For your IT sourcing efforts to be successful, they must be strategic. This requires the proactive exploration of your organizational needs based on a defined business case. In the past, the lowest bid would often get the contract. Today, having a single-sourced partner based on low bid likely will not meet the needs of the organization. Instead, collaborative partnerships with IT vendors that deliver real value is a necessity. What are the key components for the most effective IT sourcing strategies that can keep organizations ahead of rapidly-changing markets?
Tactical vs. strategic sourcing — what’s the difference?
The old tactical sourcing approach of reacting to a business need by hiring an external vendor is no longer valid in an IT-driven world. The goal of the lowest possible cost typically drove these models, and many government and enterprise organizations still leverage these frameworks to get the cheapest product, quickly. Sometimes that still works, particularly if you’re considering the purchase of a tangible product such as IT hardware. However, digital transformation requires a holistic and strategic approach to define crucial technology partnerships to achieve organizational goals instead of a one-off approach.
Strategic sourcing seeks to define the outsourcing process as a partnership loop. At the front end, strategic sourcing seeks to apply an ideal vendor profile to a traditionally commoditized process. This effort is important given the level of transparency demanded from consumers. Corporate partnerships are increasingly scrutinized by customers for everything from environmental impact to investment commitments. The point is, your vendor partnerships matter more now as part of an overall brand strategy as much as they do for getting the job done.
At the back end, this effort requires a strategic organizational roadmap toward the goal of digital transformation and an iterative approach that evaluates the vendor relationship at each step in the process. This continuous evaluation process mirrors Agile methodologies that iteratively ask, “Is this right?” and “Does this work?” It is in this way that strategic vendor outsourcing now mirrors the imperative for modern IT partnerships.
Key components of strategic sourcing
Strategic sourcing has some primary benefits over traditional tactical sourcing, including:
- The potential for longer-term cost savings instead of a one-off, “cheapest” strategy.
- Stronger alignment of business strategies with sourcing partners.
- Increasing the likelihood of selecting the right partner every time.
- Long-term partnerships that yield synergistic relationships.
With these goals in mind, what are the components that make up a strategic sourcing initiative, whether it’s in the supply chain, IT, or some other part of the business?
- Contract management requires centralization of every term, condition, and deliverable. As organizations increase their adoption of multi-cloud and seek redundant supply chain models, this will grow even more necessary as partnership complexities increase.
- Utilization management is the process of managing these resources to improve the total cost of ownership. Recouping unused data space or decommissioning outdated legacy or redundant tools can drive significantly lowered costs in an organization.
- Vendor strategy development assesses supplier relationships. In an enterprise organization, departmental initiatives can add resources without the perspective of a 360-degree view that looks for redundancies, spend inefficiencies, or standardized approaches. Vendor strategy development seeks to improve service delivery and cut costs.
- Spend aggregation is a long-term approach that can lead to better pricing and more streamlined procurement. When coupled with objective negotiation around a strategic, not tactical, goal you can approach vendors for a better price based on a long-term relationship.
The implementation of strategic sourcing requires a long-term approach to evaluating your sourcing options. But what steps are necessary to evaluate vendors?
How to evaluate your sourcing options
Strategic decision-making around your sourcing options requires an unbiased approach and process to meet your goals. We’ve found this process often requires an outside resource to help with the planning, which should include:
- A comprehensive needs assessment to determine and then evaluate all current services, contracts, and costs. At each step, the organization must determine how the relationships contribute to the overarching strategic goals of the department and company.
- Identify a standardized selection criterion that governs the vendor relationship management process. Create a vendor service profile that incorporates delivery requirements, governance, and even environmental impact requirements, diversity and inclusion goals, and others.
- Investigate the vendor(s) in an iterative process that seeks an apples-to-apples comparison that avoids the tendency to embraces “how it’s always been done.” Over time, most enterprise and governmental organizations adopt preferred vendor status.
- Understand outsourcing pricing models requires benchmarking and a detailed comparative analysis of costs that are anything but standardized. However, the benefit is high, justifying the resource allocation necessary to conduct this effort.
- Develop staff buy-in for this new process. Inter-departmental politics may necessitate a deliberate effort to engage managers in the success of this new initiative. However, for strategic sourcing to work, like all big organizational policy shifts, stakeholder buy-in is important.
For more tips to improve your IT sourcing process, download the “CIO’s Guide to Evaluating IT Sourcing Options.” Windsor Group Sourcing Advisory works with mid-market and enterprise organizations to improve their strategic and operational efficiencies.