The time has come for a new sourcing strategy

Companies, public institutions, and state institutions are feverishly dealing with strategies for the digital age and are exploring how this technological megatrend is carrying changes over into all areas of life. The insight is taking a hold that any and all structures and processes will have to endure the digitalisation check-up. In this, sourcing strategies are also prominently encountering the pressure to change. However, a lot of companies do not yet have such strategies to date, and run the risk of losing control in the maelstrom of changes.

The pace for the adjustment of the sourcing cycles has already been significantly accelerated in recent years due to a very dynamic provider market. Now, the multitude of digitalisation options is applying even more pressure to the boiler once more. Gone are the days of long-term sourcing contracts with Service Level Agreements (SLAs) and functional specifications that changed only marginally over the years and also served – in case of switching providers – as the blueprint for the next contract. Both the technology as well as the persons acting have been set into motion and the call for a fundamental reorientation in eventful times is getting louder and louder. This was one of the important insights that leading sourcing service providers exchanged with one another at a Sourcing Summit in March of this year to which COMPUTERWOCHE (the German version of Computerworld) had extended an invitation. When the interested professional public is going to be gathering in Cologne, Germany, at the end of May, for Sourcing Day 2017, you can look forward to additional important impulses.    

Do not impede the innovations of tomorrow with long-term contracts

At present, digitalisation is employing a two-fold approach, in technical offerings and in practical application. At a lot of companies, a shadow IT has developed from within the departments, with the specialist users bypassing the existing IT and entering into contracts with external service providers. This way, they arrive faster at their objective and are able to use attractive applications. Cloud applications are wide-spread and the technical coordination with the in-house IT department is taking place by now only rudimentarily. Therefore, the procurement of IT services can drive digitalisation forward.

But in the long run, this is a fatal development. If and when the specialist departments discover an attractive tool, the IT department also has to be at the table. Otherwise the digitalisation will, in the end, fail due to a lack of integration with the existing systems and processes. For this reason, flexible, cost-efficient, and secure architectures must be set up within the company. Of equal importance is the executive management's commitment. The executive management has to make digitalisation a goal of its own.

But the IT department must also pay attention to demands and requests when influencing the flexibility of future applications via sourcing contracts. If sourcing contracts are entered into long-term, and if they focus primarily on the cost aspect, this may hinder progress and may further advance the development of an "IT of two speeds" that is commonplace at a lot of companies already today.

Keeping an eye on your own needs among the multitude of options

Some companies already today utilise a hundred or more cloud solutions in their various departments. The dynamics that go along with this are no longer surmountable for a lot of IT departments. The persons in charge of IT have to gain back these lost competencies. In the opinion of numerous experts, digitalisation as a corporate governance topic must be part of the responsibilities of the central IT department.

The purchasing department is also being pulled into the maelstrom of the flood of information and offers and often loses its certainty for acting on its own in the process. With the digitalisation, IT purchasing gains more and more in importance, yet it has, without specialist support, a harder and harder time in living up to the expectation.

An incalculable number of IT service providers is contributing to this uncertainty. The cooperation with numerous small service providers may have its advantages, but it certainly also causes a governance problem. Because if these service providers were to merge in quick succession, the core problem would become apparent. It is quite a challenge for operation and planning to not have ultimate certainty with respect to your own IT and its internal and external dependencies. It is no less difficult to work together with partners that regularly reposition themselves because they are involved in mergers or being subsumed.

Sourcing or innovation? A pseudo contradiction!

What are the current requirements?

The time is ripe for an IT strategy realignment that takes a holistic view at IT within the company and takes into consideration the dynamic needs of the departments. The traditional IT department, the specialist departments, the digitalisation prognosticians, and the business strategists have to come together at the table to jointly work on a sustainable IT.

The IT department is subject to cost pressure. The lack of specialists in the marketplace is affecting the companies tangibly. Therefore, sourcing is one possible solution for advancing the digitalisation. How much sourcing is sensible, how long-term and how comprehensively the sourcing is set up, that is a question of how much importance it has for the core business and is dependent on the desired future flexibility.

Digitalisation is a megatrend with extraordinarily far-reaching consequences. Technology prognosticians, business strategists, and visionaries have to develop scenarios as to where digitalisation will lead the respective company. Once these experts have done their work, those doing the work today can answer the question how agile, secure, and adaptable the IT of tomorrow will have to be and outline corresponding architectures.

Sourcing contracts must become more varied. In the future, in addition to price and availability, the factors of variability and adaptation must take into consideration the open options of future technical options. Security and continuity management will play a bigger and bigger role and must be included in the sourcing strategy. Given these preconditions, even long-term sourcing contracts no longer constitute a fundamental obstacle.