Trends in the

Commoditisation of
Information Technology and
the Need for Strategic
Approach to Sourcing

Alan McSweeney
Objectives

• Understand exactly what is meant by the commoditisation

of information technology and define a framework for
achieving optimal business benefits from appropriate
exploitation of commoditisation

29 December 2010 2
Topics

• Commoditisation of Information Technology?

• Framework for Exploiting Commoditisation in Information
Technology
• Sourcing Competence
• Supplier Management Competence
• Achieving Effective Exploitation of Commoditisation in
Information Technology

29 December 2010 3
Arguments About Information Technology
Commoditisation - Who Is Right?
“IT is Dead, IT Does Not
Matter” “IT is Strategic”
“IT’s Strategic Importance Has
Diminished” “IT Can Deliver Significant
Business Value”
“Oh Yes It Has”
“Oh No It Hasn’t”

29 December 2010 4
Commoditisation of Information Technology

• Elements of certainly information technology have become

commoditised
− A view that information technology is generally a commodity is at best a
simplification and at worst deliberately misleading
− The word commodity is being misused and misrepresented
• But information technology is not uniform
− Complex set of layers with complex interaction
• How much of your information technology landscape is fungible?
− Freely exchangeable or replaceable in whole or in part for another of a similar
nature
− Characteristic of a commodity
• Lower level IT components and specific elements are transferrable
between parties
• Care needs to be taken when treating information technology as a
commodity
− Vast oversimplification

29 December 2010 5
Qualities of a Commodity

• A commodity is a good for which there is demand and which is

supplied without qualitative differentiation across a market
• Commoditisation happens when goods or services lose their
differentiation
• Good and services become generic and uniform with implied quality
• Commoditisation is caused by the diffusion of the intellectual capital
necessary to produce goods or services efficiently and cost-
effectively
• Special skills no longer required to produce
• Price governed by supply and demand factors

29 December 2010 6
What Is So Great About Commodities Anyway?

• Price of Pork Bellies – the ultimate commodity – from 2006-2010

• Could you run an IT function with such variability in the price of goods and
services?
• Is Information Technology a Pork Belly?
• Is this really a desirable outcome?
• Even if information technology is commoditised, what special skills are needed to
take effective advantage?

29 December 2010 7
Lots of Words Associated With Information
Technology as a Commodity

29 December 2010 8
Layered View of Information Technology Landscape
Operations, Usage,
Layer 8+ Management, Control,
Governance What the Business
Layer 7
Applications, Systems and is Concerned With
Business Processes

Layer 6 Data Presentation, Data Security

Layer 5 Communication

Layer 4 Connection What IT is

Concerned With
Layer 3 Network Transmission

Layer 2 Storage and Network Addressing

Storage Media and Network

Layer 1
Signals

29 December 2010 9
Levels of Commoditisation Within Layers of
Information Technology Landscape
Layer Components Level of Commoditisation
Layer 8+ Operations, Usage, Management, Control, Limited and Specific Elements
Governance
Layer 7 Applications, Systems and Business Processes Limited and Specific Elements
Layer 6 Data Presentation, Data Security Pervasive
Layer 5 Inter-system Communication Pervasive
Layer 4 Connections Pervasive
Layer 3 Network Transmission Pervasive
Layer 2 Storage and Network Addressing, Physical Pervasive
Addressing
Layer 1 Storage Media and Network Signals Pervasive

• Some elements of Information Technology have become commoditised and others have
not
• Commoditised elements can be outsourced - others cannot
• Also bear in mind that out of sight cannot be allowed become out of mind
29 December 2010 10
What Ever Happened to Application Service
Providers (ASPs)?
• Forecasts in 1999
− IDC (International Data Corporation) - worldwide ASP market worth USD$16
billion in 2002
− Forrester - USD$21 billion by 2001
− Gartner - worldwide ASP market would reach USD$22.7 billion by 2003
• The reality was around 10% of the forecast values
• Many suppliers jumped on the ASP bandwagon
• What was the ASP model but just a early manifestation of cloud
computing?
• Lessons
− Hype surrounding ASP was never delivered on
− Lots of businesses entered into ASP market leading to lots of failures because
of inadequate business models
− Generic software provided by ASP model is less useful than software
customised to suit your exact needs
− What lessons can be learnt and applied to today’s information technology
trends and fads?
29 December 2010 11
Be Careful About Jumping on Bandwagons

• The ride can be uncomfortable and unpleasant

29 December 2010 12
Framework for Exploiting Commoditisation in
Information Technology

29 December 2010 13
Commoditisation of Elements of Information
Technology Landscape …
• … Means you have to become good at:
Implementing and operating an
effective sourcing strategy

Understanding and
Understanding what can
managing outsourcing risk
and cannot be outsourced
effectively

Implementing and operating an

effective supplier management
strategy

29 December 2010 14
It’s Not About xShoring/xSourcing …

• … It’s about having a sourcing strategy of which

xShoring/xSourcing are constituent tactics

29 December 2010 15
Risks in Outsourcing – Lots of Them

Outsourcing Risks

Strategic Reputation

Compliance Operational

Termination Financial

Country Contract

Access Concentration/Systemic

29 December 2010 16
Strategic Risks

• Outsourcing provider may conduct activities that are

inconsistent with the overall strategic goals of the
outsourcer
• Outsourcer fails to implement appropriate and effective
oversight of the outsourcing provider
• Outsourcer has inadequate expertise to oversee the
outsourcing provider

29 December 2010 17
Reputational Risks

• Outsourcing provider delivers a poor service

• Outsourcer’s customer service does not meet expectations
in areas serviced by outsourcing provider
• Outsourcing provider practices do not comply with stated
practices of outsourcer

29 December 2010 18
Compliance Risks

• Outsourcing provider does not comply with relevant laws

and regulations
• Outsourcing provider does not comply with consumer laws
• Outsourcing provider has inadequate compliance systems
and control

29 December 2010 19
Operational Risks

• Outsourcing provider experiences technology failures that

impact outsourcer
• Outsourcing provider has inadequate financial capacity to
fulfil obligations and/or provide remedies in the event of
failure or breach
• Outsourcing provider experiences fraud or error
• Outsourcer experiences difficulties or high costs in
undertaking inspections

29 December 2010 20
Termination Risks

• Outsourcer has no exit strategy are not in place because of

from over-reliance on one provider or the loss of relevant
in-house skills
• Ability to return services from outsourcing provider is
difficult, time-consuming or costly because of a lack of
staff or loss of intellectual capacity

29 December 2010 21
Financial Risks

• Inadequate cost controls and charging mechanism leads to

unexpectedly higher costs for outsourcer
• Changes to services requested from outsourcing provider
are very expensive

29 December 2010 22
Country Risks

• Outsourcer cannot enforce contract

• Incorrect selection of applicable legal jurisdiction

29 December 2010 23
Access Risks

• Outsourcing arrangement negatively impacts ability to

provide accurate and timely information
• There is an additional layer of complexity in understanding
activities of the outsourcing provider

29 December 2010 24
Concentration/Systemic Risks

• Concentration of services from multiple outsourcers in

small number of outsourcing providers can mean lack of
control by individual outsourcer and overall systemic risk

29 December 2010 25
Principles of Outsourcing

• Need a comprehensive policy to guide the assessment of whether and how activities can be
appropriately outsourced
• Senior management needs to be responsible for outsourcing policy and related overall
responsibility for activities undertaken under the policy
• Need to establish a comprehensive outsourcing risk management programme to address
the outsourced activities and the relationship with the service provider
• Need to ensure that outsourcing arrangements does diminish its ability to fulfil obligations
to customers and stakeholders
• Need to conduct appropriate due diligence in selecting outsourcing service providers
• Outsourcing relationship needs to be governed by contract that clearly describes all
material aspects of the outsourcing arrangement, including the rights, responsibilities and
expectations of all parties
• Need to establish and maintain contingency plans, including a plan for availability and
disaster recovery and regular testing of backup arrangements
• Need to take appropriate steps to ensure that outsourcing providers protect confidential
information from intentional or inadvertent disclosure
• Need to be aware of the potential risks posed where the activities of multiple outsourcers
entities are concentrated within a small number of outsourcing providers

29 December 2010 26
Using Risks and Principles to Achieve Effective
Sourcing
• Use as a checklist to validate any outsourcing activities
Risk Mitigation/ Principle Complied With or
Circumvention/ Reason for
Acceptance Derogation
Risk 1 
 Principle 1 

Risk 2  
Principle 2

Risk 3  
Principle 3 

Risk 4  
Principle 4 

Risk 5 
 Principle 5 

Risk 6  
Principle 6

Risk 7  
Principle 7 

Risk 8  
Principle 8

Risk 9  
Principle 9

29 December 2010 27
Core Competencies for Exploiting Commoditisation
in Information Technology
• Sourcing – having an effective approach to outsourcing
− Concerned with managing the IT function like a business
• Supplier Management – plan, analyse and manage the ongoing
relationships with suppliers
− Concerned with managing the IT function
• Need frameworks to measure and manage organisational maturity in
these key areas
• Systematic approaches in these areas improves value IT can derive
from its suppliers
• IVI (Innovation Value Institute - www.ivi.ie) IT CMF (IT Capability
Maturity Framework) to measure and develop maturity and
competence
• Measurement provides an objective assessment of where you are,
where you want to be and where to invest to get greatest returns
29 December 2010 28
Sourcing and Supplier Management

• Supplier Management competence and associated

processes operationalises the strategic decisions taken
within the Sourcing competence

Supplier
Sourcing Management

29 December 2010 29
Sourcing and Supplier Management
Procurement of IT Services and IT Hardware/Software
Sourcing Competence Supplier Management Competence Sourcing
Competence
Order
Contract
Strategic Management
Supplier Management
Sourcing (Ordering/
Selection (Payment,
Decision Delivery/
Penalties)
Distribution)

Performance
Supplier Supplier
Contracting Measurement Evaluation
Engagement Communications
And Monitoring

Governance and
Supplier Risk Supplier
Partner Transition
Monitoring Development
Integration

29 December 2010 30
Sourcing Competence

29 December 2010 31
Sourcing Competence
Planning Cycle

Strategy Objectives Sourcing Business Case Organisational

Alignment and Scoping Model Calculation Readiness

Partner
Partner integration
Contracting Transition Reevaluation
Selection and
Governance

Sourcing Cycle

29 December 2010 32
Sourcing Competence

• Define sourcing strategy and sourcing model

• Evaluate outsourcing potential of IT processes
• Select optimal partner(s)
• Manage the transition to selected partner(s)
• Setting the basis for a successful relationship with selected
partner(s) to maximise business value contribution

29 December 2010 33
Sourcing Competence Scope

• Strategic sourcing decisions on what processes are in- or outsourced

to what extent
• The decision on what sourcing model is applied
− Internal/external
− Onshore/nearshore/offshore
− Single vs. multiple vendor relationship
• Calculation of business cases for outsourcing projects
• The process of selecting the optimal partner(s)
• Preparation, negotiation, closing and re-evaluation of contracts with
selected partner(s)
• Managing the transition process and setting up requirements for an
enduring and successful relationship with partner(s)

29 December 2010 34
Dimensions of Sourcing Competence Measurement
Framework
Sourcing
Strategy
• Measure state of
Sourcing competence
along three dimensions
− Sourcing Strategy
− Contracting
− Sourcing Execution
• Define facets of each Contracting
dimension
• Measure each facet in
terms of:
− Associated processes and
their state of development
− Scope or extent within the Sourcing
organisation Execution

29 December 2010 35
Measurement Framework for Sourcing Competence
Sourcing Competence
Maturity Assessment
Framework

Sourcing Strategy Contracting Sourcing Execution

Strategy Alignment Partner Selection Transition

Contract Preparation and Partner Integration and

Objectives and Scoping
Closing Governance

Sourcing Model Selection

Business Case Calculation

Organisational Readiness

Reevaluation

29 December 2010 36
Measurement Framework for Sourcing Competence

Strategy • Aligning sourcing strategy with overall IT- and business strategy.
Alignment
• Evaluating whether a process should be in- or outsourced and clarifying sourcing
objectives (e.g. quality, cost, flexibility, risk) so that expectations are clearly understood
Objectives and and established.
Scoping • Selecting processes to be outsourced or out-tasked according to an agreed prioritisation
scheme with focus on qualitative aspects. Setting up comprehensive criteria for this
scheme.
• Defining of structural dimensions of the sourcing model: onshore/nearshore/offshore,
Sourcing internal/external, single/multiple vendor relationship.
Model • De-averaging structural dimensions into process criteria: partner/location selection
Sourcing Selection criteria (e.g. existing knowledge, cost, quality, political stability, country specific legal
Strategy issues etc.).
• Baselining and forecasting cost and volume as well as calculation of business cases for
Business Case services according to selected model.
Calculation • Integrating qualitative aspects (e.g. performance, quality, flexibility) into business case.
• Determining the organisational readiness (e.g. process standardisation, org structure,
Organisational available resources and skills) as well as the cultural readiness for outsourcing (e.g.
Readiness change willingness, restructuring experience).
• Designing the structure of the retained organisation.
• Regularly reviewing chosen sourcing strategy with focus on generated value, realised cost
Re-Evaluation savings, changed business context (e.g. M&A) and new opportunities – this includes a
plan-B-design (e.g. re-insource).

29 December 2010 37
Measurement Framework for Sourcing Competence
• Selecting the optimal partner based on "hard" criteria defined under sourcing model as
well as "soft" criteria such as fit of company culture and trust between partners
Partner • Selecting partner consists of creating a long list of candidates, a request for information, a
Selection
short list, a request for proposal and the final decision on vendor(s). There is a difference
Contracting between a first bidding process and a renewal.
Contract • Developing own position (negotiable and non-negotiable items) in advance, but also
Preparation considering incentives for the vendor to deliver on time and on quality – understanding
and Closing the vendor's success criteria to create a win-win-situation.
• Defining joint transition support units, esp. project management office, HR,
communication team. Ensure infrastructure connectivity and access rights to ensure a
Transition smooth transition of knowledge, staff, and assets to provider.
• Developing project reporting tools for tracking project progress and implement reporting.
Sourcing • Communicating progress and any deviances from project plan to all stakeholders.
Execution
Partner • Designing the governance model for the partnership and integrating outsourcing partner
Integration into overall governance model including integration of services and systems.
and • Setting the basis for evaluating achieved benefits, impact and business relationship by
Governance defining a comprehensive monitoring and managing system.

29 December 2010 38
Sourcing Maturity Profile Levels
High Maturity Strategy
The effectiveness of the scheme for
evaluating outsourcing potential is
5 constantly reviewed and new criteria
are added
Optimising Business cases for sourcing decisions
are regularly reviewed
A scheme for evaluating the
outsourcing potential of all IT processes and a renewal are in place
4 is applied
A standard business case development enterprise-wide procurement process
Advanced is always part of the sourcing decision
process
There is a scheme for evaluating the
outsourcing potential of certain
3 processes
Business cases are consistently
Intermediate developed as part of the process for
evaluating sourcing options
Cost saving is the only criterion for
evaluating the outsourcing potential of
2 processes
Sourcing decisions are occasionally
Basic supported by business cases
Processes to be outsourced are
selected in an ad hoc way
Low 1
No formal business case is developed as involved in contracting
Initial part of the sourcing decision-making
process
29 December 2010
Contracting Execution
The partner's success criteria are Project management tools are
considered during selection continuously reviewed, new
Contracting activities are constantly techniques are introduced
reviewed to realise potential synergies Governance model is continuously
with IT/corporate procurement optimised based on experiences
from the collaboration
Different processes for a first time bid Transition projects have a full set of
KPIs ensuring timely and reliable
Contracting is fully integrated in the delivery - KPIs tracked permanently
The governance model includes
considerations of inter-supplier
relationships
A detailed selection process is in place All transitions are managed as
(including an initial list of candidates, RFI, projects with basic set of project
short list, RFP) management tools
Contracting usually involves input from There is a defined governance
the IT/corporate procurement function model for the partnership in place,
which is generally adhered to
Partner selection process consists of a Some large transitions are managed
request for information only as projects with an existing project
Large sourcing contracts are prepared plan
and closed with input from the IT The most important interfaces of
procurement function between the partners are defined
and documented
Partner selection is ad hoc A sourcing transition is not actively
IT/corporate procurement function is not supported by the organisation
There is no governance model for
the partnership
39
Assessing Current and Future Desired Sourcing
Competence Maturity
1 - Ad-Hoc 2 - Defined 3 - Repeatable 4 - Managed 5 - Optimised

Strategy Alignment

Objectives and
Scoping
Sourcing Model
Sourcing Selection
Strategy
Business Case
Calculation
Organisational
Readiness
Reevaluation

Partner Selection
Contracting Contract
Preparation and
Closing

Transition
Sourcing
Execution Partner Integration
and Governance
Current Sourcing Competence Maturity Level Desired Future Sourcing Competence Maturity Level
29 December 2010 40
Measuring Sourcing Maturity and Importance

5.0

Partner
Integration
4.0 and
Transition Governance
Level Strategy
Alignment Business
Of Case
3.0 Reevaluation
Maturity Calculation

Objectives Partner Selection

and Scoping
2.0
Sourcing
Model
Selection Organisational Contract
Readiness Preparation
and Closing
1.0
1.0 2.0 3.0 4.0 5.0

Level of Importance
29 December 2010 41
Supplier Management Competence

29 December 2010 42
Supplier Management Competence

• Supplier management is concerned with the execution of

the IT supplier strategy and manages the suppliers on an
operational basis
• Supplier management operationalises the strategic
decisions of IT suppliers and contracts agreed in the
Sourcing competence
• Effective supplier management provides opportunities for
cost reduction from better control of assets and people, as
well as value-creation opportunities by supporting IT
supplier collaboration and innovation

29 December 2010 43
Supplier Management Competence Scope

• All activities related to managing ongoing (operational) relationship

with suppliers and associated systems/ tools
• Analysis of existing suppliers to identify suitable ongoing
engagement strategies at an individual and portfolio level
• Manage supplier relationship in line with evolving IT strategy
• Measure and monitor supplier performance from both the
organisation’s own perspective and the supplier’s perspective
• Manage the ongoing external risks (e.g. supplier insolvency) and
ongoing internal risks (e.g. unchecked SLAs) derived from the
organisation’s relationships with its suppliers
• Long-term development of suppliers, their products and services to
help them improve internally to achieve improved levels of
innovation, quality and performance, and to be aligned optimally
with the enterprise
29 December 2010 44
Dimensions of Supplier Management Competence
Measurement Framework
Supplier
Alignment
• Measure state of Supplier
Management
competence along three
dimensions
− Supplier Alignment
− Relationship Management
− Performance And Risk
Management
Relationship
• Define facets of each Management
dimension
• Measure each facet in
terms of:
− Associated processes and
their state of development
− Scope or extent within the Performance
And Risk
organisation Management
29 December 2010 45
Measurement Framework for Supplier Management
Competence
Supplier Management
Competence Maturity
Assessment Framework

Performance And Risk

Supplier Alignment Relationship Management
Management

Supplier Analysis Supplier Communications Supplier Risk Management

Performance Measurement
Supplier Portfolio Analysis Relationship Operations
and Monitoring

Supplier Engagement
Supplier Development
Strategy

29 December 2010 46
Measurement Framework for Supplier Management
Competence
Category Capability Description
Analyse existing suppliers based on criteria such as quality, TCO, market conditions, level
Supplier Analysis of product/service innovations, etc in order to support selection of appropriate ongoing
engagement strategy
Joint analysis of all IT suppliers to identify the relative roles of each supplier within the
overall IT supply chain and the interplay between suppliers and the enterprise processes,
with the objective of enhancing the ongoing value of the supplier portfolio to the IT
organisation
Supplier Portfolio
Analysis This can help to identify the relative importance of suppliers and the opportunities to
leverage certain relationships at different stages of the relationship lifecycle (based on
volume), or alternatively to identify paths for consolidating suppliers, thereby enhancing
the overall value of the supplier portfolio to the IT organisation.
Supplier
Alignment Develop and implement appropriate ongoing supplier engagement strategy based on
results of supplier analysis and supplier portfolio analysis.

This strategy will state the optimal approach to be taken for the supplier portfolio and
individual suppliers. As such, changes in IT Strategy and Enterprise Procurement Strategy
Supplier which occur over the duration of these supplier relationships must be reflected in the
Supplier engagement strategy to enable continued strategic alignment – similarly,
Engagement identifying potential new opportunities for enabling the IT strategy through our suppliers
Strategy must also be highlighted.

This will enhance the potential for identifying collaborative win-win relationships with
suppliers to provide innovative products with a customer they value and trust, without
introducing unnecessary risks to the IT organisation (such as migration from supplier to
partner).

29 December 2010 47
Measurement Framework for Supplier Management
Competence
Category Capability Description
Plan and manage communications approach with suppliers (inc internal organisation,
supplier organisation, mapping of relationships, meetings plan, review points, shared
Supplier vocabulary, external marketing of relationship, basic rules of engagement, etc.).
Communications
The level of activity for each supplier will typically vary in accordance with the supplier
engagement strategy.
Undertake fundamental relationship activities to enable supplier operations in line with
the agreed supplier engagement strategy.

Relationship This encompasses activities such as: regularly communicating with supplier, providing
Relationship
Management input on ongoing requirements/orders, agreeing actions to overcome deficient supplier
Operations performance, imposing sanctions/penalties/bonuses in response to
quality/performance/delivery issues, advocating supplier within organisation and vice
versa, understanding new product/service roadmaps, managing issues and escalating
conflicts via agreed joint management process, managing legal aspects of relationship.
Facilitate value-driven, long-term improvements in supplier
products/services/relationship from key suppliers by identifying critical areas for
Supplier development (e.g. ISO 9001 certification, low levels of innovation) and working with
Development supplier in a collaborative fashion to drive improvements in these areas. (e.g. education,
extensive info exchange, joint development of new products, etc.).

29 December 2010 48
Measurement Framework for Supplier Management
Competence
Category Capability Description
Monitor ongoing supplier relationship risks and evolving external environment risks and
implement appropriate mitigating actions.
Supplier Risk
These risks may originate internally (e.g. through overly frequent changes in
Performance Management requirements), from the Supplier (e.g. changes in financial viability of supplier/Single
And Risk Point of Failure / lack of integrity) or from changes in the external environment (new
Management product from supplier rival).

Performance Perform performance measurement and monitoring of relevant KPIs across multiple
dimensions (e.g. balanced scorecard approach) potentially using automated systems,
Measurement and covering both internal and supplier performance (and benchmarking), in line with
Monitoring requirements defined in the suppler engagement strategy.

29 December 2010 49
Supplier Management Maturity Profile Levels
Maturity Supplier Alignment
High
Engagement strategy is focused on
enabling collaboration and innovation
5 across IT supply chain
Senior level representation at key
Optimising strategic and operational meetings
from each party
Engagement strategy extended to
knowledge sharing / shared objectives
underpinned via aligned incentive
4 mechanisms
Advanced Strong IT-Supplier advocacy roles
function in both directions
Ongoing engagement strategy now
extended to include quality, and is
3 aligned with IT Sourcing strategy,
IT Supplier interfaces are formally
Intermediate defined for all points of interaction
Engagement strategy is defined but
primary focus is price and delivery
2
Communication via nominated IT and
Basic supplier contacts
Basic operating principles agreed
No defined strategy for engaging with
Low 1 suppliers on an operational basis
Ad hoc approach to IT supplier
Initial communications
29 December 2010
Supplier Operations
Optimised order management processes
(across supply chain)
Incentives rewards innovation and
collaboration
Direct investments in IT suppliers (capital, monitored
time) with shared risk
Robust order mgmt processes with
enterprise-level prioritisation
Compliance focus is on improving
communication and alignment
Supplier development targets gaps based Long-term strategic risks monitored
on IT roadmap
Order management in place but
prioritisation at departmental level
Compliance focus is on rewarding good
performance
Supplier development addresses
identified SLA issues
Basic order management processes are
defined and implemented
Compliance focus is on penalties
Informal approach to supplier
development
Ad hoc order management, not
formalised
No formal processes to manage contracts Minimal awareness of IT supplier
No supplier development
Supplier Performance and
Risk Monitoring
OLAs in multi-supplier environments
Metrics support measurement of
compliance with IT Strategy
Risk across extended IT supply chain
Monitoring focuses on efficiency
and effectiveness of interactions
between IT, IT suppliers and
business
(e.g. supplier insolvency, legislative
changes, etc.)
Monitoring tracks performance and
quality vs SLAs
Medium term operational risks
monitored (e.g. dependence on a
single IT supplier, stability of
business requirements, etc.)
Performance monitoring focuses on
availability and price
Risk focus is on tactical events (e.g.
short term availability dips,
unexpected price inflation, etc.)
Ad hoc monitoring of IT supplier
performance
risk
50
Assessing Current and Future Desired Supplier
Management Competence Maturity
1 - Ad-Hoc 2 - Defined 3 - Repeatable 4 - Managed 5 - Optimised

Supplier Analysis

Supplier Portfolio
Supplier Analysis
Alignment
Supplier
Engagement
Strategy
Supplier
Communications
Relationship Relationship
Management Operations
Supplier
Development
Supplier Risk
Performance Management
And Risk Performance
Management Measurement
and Monitoring
Current Supplier Management Competence Desired Future Supplier Management Competence
Maturity Level Maturity Level
29 December 2010 51
Measuring Supplier Management Maturity and
Importance

5.0

4.0 Supplier
Analysis
Level Supplier
Portfolio
Of Analysis Relationship
3.0 Operations
Maturity
Supplier Supplier Risk
Engagement Management
Strategy
2.0
Supplier
Communicat Performance
ions Supplier Measurement
Development and
1.0 Monitoring
1.0 2.0 3.0 4.0 5.0

Level of Importance
29 December 2010 52
Achieving Effective Exploitation of Commoditisation
in Information Technology

29 December 2010 53
Using Measurement Framework Effectively

• Identify gaps in current areas of sourcing and supplier

management competence
• Define roadmap to fill the gaps
• Get good at making sourcing decisions and managing
sourcing relationships
• Take strategic advantage of opportunities made available
by information technology commoditisation

29 December 2010 54
Phases of Outsourcing Relationship
Outsourcing Organisation

Analysis Determine if outsourcing represents a business opportunity

Plan for outsourcing of selected services, evaluate and select a service provider,
Initiation create an outsourcing agreement and transfer resources and personnel to service
provider

Implement the capability to manage the service provider, administer the

Delivery agreement and the issues, challenges and changes that arise after the agreement
has been reached, reviewing the service provider’s performance

Develop outsourcing strategy management, manage relationship with service

Ongoing provider, ensure value, implement knowledge management processes, manage
technology and manage risks and threats

Plan for completion, ensure service continuity, transfer resources and personnel
Completion from outsourcing organisation and transfer knowledge

29 December 2010 55
Key Capabilities Within Outsourcing Lifecycle for
Outsourcing Organisations
Outsourcing Organisational
Governance Relationship Value
Strategy Change
Management Management Management
Management Management

Technology People
Management Management

Ongoing
Threat Knowledge
Management Management

Analysis Initiation Delivery Completion

Outsourcing
Opportunity
Analysis
Outsourcing Outsourcing Outsourcing
Planning Agreements Completion
Outsourcing
Approach Service Sourced
Service
Provider Services
Transfer
Evaluation Management
29 December 2010 56
Key Capabilities and Constituent Practices for Outsourcing
Organisations - 1 Outsourcing
Capabilities and
Skills

Analysis Phase Initiation Phase Delivery Phase Completion Phase

1 Outsourcing
2 Outsourcing 3 Outsourcing 4 Service Provider 5 Outsourcing 7 Sourced Services 8 Outsourcing
Opportunity 6 Service Transfer
Approach Planning Evaluation Agreements Management Completion
Analysis
3.1 Establish 7.1 Perform
1.1 Define Current 2.1 Outsourcing 4.1 Communicate 5.1 Negotiations 6.1 Service 8.1 Completion
Outsourcing Outsourcing
State Approach Requirements Guidelines Transition Planning
Project Management
4.2 Evaluate
1.2 Outsourcing 3.2 Service 5.2 Confirm 7.2 Performance 8.2 Service
2.2 Business Case Potential Service 6.2 Verify Design
Criteria Definition Existing Conditions Monitoring Continuity
Providers
3.3 Service 4.3 Select 8.3 Resources
1.3 Demand 2.3 Governance 6.3 Resources 7.3 Financial
Provider Selection Candidate Service 5.3 Negotiations Transfer from
Identification Model Transferred Out Management
Procedures Providers Service Provider
8.4 Personnel
1.4 Outsourcing 2.4 Impact and 3.4 Evaluation 5.4 Agreement 6.4 Personnel 7.4 Agreement
Transfer from
Options Risk Analysis Criteria Roles Transferred Out Management
Service Provider
3.5 Prepare 7.5 Problem and 8.5 Knowledge
2.5 Outsourcing 5.5 Define SLAs 6.5 Knowledge
Service Incident Transfer from
Initiation Decision and Measures Transferred Out
Requirements Monitoring Service Provider
7.6 Service
5.6 Create
Delivery Change
Agreements
Management

5.7 Amend 7.7 Service Change

Agreements Management

7.8 Review Service

Performance

7.9 Stakeholder
Feedback

7.10 Service Value

Analysis

7.11 Continuation
Decision
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Key Capabilities and Constituent Practices for Outsourcing
Organisations - 2 Outsourcing
Capabilities and
Skills

Ongoing Phase

Competency
Governance Environment
and Change
Focused Focused
Focused

13
9 Outsourcing
10 Governance 11 Relationship 12 Value Organisational 14 People 15 Knowledge 16 Technology 17 Threat
Strategy
Management Management Management Change Management Management Management Management
Management
Management

12.1 17.1
10.1 11.1 Service 13.1 Prepare for 14.1 Assign 15.1 Provide
9.1 Outsourcing Organisational 16.1 Asset Outsourcing
Outsourcing Provider Organisational Outsourcing Required
Sponsorship Outsourcing Management Risk
Policy Interactions Change Responsibilities Information
Performance Management

17.2
10.2 Service 11.2 Service 13.2
9.2 Outsourcing 12.2 Capability 14.2 Personnel 15.2 Knowledge 16.2 License Organisational
Provider Provider Stakeholder
Constraints Baselines Competencies System Management Risk
Management Relationships Involvement
Management

14.3
9.3 Potential 10.3 Internal 12.3 Benchmark
11.3 Internal 13.3 Define Organisational 15.3 Market 16.3 Technology 17.3 Intellectual
Outsourcing Stakeholder Outsourcing
Relationships Future State Outsourcing Information Integration Property
Areas Management Processes
Competency

10.4 Defined 12.4 Improve 13.4 Human

9.4 Outsourcing 11.4 Issue 14.4 Define 15.4 Lessons 17.4 Security
Outsourcing Outsourcing Resource
Objectives Management Roles Learned and Privacy
Processes Processes Changes

9.5 13.5
10.5 Align
Organisational Communicate 15.5 Share
Strategy and 11.5 Cultural Fit 12.5 Innovation 17.5 Compliance
Outsourcing Organisational Knowledge
Architectures
Strategy Changes

10.6 Business 11.6 12.6 Business 13.6

17.6 Business
Process Collaborative Value and Organisational
Continuity
Integration Relationships Impact Change

12.7
10.7 Adapt to 11.7 Innovative
Outsourcing
Business Change Relationships
Alignment
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Key Capabilities and Constituent Practices

• Idealised set of steps for an outsourcing organisations to

perform when taking on a new outsourcing service
• Provides a detailed checklist of work to be done
• Each practices contains a set of activities and tasks
• Can be modified to suit the circumstances: scope of
outsourcing, size of service, duration of contract
• Can forms the basis of a project plan for elements of
outsourcing work such as initiation
• Reduces risk of failure

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Summary

• Commoditisation of elements of information technology is

a fact
• Opportunities exist to take advantage of commoditisation
• Need to understand opportunities and take effective
decisions
• Use a measurement framework to quantify maturity in
sourcing competence

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More Information

Alan McSweeney
alan@alanmcsweeney.com

29 December 2010 61