Secret Source
We are in somewhat of a ‘revolution’ in IT
It affects all us differently, and whilst it may not always be as effective as we hope, it is nevertheless driving a lot of the transformations that many of us are experiencing. With Agile ways of working becoming more pervasive, a shift away from purely traditional Portfolio and Project based delivery to something that includes more Product orientation and organizations making genuine attempts to become more customer centric, the “traditional’ annual cycle of the standard 5% savings ‘haircut’ on last year’s budget combined with a Portfolio with a focus on ‘keep the lights on’ is seemingly under threat!
Surely this is a good thing and something we should celebrate, right?
Absolutely, in my view. Of course we always need to be mindful of optionality and the fact that one size definitely doesn’t fit everyone, but generally a move to something that improves Customer focus and engagement with increased levels of flexibility is good. This, combined with the customers’ regular feedback and empowerment for the Teams that plan and deliver working software, all whilst enabling a faster flow from concept to delivery with some measurement of ‘value’, must be a good thing?…
…well yes, but maybe not so much if you work in IT Sourcing / Procurement and need to manage the go-to-market spend for IT
Firstly, before we get into this, we need to recognize that the the relationship with those who manage and optimize that contracts that provide the Software, Hardware, Services and the Resources that IT uses is not, and has not, always been an easy one. This despite the many excellent sourcing / procurement professionals who genuinely develop strong partnership with their IT colleagues
The CPO and CIO rarely seem to be on exactly the same page, and frequently not even seemingly reading the same book, especially when it comes to how to strategically optimize IT spend. The CPO’s target of having their teams say, reduce procurement / contract costs by 10% across every corporate department might work for purchasing paper clips or printer toner but rarely algins well with IT, and belies the complexity of bringing together a strategic direction and associated purchasing plan for IT or the individual Capabilities within it
However, even before the current ‘revolution’ things were often not all rosy in the garden. Sourcing / Procurement frequently being used in a more tactical way where they are reduced to focusing on the Procurement processes or asked to come in near the end of an IT managed RFP to ‘beat up the vendor’ in order to lower the price of acquisition with minimal alignment, if any, of the strategic goals between the two functions. Sourcing being percieved as being happy if they reduce the cost by their target amount, whilst IT get the new, shiny software they are looking for
So the goal has (hopefully) always been to move to a more ‘strategic sourcing’ model, one that aligns the strategic direction of IT and it’s Customers with a go-to-market strategy managed by the Sourcing / Procurement teams. Looking at the ‘big picture’ of how to optimize holistically and sustainably; aligning on what is needed and why with how to best provide this and with who. Sourcing and IT working together to explore the options, to understand the overall cost of the current and future capability delivery, maintenance and operations along with the value to the customer - where to focus on optimizing and trading off things like, enabling top-line growth and customer needs, and where to truly optimize for bottom line savings and efficiency
Hopefully in seeing the holistic picture and following a joined-up, collaborative approach across the different time horizons of the Product or Solution lifecycle will ultimately lead to greater, sustainable cost and commercial optimisation
So if this was, or should be, the approach, what’s changed?
Well arguably nothing has changed in terms of what we should already be doing, except that the focus now for a lot of IT transformations feels to be even more on the Customer and their needs, more on the set-up and optimisation of the Product and the composition of the Teams to incrementally deliver working software, following agile principles, and less on a joined up approach for how manage costs and go-to-market spend in IT. This approach arguably then makes it even harder for the Sourcing / Procurement function to act as an effective partner for IT as the focus is elsewhere from an IT perspective, even if this is absolutely the right thing to be focused on
The way forward then should seemingly be similar to how it was before, only with the need to be even more intentional and focused about keeping a seat for Sourcing / Procurement at the IT table; embracing the relationship even during times of change. There is no silver bullet or perfect solution but instead maybe a few things that we might keep in mind in order to help the Sourcing / Procurement teams to engage and offer real value regardless of the current or future IT Operating Model;
Transform Together - as we look to introduce new concepts and ways of working into IT we need to make sure that these are aligned with Sourcing / Procurement. That if we want to change the approach of how IT delivers Capabilities through its Offerings to Customers, that the colleagues working in Sourcing are equally aware of concepts such as Agile and Product led delivery and what this means to the go-to-market and commercial optimization for IT. To help everyone be on the same page in terms of concepts, terminology and mindset and ensure that the partners that support IT are
Strategize Together - whenever possible have a joint strategy in which IT and Sourcing / Procurement both feel invested in. Whatever the IT Operating model or state of transformation, have strategic goals and outcomes at all levels and and go-to-market approach that matches this direction. Avoid setting strategic direction in IT through Strategic Themes, Outcomes, etc. that aren’t reflected in both the associated Sourcing / Procurement strategy and their ways of working that allows them to engage, participate and support IT where relevant.
Once there is joined-up strategy try and ensure that the ongoing execution of this remains aligned - for example, where contracts have volume based discounts that these are used effectively and decisions are not made in isolation or out of ignorance that can sub-optimize agreements that have been put in place. Equally look to ensure that through processes like SPM (Supplier Performance Management), identify where things may be breaking in the delivery of the commercial agreements and realign the strategy (e.g. higher volumes of externals with certain skills needed in a target location meaning that the strategic direction and associated commercial agreement no longer works and the joint strategy may need to be reviewed and updated)
Total Cost, Not Selective Costs - maintain a good baseline that always helps us to understand the combined, total cost of planning, building, delivering and Operating the target Capabilities. Avoid using different costs or metrics that only IT or Sourcing / Procurement focuses on (e.g. the cost of acquisition) and focus instead on the holistic cost for the proposed end-to-end lifecycle that both teams use [for example, if you compare different technology and / or resource options from internal people vs. SaaS look at the same lifecycle and stages for the proposed Capability delivery and overall cost - this might seem obvious, but its amazing how quickly you can start comparing apples with oranges, especially when there might be ‘hidden’ costs when comparing dissimilar technology stacks like SaaS vs on-premise]
Be Open to Sourcing Optimized Solutions - whilst it may be less ‘sexy’ in today’s IT world, look at how to exploit ELAs (Enterprise License Agreements), MSAs (Master Service Agreements) and other frame / volume agreements that span a vendor’s portfolio. Let the Sourcing Teams guide and steer, in partnership with IT, how best to exploit a vendor’s full potential for what they can potentially offer from their full portfolio of software and services. Try not to just focus on the vendor solution that initially brings you to the table. Of course this is only one potential area to optimize for but it should be an area that is considered
Don’t Close Off Options - in pursuing outcomes from an IT Strategy perspective try and avoid having blanket policies or statements that limit the scope for what Sourcing and Procurement can negotiate and optimize for commercially unless this is really needed. A good example of this could be Hyperscale Cloud contracts; try and allow a blend of on-demand and CAPEX based services in this instance to reduce cost and improve negotiations - this partnership approach will allow Sourcing / Procurement more levers to negotiate with even if the overall goal is to have flexibility consider that it might not be needed everywhere
Take Advice - to build a strong relationship between the two organizations, let the Sourcing / Procurement team bring their perspectives to Strategic planning. Look to regularly leverage market analysis for things like market rates associated (baselining) with delivery partners and / or locations. Support Sourcing / Procurement in Vendor SRM (Supplier Relationship Management) discussions where they are part of learning about, and managing what the vendors can offer and how this impacts current or future agreements for IT. The more the teams work together strategically the less tactical and, hidden the contribution of Sourcing / Sourcing is likely to be and the more overall value and benefit will be delivered for IT and their customers
Overall the goal is to strengthen the partnership between Sourcing / Procurement and IT. To move the Sourcing / Procurement teams away from being transactional executors of purchasing processes and contract management and instead enable them to actively contribute to shaping and optimizing the cost and delivery of IT Capabilities
If we don’t consider how to keep Sourcing / Procurement fully engaged and contributing as we continue to move forwards in IT it is likely to have an expensive impact that will outweigh many of the positive things we can achieve through our transformations and other good work!
