Smart Sourcing: The next evolution of sourcing : Thunking for work

The traditional outsourcing method has had its celebrated failures. Regular reports are published about cost overruns, contract disputes, and poor customer satisfaction. Many of these failures have been due to inflexibility of the sourcing contract, which may not easily change to respond to market pressures and business requirements. It is commonly known in the service industry and outsourcing is cyclic, with companies moving from in to out source and back again. This is extremely and distracts the IT organization from core business.

Organizations need to be able to change the financial model, adjust the IT service portfolio and alter the technology landscape. The blame for this is not entirely in the hands of the service provider. While traditional outsourcing places responsibility on the provider, in reality, a sourcing method has demands on both the organization and the provider.

Common causes of failures are:

Lack of direct business drivers: Often existing internal IT departments and business are not integrated. A gap in knowledge exists between IT's capability and the business's requirements. Sourcing providers are brought in to solve this problem but are only able to understand the organization at a snapshot in time.

Failure to properly prepare the IT organization: Sourcing is undertaken to resolve a problem with the current IT service delivery. The provider has the task of reforming the delivery method in an environment that the organization had been unable to do for many years.

Adversarial provider selection and contract negotiation process: The use of outsourcing for cost reduction as the principle method for evaluating a sourcing solution makes a conflicting relationship between organization and provider.

Theoretically derived service levels: A lack of historical knowledge of current services levels and capabilities puts the onus on the provider the commit to services levels that have no baseline reality

Poorly planned transition and implementation: Often the solution design and transition phases are performed by completely separate teams (e.g. organization senior management and provider sales vs. organization technical staff and provider delivery staff). Transition is often less that 20% of the solution design effort, but can make or break the success of the sourcing solution.

Smart Sourcing is an evolution of the outsourcing that mitigates the limitations of the traditional sourcing methodology to provide a win-win relationship for the business and the provider over the long term. There are six core principles that serve to guide the implementation and strategy for the sourcing relationship.

The three principles of implementation are:

Preparation of the enterprise for outsourcing by designing the existing IT service delivery in a flexible, modular way that provides maximum flexibility in sourcing strategy. Enterprises should design a measurement framework into the environment to collect real data about service delivery performance. Proper preparation limits risk for both the enterprise and the provider.

Planning provides a picture of the end state and a plan for achieving the vision. Strategy is practical—not mission and vision statements—and includes a business case development process that uses measurable information about the enterprise to identify areas of business value. Change acceptance within the organization is a crucial part of the planning process.

Partnership is the key to long-term success and building a community of providers who share common goals.

The three principles for strategy development are:

Flexibility helps build relationships through service level agreements (SLAs) and contracts that provide for shorter term relationships that can change scope. Within the term of the relationship, an enterprise may need to change IT services, technical architecture, service management processes, cost structure and staffing profile.

Choice in a multisourcing strategy allows for the selection of the most suitable provider for each task. Multiple providers reduce provider lock-in and give greater choices for future sourcing relationships.

Control lets enterprises carefully select the capabilities needed to retain for business value. As a base, enterprises may want to retain IT service management, architecture/data management and business consulting.

Note: this post is an extract from the Whitepaper "Smart Sourcing: An implementation roadmap"