How do you take your information technology (IT) procurement beyond price negotiation and vendor management?
In this month’s SmartProcurement, Ronald Flockhart, Group Head: Sourcing and Category Management at First National Bank, takes a look at creating a meaningful and relevant IT sourcing strategy that considers long-term, holistic perspectives to maximise enterprise value, while minimising costs and optimising risk exposure.
The analogy of baking a great cake is appropriate. Most cakes have some foundational ingredients that are, typically, found in most recipes: flour, butter, sugar, eggs and milk. For people on special diets, these basic ingredients are often substituted for something similar.
It is the same with an IT sourcing strategy: there are a couple of core ingredients that, when leveraged, will better your chances of creating a meaningful and implementable sourcing strategy.
1. Consult your stakeholders
It is crucial that stakeholders are given the opportunity to shape the sourcing strategy and its development to better address their needs and concerns. I have seen many examples where developed IT sourcing strategies have been textbook showcases. However, these strategies are totally inappropriate to the context and maturity of the organisation that they were drafted for. To use our cake analogy again, I might make the perfect chocolate cake only to discover that my stakeholders prefer vanilla. Worse, this “death by chocolate” cake might be totally inappropriate because the recipient is diabetic and cannot consume sugar. Not gathering stakeholder input is a risk.
Another big reason to consult with stakeholders is that you are likely to find out if there are divergent views and expectations of what the sourcing strategy should entail. There might be different aspirations for the IT sourcing strategy amongst key individuals. A good IT sourcing strategy can immediately add benefit if it finds a way to consolidate common themes built on these expectations.
Conducting stakeholder interviews will allow you to gather input on scope, the approach, budget and schedule (timeframes).
2. To understand opportunities, you need to understand problem statements
This part I am sure you are familiar with already: understanding your internal and external drivers (sphere of problems) will generate implications for IT and sourcing, and inspire opportunities to innovate (sphere of opportunities). Opportunities will be influenced by an organisation’s appetite for IT spend and risk. As you work through your strategy development, problems will become opportunities, and eventually solutions, that will form your sourcing strategy.
Wow, what a mouthful… So, how do you go from defining problem statements to recognising opportunities and solutions?
• Collect and analyse data on various business and external drivers. Everything from understanding your existing IT landscape, business drivers, budgets, contracts, categories (and how categories are segmented), external factors and risks.
• Evaluate the implications of all of these drivers on IT and sourcing, identify innovative opportunities to capitalise on the drivers using new technologies or services, and assess the organisation’s willingness to pursue and invest in the proposed innovations.
• Validate and summarise your findings and then create a summary strategy document.
There are many tutorials and publications that you can find covering these topics in greater detail.
The only other point here is: this exercise requires that you set aside appropriate time to do this effectively.
3. The secret sauce
Most good bakers have little tricks that make their cakes great. For example, it could be something like always mixing the sugar and butter first or using half-a-cup of cold black coffee in a chocolate cake. It is the same with a great IT sourcing strategy.
In my opinion, what separates good from great IT sourcing strategies is to map out the transitional activities in incremental steps. Let us look at an example: one of the opportunities is to bring the previously offshore testing capability from an international outsourced partner back to onshore and internal to a company. If you just cancel the contract with the outsourced partner and immediately transition, this strategy is doomed to fail. One should rather consider each transition step. Perhaps start by doing an assessment of the internal testing capabilities, source testing automation tools, source testing training and development programmes, and source key testing individuals that can lead the migration back to onshore. The point being that, getting from eggs, milk, sugar and butter to a cake, does not happen by just throwing all the ingredients into a bowl and in one go! You would start by getting all the ingredients and utensils together, and then putting on the oven to 180°.
The best IT sourcing strategies explain the transitional activities and build on small incremental journeys.
On a final note: remember to apply strategy mapping techniques. It is something that can really help. Strategy maps can be simple or very advanced. I would encourage you to read up on and try some of the techniques. The underlying thinking associated with these methods can save you a lot of time and you can really talk around a topic by just following the recipe in your head.
See you soon at the great sourcing bake-off!