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Outsource magazine: thought-leadership and outsourcing strategy | March 30, 2015

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Why is sourcing becoming a priority for the CIO office?

Why is sourcing becoming a priority for the CIO office?
Sanjay Chadha

The war for technology talent is expected to become more and more significant over years for organisations to gain and sustain competitive advantage. Organisations with foresight and vision understand the impact of this on their long-term success. IT today being at the forefront of implementing business decisions; organisations are competing globally to source the talent they would need to accomplish their business objectives.

In most organisations the business prioritises the IT initiatives and drives technology projects. CIOs are therefore focused on understanding business needs and planning a comprehensive IT strategy to support business needs within the defined budgets. Defining centralised policies, processes and organisation-wide standards therefore becomes extremely important for executing the IT project portfolio.

Sourcing strategy has become an important enabler to execute the IT strategy for the CIO. Long-term and short-term planning need to be supported with a well-thought-through sourcing strategy. These expectations have brought forward the emergence of the strategic sourcing function in the IT department. Traditionally, IT functions such as staffing, outsourcing, offshoring, vendor management, hardware and software procurement that were managed in a decentralised fashion are now being centralised within IT. Organisations have started to understand the dependencies among these functions and the efficiencies that they can get as a result of bringing them together.

Increasingly technology decision-makers are finding themselves in situations where projects need to be shelved unless a drastic change in sourcing strategy is made. In many situations, the organisation’s culture requires some degree of change over a period of time so that new strategies can be implemented. There is an increasing need for IT managers to understand the new sourcing paradigm shift and its impact on increase in complexity of their projects as they evaluate all their sourcing options. Organisations are more and more investing in IT managers’ training so that they can be creative and flexible towards accomplishing their objectives. The sourcing avenues are increasingly becoming complex as service providers innovate to offer more mature, global and value-based services to their clients. The basic concepts of project management would still be applicable; however various other internationalisation, control and change factors will impact the way projects will be executed and delivered in the future.

An organisation’s sourcing direction will depend on careful analysis of its needs and how it would serve the business outcomes. To a large degree of change required and maturity of its processes to implement the desired sourcing models could be other important factors. Organisations can end up being largely internally sourced if they are risk-averse and the degree of control desire is very high. Often organisations outsource due to desire to reduce cost, increase flexibility and offload areas that are not considered core competence or strategic to their business models. The journey towards outsourced models is often a multi-year evolution cycle.

Internally sourced models are most traditional employee-based models that offer the most control and predictability; however they can be the most expensive models to implement and manage.

Externally sourced models that leverage a third party could offer a range of onsite, and outsourced options.

  • Onsite options could range from being sole-sourced (single staffing provider), primary sourced (few selected staffing agencies as primary vendors), structured tiers (group of staffing agencies in a formal tiered structure) to open bidding models which are implemented using vendor management and reverse auction systems.  These activities are typically managed in organisations by contingent workforce programs which could themselves be managed by internal resources or completely outsourced to a MSP (Managed Service Provider).
  • Outsourcing is not a new concept; it has existed since organisations have realised the importance of gaining competitive advantage, reducing cost and differentiating their products. Offshoring and nearshoring are subsets of outsourcing and are location-based terms used extensively depending on the originating location of outsourcing. Ultimately it’s global sourcing: it’s about where you can get the best quality talent and the best product at the best price.

Hybrid or co-sourced models are a mix of internally and externally sourced models. Organisations end up implementing these depending on the desired degree of control, risk and process maturity. These models often get implemented in situations when organisations do selective sourcing, where a portion of business or IT process is outsourced, or do transitional sourcing where the intent to source is time-boxed during a period of transition.

Emerging outsourcing models are lately gaining accelerated acceptance in the industry. Some examples of these include Virtual Managed Hosting, Application S-a-a-S (Software as a Service), P-a-a-S (Platform as a Service), and cloud-based services. These are a new breed of sourcing models which are promising more flexibility and cost-effectiveness to the customers. However, organisations need to carefully review the vendor stability, contractual, and security parameters before implementing these models.

Sourcing models are increasingly getting more and more complex. Strategic sourcing departments can play a huge role in establishing sourcing maturity. Advanced planning can help an organisation select the right sourcing model that they can implement in context of their needs.