The trends are clear. There will be more and more outsourcing as we proceed through the 21st century. On-demand, “pay-by-the-drink,” and related models will dominate technology delivery for the foreseeable future — and very likely permanently. Lack of expertise in the US is accelerating this trend. So where does this leave us? With a new requirement: vendor management.

Vendor management is a broad area. Let’s explore the strategic highlights.

First, you need a comprehensive sourcing strategy and inevitably a strategy driven by the results of a core competency assessment. (Yes, you have to do this again.) The essential questions here revolve around the core/noncore relationship between technology and your business models and processes. Put another way, is there something absolutely unique about the role that technology plays at your company, or is technology essentially operational, a commodity you leverage to save money or comply? Are your security requirements so complex that you need to personally “own” and “control” all of your technology? What else might explain why you need to keep technology inside your firewall? More and more companies have determined that especially operational technology — networks, devices, storage — can leave the building. Many companies have decided that technology is not core and can, in fact, be optimized through a set of provider partnerships that — if managed properly — can reduce IT costs while improving basic services. Another benefit is the move away from the IT “people” business and the associated HR overhead that companies with large internal technology staffs have to fund. The care and feeding of technology professionals is daunting, especially when we consider how quickly the field is changing and how pivotal technology’s role has become in running the corporate engine.

If your competency assessment determines that technology is no longer core to your business, then you need a sourcing strategy that involves IT and the business units in a collaborative planning process designed to optimize the business technology investment. The strategy needs to identify the operating and investment principles that will scope and execute the sourcing strategy. At the very least, the sourcing strategy should identify the range of operational and strategic technologies necessary to run the business, the identification of which technologies should stay and which should go. The strategy should also identify the interpendencies among the technologies regardless of who manages them; acquisition, deployment, and support risks; and, of course, costs defined around TCO and ROI.

If the results of your analysis of core competencies suggests that you keep technology as close as you can (i.e., inhouse), then you still need a comprehensive business technology strategy with a sourcing strategy that answers the same questions raised above. Given the times in which we live, however, the sourcing strategy should contain some solid business cases for keeping especially operational technology inhouse. Is this a bias I have? Not really. It’s more like a bias the industry has created with the maturation of alternative delivery models for operational technology. Put another way, a decade ago we didn’t have to ponder the sourcing opportunities that the cloud provides today.

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Stephen Andriole

Dr. Stephen J. Andriole is a Fellow with Cutter's Business Technology Strategies practice. Dr. Andriole's career has focused on the development, application and management of information technology and analytical methodology to complex business problems.

Discussion

  One Response to “Identifying the Right Sourcing Strategy for Your Business”

  1. Steve presents a cogent argument for developing a sourcing strategy. In practice however, what I have witnessed at a handful of organizations is a perversion of this prescription.

    “Sourcing strategy” seems to be a euphemism for a boiler plate exercise, conducted by green MBAs, who have never actually done, nor run any part of IT, and whose job seems to be to ordain the bean-counter case of “saving money by outsourcing/offshoring.”

    I do wonder why anyone would ever hire a consultant with neither understanding of the business, nor experience doing the role that is being advised. Sadly, as demonstrated by hundreds of resumes passing through our recruiting department every month, it is now legitimate to claim as experience a task that one watched someone else do. I supposed the minion are just taking a page from the playbook of highly priced consultants.

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