Decisions about IT sourcing have significant implications for the finance function as users and buyers of IT products and services – and more and more businesses are using more and more external IT resources. So FSN writer Lesley Meall has hunted down some tips on how to lay the right foundations for a successful sourcing strategy.
With the benefit of hindsight we often look back and wonder why we didn’t notice things as they were happening. So it is interesting that we are currently going through a period of profound change that seems almost impossible to miss. It may be happening at varying rates in different business functions, companies, sectors and even geographical regions, but all sorts of organisations are getting progressively more of their IT products and services from all sorts of external providers of public and hosted ‘cloud’ services. With sourcing options and approaches evolving at such a rapid rate, it is increasingly important that you get your IT ‘sourcing’ strategy right – or retune it to fit today’s dynamic sourcing landscape.
‘In today’s increasingly complicated IT environment, when people are planning to outsource services they should start with an internal perspective,’ suggests Ian Marriot, analyst and VP with the researcher Gartner. ‘You need to get your own internal sourcing strategy in place as a framework for making the right decisions when you look at the vendor landscape and the technology options available,’ he says, as this improves your chances of picking the vendor that best fits your needs. You need to know where you are before you can decide where you are going. ‘An internal perspective helps you to make decisions that are best geared to the business needs today and, more importantly, the future needs of the business,’ adds Marriot.
Research from Gartner indicates that organisations that get the initial phase of the sourcing life cycle right are subsequently more likely to select appropriate providers, negotiate sound contracts and manage their sourcing deals effectively. So a 10-step plan that can help enterprises to head off in the right direction when they embark on their next outsourcing journey seems like a good place to start from:
1. Know where you are
Assess your existing hardware, infrastructure, software and services. Look at cost and service performance; consider internal factors such as your hardware write-down policy and the scope and life-cycle of external service contracts. Look critically at your existing enterprise architecture: can it evolve to meet your business objectives?
2. Get the big picture
Define the business's overall approach to sourcing: set context and objectives. What are the priorities, rules and principles that will drive your sourcing strategy and every subsequent sourcing decision and activity? Be specific about your business, service and technology goals and how you will define and measure success.
3. Assess your capabilities
Multisourcing is the future of enterprise IT so assess your service management smarts. Do you have the capability you will need to establish and manage these relationships and contracts? Evaluate knowledge and skills for managing service delivery on business, application and infrastructure processes.
4. Consider constraints and opportunities
As well as business forces, economic cycles and trends, you need to factor in disruptive technologies, regulatory environments, compliance requirements, and other external factors, as well as myriad internal organisational issues. Building sourcing risk profiles and applying a risk management framework can simplify the process.
5. Look between the cracks
Do a gap analysis. Within the scope of each sourcing decision, define and measure needs and objectives, and compare these with where you are now. Try to determine alternative approaches and scenarios that could be used to fill the gaps – then compare the alternatives against drivers, goals and risks.
6. Look at the IT marketplace
Evaluate the IT services market, vendor landscape and the adoption patterns of your competitors. Consider availability, maturity and quality versus cost and stability. Use this analysis to inform the decision-making process on which type of services to adopt and when – and to refine your alternative sourcing scenarios.
7. Conduct scenario planning
Compare the risk and potential value of different sourcing scenarios/models against your existing requirements and sourcing capabilities, and your future business objectives. Don’t overlook soft issues such as the fit between sourcing solutions and company culture, your gap analysis, and the implications for retained competencies.
8. Analyse risks
Do a detailed risk-reward analysis for each scenario. Identify the most common sourcing and vendor risks, tailoring the risk evaluation criteria to the types of vendors and products, and then outline a vendor risk management programme for each component of the entire sourcing cycle.
9. Cost the business case
Analyse the total sourcing cost for all scenarios – including the status quo. Include selection, negotiation and implementation, the evolution of workloads and service requirements, consider financial management, reporting and tax and determine the financial implications for each scenario in net present value and return on investment.
10. Develop a plan of action
A new approach to sourcing means new responsibilities and relationships inside the organisation and with service providers. So define deals and completion timeframes, update your sourcing governance structures, outline your communication and change management plans and create a programme to implement your chosen strategy.
FSN readers who are located in the UK and other parts of Europe may be interested in learning more about IT sourcing strategies at the Gartner Outsourcing and Strategic Partnerships Summit being held in London on 8 & 9 October 2012.