How to Build a Sourcing Strategy You can be Proud of
Every CIO is looking for ways to make his or her operation faster, cheaper and better aligned with the needs of the business. Through a multitude of technology evolutions and revolutions, now more than ever, the CIO faces a dizzying number of options that promise to fulfill his or her business needs.
An IT organization’s key responsibility is to assess these options and develop the right future-state technical architecture. However, that is only the starting point. Once the future state is defined, a sourcing strategy is required to determine how each component of the IT portfolio will be delivered. But, with all of the potential sourcing configurations, how can a CIO evaluate which is best for his or her organization? They can start by assessing the following 5 components:
- Optimize Cost – Cost is usually the primary driver for sourcing. However, it is important to look at all components of cost. Make sure you fully comprehend the new costs, the costs you can eliminate, and the costs you will incur as a result of additional management and oversight of a new sourcing contract. Also consider the impact of reducing capital expenditures and freeing up cash to invest in other opportunities.
- Speed – There are two components of speed – speed of processing and speed of transformation. First, you want to ensure system performance and end-user experiences are not negatively impacted. In fact, you will probably look for some aspects to improve. Second, assess whether moving to a new sourcing scenario can quicken the pace of transformational change. Perhaps a change in sourcing will allow you jump-start your transformation and get to the end result faster than the way it is currently configured.
- Risk – Risk-related factors are sometimes overlooked but are important aspects of a quality sourcing strategy. Determine how a different sourcing strategy affects delivery risk, including the reduction of single points of failure. Evaluate the risk of under-investment in the future. Also remember that there is a certain amount of risk reduction from a cost perspective by moving to predictable costs that vary in a predictable manner as volumes change.
- Quality – An important part of making a sourcing decision is assessing the ability of the potential new provider to deliver services according to client expectations. This should not only include service level agreements, but also how well they will mesh with your current operational processes and how well they coordinate with other providers to deliver seamless end-to-end services. Will the sourcing provider help you deliver better end-user and customer experiences?
- Flexibility – What can the potential sourcing provider do to improve your agility and flexibility? Cloud computing services obviously come to mind, with the rapid ability to provision and de-provision as needed. However, other traditional and niche providers may also provide flexibility through their products, services, methodologies, contract terms, and ability to work with you to innovate new solutions in the future. The overall intent is to ensure you are not locked into a technical solution that doesn’t make sense at a later date.
These five sourcing objectives can serve as the foundation for a detailed set of evaluation criteria that you can use to objectively evaluate your sourcing options. While cost is usually the primary driver, all of the objectives should be used to some degree, and weighted in a way that reflects the unique requirements of your organization.