IT Sourcing Strategy

Sameer Paradia

Contents • What is IT sourcing

Contents g

• Types of sourcing• Driving factorsDriving factors• Sourcing Strategy• Summary Summary

WHEN WAS YOU LAST THOUGHT OF IT STRATEGY?

B i thi ki diff tl b t th iBusinesses are thinking differently about their IT Services. They are no longer content with stand alone IT activities. IT has to align and

strategies based on business and market space.

What is IT Sourcing?g• Method to select suitable party to deliver the IT

activities / process in alignment with business goals• Ways of decision making for sourcing

– Discipline – Strategicg– Routine

• Important to ensure IT meets customer changing needs

Various ways of sourcing decision making y g gDepending on criticality of IT activity and its impact on business, company decision making

may happen.

WAY TO SOURCE SUMMARY

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Discipline

Definition: Systematic way of selecting delivery partner by IT ownerMethod: Depending on partner capability, risk assessment, cost, SLASelection: Best technical and commercial proposal wins. Multiple partners might be chosenTypes: Major IT operations expansions upgradationn

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w

Types: Major IT operations, expansions, upgradation

a

sin

Definition: Business owners take decision to chose IT partner depending upon collaboration with them to bring positive impact on mutual businessMethod: Both parties become buyer and seller to each other

Not

a Strategicp y

Selection: Based on mutually accepted business plansTypes:

•Partnerships between two service providers in same industry•While sharing of same customers group

Routine

Definition: Generally IT middle management and purchase department select partners for mundane IT activities Method: Mostly on cost. Existing well performing partners are given first right of refusal Selection:

R t t t

5

•Rate contract•Renewal based on lowest bid

Types: No fix partners

Sourcing Modelsg…helps to achieve measurable improvement in the value IT delivers to the business

through a clear sourcing strategy, partnership ecosystem and focus on business goals.

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KEY CHARACTERISTICS

MODEL TYPE PROFILE act

iv

MODEL TYPE

INSOURCINGA few companies still remain focus on thistraditional method Removes dependency of

PROFILE• Developing inhouse skills and capabilities • Most of the activities by default done

internally

m IT

traditional method. Removes dependency oforganization on external partners.

internally• Traditional way

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rm

MULTISOURCING • Blend of multiple partners from internal

to pe

MULTISOURCINGSelective outsourcing among multiple partners.Both inhouse and outsourced partner co existsto meet business goals.

Blend of multiple partners from internal teams and external service providers

• Reducing risk and taking benefits of multi partner competition

• Balanced way of sourcing

ays

t

OUTSOURCINGA long tenure single contract with single

• Many a times a single partner act as Single service aggregator

• Pushing more and more activities to

wa partner. Both the parties put their skin in game.

Works well for supplier in long run and only ifcustomer business grow as expected.

• Pushing more and more activities to external partners

• Long term waiting requires to know the outcome

Types of contracts with partnersTypes of contracts with partnersVarious types of contracts are yppossible with partners depending on the business requirements.

• Service Level Agreement based• Business outcome based• Utility based (Pay on use basis)• Utility based (Pay on use basis)• Cost improvement• User experience enhancement

( t il i l ROI)(not necessarily involve ROI)• Reducing asset risk in company

balance • Legal bindings• Revenue sharing• Risk based contractRisk based contract

Sourcing Driving factorsSourcing Driving factors• Business priorities • Value creation for business: IT Cost to business benefit ratio• Prevailing economic & market space conditions• Risk assessment of engagement with partner g g p• Time period of sourcing decision• Expansion in other geography – local culture, laws, skills

Everything in strategy is very simple, but that does not mean that everything is very easy.y g y y

- Carl von Clausewitz

Sourcing Strategy Content• Strategy Team representation from of CEO, CFO, CIO, Business unit heads, Legal team,

Risk managementRisk management • Strategy Management Officer • Documented strategy with implementation plans and periodic reviews• Holistic approach of IT service procurement for short and long term• Resource selection criteria • Define set of quantitative matrices for performance measurement

Guidelines• Describes methods, process and logic to select partner for carrying out IT activity • Includes periodic reviews and implement Governance across all stakeholders • Converts client – vendor approach to partnership approach with various serviceConverts client vendor approach to partnership approach with various service

providers• Complete alignment with business vision• Agile to change with any deviation in business • Exist for medium to long term with capability to measure effectiveness from early stageg p y y g• Closed loop to capture customer feedback

Strategy Management OfficerStrategy Management Officer

Manage and Improve • Current Performance

vis a vis expected business outcome

• Contractual obligations by g ypartners

• Risk management • ContinuousContinuous

Improvement • Learning from market

place and competitorsplace and competitors• Feedback from

customers and

Importance of Sourcing Strategy Aligns IT with business and ensure IT gets all support and funds from

company Keeps company ahead in market spaceKeeps company ahead in market space Creates value network in core business process Leverages on sourcing partners’ capability to add value in business E IT i li ith t d d j t f il i k Ensures IT in line with corporate governance and reduce project failure risk Controls IT operations cost

Summary • Well defined sourcing strategy must exist to select right partner depending on its value add in core business

• Medium to long term consideration must be done • Incorporation of internal customer feedback • Business customers requirement must be prioritized over ITBusiness customers requirement must be prioritized over IT

department views, to remain successful

Sameer Paradia (at sameer_m_paradia@yahoo.com)Practicing IT services for 20+ yearsAcknowledgment: All the pictures are downloaded from Internet at site www.flickr.com