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Outsourcing Advisory

Outsourcing advisory commences with the establishment or clarification of the rationale for outsourcing and the definition of scope. The internal organisational situation (in terms of principles, current capabilities, risk profile and business drivers) and the external market capabilities are key things to consider before embracing the potential cost savings associated with the available sourcing options.

This assumes that the sourcing strategy and options have been finalised. Ovum advocates the view that, from a buyer perspective, an understanding of the strategic reasoning behind a sourcing decision should be solidified before entering into the selection and negotiation phase. The reality, however, is that there is substantial pressure to realise savings and release cash as quickly as possible.

Strategic sourcing is a critical component of any cost management drive, and must be seen on a par with business strategy alignment, process interdependencies and operational awareness. As such, strategic sourcing must be seen as a key step by any executive considering the efficient and effective management of their enterprise.

Sourcing in the IT industry is often considered the same as ‘complete outsourcing’ (for example, the mega-deals such as General Motors, a number of national tax offices, and the Commonwealth Bank of Australia), but this is only a component of the whole sourcing field. There are numerous models available, ranging from simple ad hoc IT support contracts to fully fledged business process outsourcing, and these have come to the fore due to the turbulent times and on the back of the selective/multi-sourcing drive of the past few years.

Given that, what is strategic sourcing? Ovum’s definition of strategic sourcing for IT is:
‘A structured and continuous process that, by following a plan, aligns an organisation’s business strategy, goals and objectives with how the IT function can support achievement of these using the optimal mix of internally and externally provided services and resources.’
Our definition is driven by the need for organisations to understand their overall strategic direction and how sourcing (regardless of type, levels and volumes) aligns with this corporate-level roadmap before they consider the transactional components of sourcing, such as which services are delivered by whom, delivery locations and pricing.

What is the strategic sourcing journey?

Too often, we have seen clients jumping straight into the ‘action’ component of the sourcing journey – in other words, defining all of the services to be outsourced, with the decision to outsource already made, and immediately engaging with vendors. However, it is not just about choosing the vendor with the lowest price.
In a perfect world, a programme of at least 12 months should be put in place, before the actual sourcing engagement, to manage the whole strategic sourcing process. This programme of work should cover:
  • the business strategy and existing alignment
  • a current business and IT capability review
  • a clear definition of the organisational principles and terms/requirements, including sourcing objectives and weightings, sourcing locations, options such as single versus multi-source comfort, levels of control and relationship/engagement, and governance models
  • market testing, gaining an initial insight into supplier capabilities, propositions and a potential pricing perspective
  • structured market responses and vendor selection
  • ongoing vendor management.