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

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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

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

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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
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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 costeffectively Special skills no longer required to produce Price governed by supply and demand factors

• •

• •

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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?

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Lots of Words Associated With Information Technology as a Commodity

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Layered View of Information Technology Landscape
Layer 8+ Layer 7 Layer 6 Layer 5 Layer 4 Layer 3 Layer 2 Layer 1
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Operations, Usage, Management, Control, Governance Applications, Systems and Business Processes Data Presentation, Data Security Communication Connection Network Transmission Storage and Network Addressing Storage Media and Network Signals

What the Business is Concerned With

What IT is Concerned With

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Levels of Commoditisation Within Layers of Information Technology Landscape
Layer
Layer 8+ Layer 7 Layer 6 Layer 5 Layer 4 Layer 3 Layer 2 Layer 1
• • •

Components
Operations, Usage, Management, Control, Governance Applications, Systems and Business Processes Data Presentation, Data Security Inter-system Communication Connections Network Transmission Storage and Network Addressing, Physical Addressing Storage Media and Network Signals

Level of Commoditisation Limited and Specific Elements Limited and Specific Elements Pervasive Pervasive Pervasive Pervasive Pervasive 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
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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?
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Be Careful About Jumping on Bandwagons

The ride can be uncomfortable and unpleasant

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Framework for Exploiting Commoditisation in Information Technology

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Commoditisation of Elements of Information Technology Landscape …

… Means you have to become good at:
Implementing and operating an effective sourcing strategy

Understanding and managing outsourcing risk effectively

Understanding what can and cannot be outsourced

Implementing and operating an effective supplier management strategy
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It’s Not About xShoring/xSourcing …

… It’s about having a sourcing strategy of which xShoring/xSourcing are constituent tactics

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Risks in Outsourcing – Lots of Them
Outsourcing Risks

Strategic

Reputation

Compliance

Operational

Termination

Financial

Country

Contract

Access
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Concentration/Systemic
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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

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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

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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

• •

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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

• •

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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

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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

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Country Risks
• •

Outsourcer cannot enforce contract Incorrect selection of applicable legal jurisdiction

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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

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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

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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

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Using Risks and Principles to Achieve Effective Sourcing

Use as a checklist to validate any outsourcing activities
Mitigation/ Circumvention/ Acceptance Principle Complied With or Reason for Derogation

Risk

Risk 1 Risk 2 Risk 3 Risk 4 Risk 5 Risk 6 Risk 7 Risk 8 Risk 9
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Principle 1 Principle 2 Principle 3 Principle 4 Principle 5 Principle 6 Principle 7 Principle 8 Principle 9
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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
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Sourcing and Supplier Management

Supplier Management competence and associated processes operationalises the strategic decisions taken within the Sourcing competence

Sourcing

Supplier Management

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Sourcing and Supplier Management
Procurement of IT Services and IT Hardware/Software Sourcing Competence
Strategic Sourcing Decision

Supplier Management Competence
Order Management (Ordering/ Delivery/ Distribution) Contract Management (Payment, Penalties)

Sourcing Competence

Supplier Selection

Contracting

Supplier Engagement

Supplier Communications

Performance Measurement And Monitoring

Evaluation

Governance and Partner Integration

Transition

Supplier Risk Monitoring

Supplier Development

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Sourcing Competence

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Sourcing Competence
Planning Cycle
Strategy Alignment Objectives and Scoping Sourcing Model Business Case Calculation Organisational Readiness

Partner Selection

Contracting

Transition

Partner integration and Governance

Reevaluation

Sourcing Cycle
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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

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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)
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Dimensions of Sourcing Competence Measurement Framework

Measure state of Sourcing competence along three dimensions
− Sourcing Strategy − Contracting − Sourcing Execution

Sourcing Strategy

Define facets of each dimension Measure each facet in terms of:
− Associated processes and their state of development − Scope or extent within the organisation
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Contracting

Sourcing Execution
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Measurement Framework for Sourcing Competence
Sourcing Competence Maturity Assessment Framework Sourcing Strategy Contracting Sourcing Execution

Strategy Alignment

Partner Selection Contract Preparation and Closing

Transition Partner Integration and Governance

Objectives and Scoping

Sourcing Model Selection

Business Case Calculation

Organisational Readiness

Reevaluation
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Measurement Framework for Sourcing Competence
Strategy Alignment
• Aligning sourcing strategy with overall IT- and business strategy. • Evaluating whether a process should be in- or outsourced and clarifying sourcing

Objectives and Scoping

Sourcing Strategy

Sourcing Model Selection Business Case Calculation Organisational Readiness

Re-Evaluation

objectives (e.g. quality, cost, flexibility, risk) so that expectations are clearly understood and established. • 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, internal/external, single/multiple vendor relationship. • De-averaging structural dimensions into process criteria: partner/location selection criteria (e.g. existing knowledge, cost, quality, political stability, country specific legal issues etc.). • Baselining and forecasting cost and volume as well as calculation of business cases for services according to selected model. • Integrating qualitative aspects (e.g. performance, quality, flexibility) into business case. • Determining the organisational readiness (e.g. process standardisation, org structure, available resources and skills) as well as the cultural readiness for outsourcing (e.g. change willingness, restructuring experience). • Designing the structure of the retained organisation. • Regularly reviewing chosen sourcing strategy with focus on generated value, realised cost savings, changed business context (e.g. M&A) and new opportunities – this includes a plan-B-design (e.g. re-insource).
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Measurement Framework for Sourcing Competence
• Selecting the optimal partner based on "hard" criteria defined under sourcing model as

Partner Selection Contracting Contract Preparation and Closing

well as "soft" criteria such as fit of company culture and trust between partners
• Selecting partner consists of creating a long list of candidates, a request for information, a

Transition Sourcing Execution Partner Integration and Governance

short list, a request for proposal and the final decision on vendor(s). There is a difference between a first bidding process and a renewal. • Developing own position (negotiable and non-negotiable items) in advance, but also considering incentives for the vendor to deliver on time and on quality – understanding 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 smooth transition of knowledge, staff, and assets to provider. • Developing project reporting tools for tracking project progress and implement reporting. • Communicating progress and any deviances from project plan to all stakeholders. • Designing the governance model for the partnership and integrating outsourcing partner into overall governance model including integration of services and systems. • Setting the basis for evaluating achieved benefits, impact and business relationship by defining a comprehensive monitoring and managing system.

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Sourcing Maturity Profile Levels
High Maturity Strategy
The effectiveness of the scheme for evaluating outsourcing potential is constantly reviewed and new criteria are added

Contracting
The partner's success criteria are considered during selection Contracting activities are constantly reviewed to realise potential synergies with IT/corporate procurement

Execution
Project management tools are continuously reviewed, new techniques are introduced Governance model is continuously optimised based on experiences from the collaboration Transition projects have a full set of KPIs ensuring timely and reliable delivery - KPIs tracked permanently The governance model includes considerations of inter-supplier relationships All transitions are managed as projects with basic set of project management tools There is a defined governance model for the partnership in place, which is generally adhered to Some large transitions are managed as projects with an existing project plan

5
Optimising

4
Advanced

3
Intermediate

Business cases for sourcing decisions are regularly reviewed Different processes for a first time bid A scheme for evaluating the outsourcing potential of all IT processes and a renewal are in place is applied Contracting is fully integrated in the A standard business case development enterprise-wide procurement process is always part of the sourcing decision process A detailed selection process is in place There is a scheme for evaluating the (including an initial list of candidates, RFI, outsourcing potential of certain short list, RFP) processes Business cases are consistently developed as part of the process for evaluating sourcing options Cost saving is the only criterion for evaluating the outsourcing potential of processes Sourcing decisions are occasionally supported by business cases Contracting usually involves input from the IT/corporate procurement function Partner selection process consists of a request for information only Large sourcing contracts are prepared and closed with input from the IT procurement function

2
Basic

Low

1
Initial

The most important interfaces of between the partners are defined and documented A sourcing transition is not actively Processes to be outsourced are Partner selection is ad hoc selected in an ad hoc way IT/corporate procurement function is not supported by the organisation There is no governance model for No formal business case is developed as involved in contracting the partnership part of the sourcing decision-making process
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Assessing Current and Future Desired Sourcing Competence Maturity
1 - Ad-Hoc Strategy Alignment Objectives and Scoping Sourcing Strategy Sourcing Model Selection Business Case Calculation Organisational Readiness Reevaluation Partner Selection Contracting Contract Preparation and Closing Transition Partner Integration and Governance Desired Future Sourcing Competence Maturity Level
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2 - Defined 3 - Repeatable 4 - Managed 5 - Optimised

Sourcing Execution

Current Sourcing Competence Maturity Level
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Measuring Sourcing Maturity and Importance

5.0

4.0

Transition Strategy Alignment Business Case Calculation

Partner Integration and Governance

Level Of Maturity
3.0

Reevaluation Partner Selection

Objectives and Scoping 2.0 Sourcing Model Selection 1.0 1.0 2.0 3.0 4.0 5.0

Contract Organisational Preparation Readiness and Closing

Level of Importance
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Supplier Management Competence

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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

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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
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Dimensions of Supplier Management Competence Measurement Framework

Measure state of Supplier Management competence along three dimensions
− Supplier Alignment − Relationship Management − Performance And Risk Management

Supplier Alignment

• •

Define facets of each dimension Measure each facet in terms of:
− Associated processes and their state of development − Scope or extent within the organisation
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Relationship Management

Performance And Risk Management
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Measurement Framework for Supplier Management Competence
Supplier Management Competence Maturity Assessment Framework

Supplier Alignment

Relationship Management

Performance And Risk Management

Supplier Analysis

Supplier Communications

Supplier Risk Management

Supplier Portfolio Analysis

Relationship Operations

Performance Measurement and Monitoring

Supplier Engagement Strategy

Supplier Development

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Measurement Framework for Supplier Management Competence
Category Capability Supplier Analysis Description
Analyse existing suppliers based on criteria such as quality, TCO, market conditions, level 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 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. 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 which occur over the duration of these supplier relationships must be reflected in the Supplier engagement strategy to enable continued strategic alignment – similarly, identifying potential new opportunities for enabling the IT strategy through our suppliers 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).
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Supplier Portfolio Analysis

Supplier Alignment

Supplier Engagement Strategy

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 vocabulary, external marketing of relationship, basic rules of engagement, etc.). 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.

Supplier Communications

Relationship Management

Relationship Operations

This encompasses activities such as: regularly communicating with supplier, providing input on ongoing requirements/orders, agreeing actions to overcome deficient supplier 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 development (e.g. ISO 9001 certification, low levels of innovation) and working with supplier in a collaborative fashion to drive improvements in these areas. (e.g. education, extensive info exchange, joint development of new products, etc.).

Supplier Development

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Measurement Framework for Supplier Management Competence
Category Capability Description
Monitor ongoing supplier relationship risks and evolving external environment risks and implement appropriate mitigating actions.

Performance And Risk Management

Supplier Risk Management

These risks may originate internally (e.g. through overly frequent changes in requirements), from the Supplier (e.g. changes in financial viability of supplier/Single Point of Failure / lack of integrity) or from changes in the external environment (new product from supplier rival). Perform performance measurement and monitoring of relevant KPIs across multiple dimensions (e.g. balanced scorecard approach) potentially using automated systems, covering both internal and supplier performance (and benchmarking), in line with requirements defined in the suppler engagement strategy.

Performance Measurement and Monitoring

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Supplier Management Maturity Profile Levels
Maturity High Supplier Alignment
Engagement strategy is focused on enabling collaboration and innovation across IT supply chain Senior level representation at key strategic and operational meetings from each party Engagement strategy extended to knowledge sharing / shared objectives underpinned via aligned incentive mechanisms Strong IT-Supplier advocacy roles function in both directions Ongoing engagement strategy now extended to include quality, and is aligned with IT Sourcing strategy, IT Supplier interfaces are formally defined for all points of interaction Engagement strategy is defined but primary focus is price and delivery Communication via nominated IT and supplier contacts Basic operating principles agreed No defined strategy for engaging with suppliers on an operational basis Ad hoc approach to IT supplier communications

Supplier Operations
Optimised order management processes (across supply chain) Incentives rewards innovation and collaboration

Supplier Performance and Risk Monitoring
OLAs in multi-supplier environments Metrics support measurement of compliance with IT Strategy

5
Optimising

4
Advanced

Risk across extended IT supply chain Direct investments in IT suppliers (capital, monitored time) with shared risk Monitoring focuses on efficiency Robust order mgmt processes with and effectiveness of interactions enterprise-level prioritisation between IT, IT suppliers and Compliance focus is on improving business communication and alignment Supplier development targets gaps based Long-term strategic risks monitored (e.g. supplier insolvency, legislative on IT roadmap changes, etc.) Monitoring tracks performance and Order management in place but quality vs SLAs 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 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

3
Intermediate

2
Basic Low

1
Initial

No formal processes to manage contracts Minimal awareness of IT supplier risk No supplier development
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Assessing Current and Future Desired Supplier Management Competence Maturity
1 - Ad-Hoc 2 - Defined 3 - Repeatable 4 - Managed 5 - Optimised

Supplier Analysis Supplier Alignment Supplier Portfolio Analysis Supplier Engagement Strategy Supplier Communications Relationship Management Relationship Operations Supplier Development Performance And Risk Management Supplier Risk Management Performance Measurement and Monitoring
Desired Future Supplier Management Competence Maturity Level
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Current Supplier Management Competence Maturity Level
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Measuring Supplier Management Maturity and Importance
5.0

4.0

Level Of Maturity
3.0

Supplier Analysis Supplier Portfolio Analysis

Relationship Operations Supplier Risk Management

Supplier Engagement Strategy 2.0 Supplier Communicat ions 1.0 1.0 2.0 3.0 4.0 Supplier Development

Performance Measurement and Monitoring 5.0

Level of Importance
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Achieving Effective Exploitation of Commoditisation in Information Technology

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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

• •

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Phases of Outsourcing Relationship
Outsourcing Organisation
Analysis
Determine if outsourcing represents a business opportunity

Initiation

Plan for outsourcing of selected services, evaluate and select a service provider, create an outsourcing agreement and transfer resources and personnel to service provider Implement the capability to manage the service provider, administer the 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 provider, ensure value, implement knowledge management processes, manage technology and manage risks and threats Plan for completion, ensure service continuity, transfer resources and personnel from outsourcing organisation and transfer knowledge
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Delivery

Ongoing

Completion
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Key Capabilities Within Outsourcing Lifecycle for Outsourcing Organisations
Outsourcing Strategy Management Governance Management Relationship Management Value Management Organisational Change Management

Technology Management

People Management

Ongoing
Threat Management Knowledge Management

Analysis
Outsourcing Opportunity Analysis Outsourcing Planning Outsourcing Approach Service Provider Evaluation

Initiation

Delivery

Completion

Outsourcing Agreements Sourced Services Management

Outsourcing Completion

Service Transfer

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Key Capabilities and Constituent Practices for Outsourcing Organisations - 1
Outsourcing Capabilities and Skills Analysis Phase 1 Outsourcing Opportunity Analysis Initiation Phase Delivery Phase Completion Phase 2 Outsourcing Approach 3 Outsourcing Planning 4 Service Provider Evaluation 3.1 Establish Outsourcing Project 3.2 Service Definition 3.3 Service Provider Selection Procedures 3.4 Evaluation Criteria 3.5 Prepare Service Requirements 5 Outsourcing Agreements 6 Service Transfer 7 Sourced Services Management 8 Outsourcing Completion 8.1 Completion Planning 8.2 Service Continuity 8.3 Resources Transfer from Service Provider 8.4 Personnel Transfer from Service Provider 8.5 Knowledge Transfer from Service Provider

1.1 Define Current State 1.2 Outsourcing Criteria 1.3 Demand Identification 1.4 Outsourcing Options

2.1 Outsourcing Approach

4.1 Communicate Requirements 4.2 Evaluate Potential Service Providers 4.3 Select Candidate Service Providers

5.1 Negotiations Guidelines 5.2 Confirm Existing Conditions

6.1 Service Transition

7.1 Perform Outsourcing Management 7.2 Performance Monitoring 7.3 Financial Management 7.4 Agreement Management 7.5 Problem and Incident Monitoring 7.6 Service Delivery Change Management 7.7 Service Change Management 7.8 Review Service Performance 7.9 Stakeholder Feedback 7.10 Service Value Analysis 7.11 Continuation Decision

2.2 Business Case

6.2 Verify Design

2.3 Governance Model 2.4 Impact and Risk Analysis 2.5 Outsourcing Initiation Decision

5.3 Negotiations

6.3 Resources Transferred Out 6.4 Personnel Transferred Out 6.5 Knowledge Transferred Out

5.4 Agreement Roles 5.5 Define SLAs and Measures 5.6 Create Agreements 5.7 Amend Agreements

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Key Capabilities and Constituent Practices for Outsourcing Organisations - 2
Outsourcing Capabilities and Skills Ongoing Phase Governance Focused 13 Organisational Change Management Competency and Change Focused Environment Focused

9 Outsourcing Strategy Management

10 Governance Management

11 Relationship Management

12 Value Management

14 People Management

15 Knowledge Management

16 Technology Management

17 Threat Management 17.1 Outsourcing Risk Management 17.2 Organisational Risk Management 17.3 Intellectual Property

9.1 Outsourcing Sponsorship

10.1 Outsourcing Policy 10.2 Service Provider Management 10.3 Internal Stakeholder Management 10.4 Defined Outsourcing Processes 10.5 Align Strategy and Architectures 10.6 Business Process Integration

11.1 Service Provider Interactions 11.2 Service Provider Relationships

12.1 Organisational Outsourcing Performance 12.2 Capability Baselines

13.1 Prepare for Organisational Change 13.2 Stakeholder Involvement

14.1 Assign Outsourcing Responsibilities

15.1 Provide Required Information

16.1 Asset Management

9.2 Outsourcing Constraints

14.2 Personnel Competencies 14.3 Organisational Outsourcing Competency 14.4 Define Roles

15.2 Knowledge System

16.2 License Management

9.3 Potential Outsourcing Areas

11.3 Internal Relationships

12.3 Benchmark Outsourcing Processes 12.4 Improve Outsourcing Processes

13.3 Define Future State

15.3 Market Information

16.3 Technology Integration

9.4 Outsourcing Objectives 9.5 Organisational Outsourcing Strategy

11.4 Issue Management

13.4 Human Resource Changes 13.5 Communicate Organisational Changes 13.6 Organisational Change

15.4 Lessons Learned

17.4 Security and Privacy

11.5 Cultural Fit

12.5 Innovation

15.5 Share Knowledge

17.5 Compliance

11.6 Collaborative Relationships

12.6 Business Value and Impact 12.7 Outsourcing Alignment

17.6 Business Continuity

10.7 Adapt to Business Change

11.7 Innovative Relationships

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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

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