obviously, I am just scratching the surface here. Service level agreements need to be rethought in the new technology landscape. The opportunity to crowdsource and insource I.T. activities are more achievable than ever. And without a doubt, I.T. management needs to be brought along to a new way of thinking about their suppliers, technology delivery, and how to go about getting the most value out of their budget. Now is a great time to have a discussion with Source One about how our experts can transform your InformationTechnology Sourcing strategies.