Sourcing Handbook. Tactics and Templates for Sourcing Strategy and Vendor Management. CEB CIO Leadership Council

Transcription

1 Sourcing Handbook Tactics and Templates for Sourcing Strategy and Vendor Management CEB CIO Leadership Council

2 A Framework for Member Conversations The mission of CEB Inc. and its affiliates is to unlock the potential of organizations and leaders by advancing the science and practice of management. When we bring leaders together, it is crucial that our discussions neither restrict competition nor improperly share inside information. All other conversations are welcomed and encouraged. Confidentiality and Intellectual Property These materials have been prepared by CEB Inc. for the exclusive and individual use of our member companies. These materials contain valuable confidential and proprietary information belonging to CEB, and they may not be shared with any third party (including independent contractors and consultants) without the prior approval of CEB. CEB retains any and all intellectual property rights in these materials and requires retention of the copyright mark on all pages reproduced. Legal Caveat CEB Inc. is not able to guarantee the accuracy of the information or analysis contained in these materials. Furthermore, CEB is not engaged in rendering legal, accounting, or any other professional services. CEB specifically disclaims liability for any damages, claims, or losses that may arise from a) any errors or omissions in these materials, whether caused by CEB or its sources, or b) reliance upon any recommendation made by CEB.

3 For most organizations, sourcing is a critical and unavoidable activity. SOURCING IS A CORE ACTIVITY FOR IT External Spend as a Percentage of Total IT Spend Sixty-six percent of the 149 organizations surveyed spend more than 10% of their IT budget on outsourcing and contractors. 58% 68% External Internal 42% 32% Source: CEB 2008 and 2012 Budget and Spending Database. Spending on d s and Contractors Organizations That Have d Less Than 10% 34% Organizations That Have d More Than 10% 66% Sourcing Defined IT sourcing is a set of processes for finding, evaluating, and managing suppliers of IT products and services; this includes software and hardware vendors and service providers such as integrators and outsourcers. n = 149. Source: CEB 2012 IT Budget and Spending Database. THE CHANGING FACE OF SOURCING SOURCING VALUE EROSION IT SOURCING LIFECYCLE HOW TO USE THE HANDBOOK 3

4 The maturation of cloud technologies, integrated business services, and greater business partner responsibility for technology decisions will alter the dynamics of sourcing and vendor management in the next few years. THE CHANGING FACE OF SOURCING Business and Technology Trends Impact Implication 1. Technology as a : Infrastructure and Applications are becoming available as virtualized, configurable, and scalable services in the cloud or will adopt licensing structures to mimic a service. 2. The Industrialized, Externalized Back Office: Industry standards will emerge for back-office business processes that are then delivered by external providers. The cloud provides an additional approach to external provision that will lead to externalized assets and activities that were not viable with other forms of outsourcing. IT will have fewer operational roles supporting back-office business processes. More Sourcing: Delivery will be increasingly externalized as vendors expand service provision and internal resources become brokers, not providers. 3. Selective Business-Owned Technology Sourcing: Business unit leaders and end users will play a greater role in obtaining and managing technology for themselves where differentiation has more value than standardization. Increasingly, technology-aware business leaders will be involved in key stages of technology procurement. Need for Stronger Sourcing Processes and Skills: IT will need to upgrade sourcing strategy and processes. Vendor management competencies, such as influencing, negotiation, market awareness, will become critical. Source: CEB analysis. For further analysis of future sourcing trends, see The Future of Corporate IT Vol. 3, Externalized Delivery. THE CHANGING FACE OF SOURCING SOURCING VALUE EROSION IT SOURCING LIFECYCLE HOW TO USE THE HANDBOOK 4

5 Analyze all business processes based on their role in providing competitive advantage and severity of operational risks to determine their outsourcing suitability. Cisco uses a framework to evaluate the readiness of all processes for outsourcing by applying strategic and operational risk filters to core and noncore activities. In this dynamic model, activities move between quadrants based on changing business needs and strategies. STRATEGIC AND OPERATIONAL RISK FILTERS Business Process Outsourcing Suitability Screen Mission Critical Any activity that, if performed poorly, would pose an immediate threat Core Any activity that contributes to competitive advantage In House Retain complete control Engage and control Cisco personnel Continue in house Our way, our standards Noncore Any activity that does not contribute to competitive advantage Out-Task and Transition Maintain outcome control Disengage and control Strategic partners Drive productivity Your way, our standards Sourcing Type Product Managed Cloud Source Sourcing Roles Business User Delivery Sourcing Non-Mission Critical Any activity that, if performed poorly, would not pose an immediate threat Out-Task and Review Maintain process control Engage and entrust Specialist partners Focused investment Our way, your standards More in the Core: Not all core activities are off limits for outsourcing; an initial risk screen can uncover suitable core activities given an appropriate level of control. Source: CEB analysis. INTRODUCTION: ALIGN WITH BUSINESS STRATEGY TEST SUITABILITY OF SOURCING MODELS Give up control Disengage and entrust Vendors Leverage and contract Your way, your standards ASSESS PROCESS READINESS ALIGN SOURCING STRATEGY WITH BUSINESS GOALS 5

6 Test strategic impact and reliance on relationships of specific IT activities to help determine potential outsourcing models. TEST OUTSOURCING SUITABILITY Global Sourcing Framework Applications Sourcing Framework Relationship-Neutral Relationship-Rich Strategic Lever Application development and integration Specification of application functionality Generation of high-level business requirements Sourcing Type Product Managed Cloud Source Sourcing Roles Business User Delivery Sourcing Global IS Strategic Lever Any activity that plays a role in helping Diageo achieve strategic ambitions Nonstrategic Any activity that has no strategic consequence to the business Relationship- Neutral Any activity that does not depend on strong relationships for success Managed /Priming/ Outsourcing (Potentially Offshore) Source: CEB 2006 Managing Infrastructure Outsourcing. INTRODUCTION: ALIGN WITH BUSINESS STRATEGY Partnering Through Smart Source (Near Source) Relationship-Rich Any activity that requires strong relationships or people insight for success IS Internal (Retain) TEST SUITABILITY OF SOURCING MODELS Rollout and application support Training Infrastructure Sourcing Framework Strategic Lever Relationship-Neutral Hardware requirements and high-level specification Sourcing, building, configuration License management Hand-holding support (internal coaching) Relationship-Rich Equipment allocation to employees (high level) Governance and Management Sourcing Framework Strategic Lever Nonstrategic Nonstrategic Nonstrategic Relationship-Neutral Asset management priority and methodology Replicable processes Asset management processes ASSESS PROCESS READINESS Line manager equipment requirements Relationship-Rich Change management principles methodology Global responsibilities and accounting Global problem resolution Local problem resolution Local change management rollout Local responsibility and accountability ALIGN SOURCING STRATEGY WITH BUSINESS GOALS 6

7 Make sourcing decisions based on IT role by creating a sourcing matrix to determine the degree to which each role can be outsourced. Without clear definitions of roles and competencies, appropriate sourcing decisions cannot be made. Strategic roles are too important to outsource. EVALUATE SOURCING FEASIBILITY BY IT ROLE Sourcing Matrix Excerpt Degree of Collaboration High Collaboration Medium Collaboration Low Collaboration Constant collaboration, face Frequent virtual collaboration, Frequent virtual collaboration, to face required with business; some face to face minimal face to face Strategic Importance colocation desired Defines Business Strategic Strategic Project Dependent Defines business and supporting IT strategy and architecture; should be internal Application Architect Data Architect Program Requirements Systems Engineer 1 Finance Systems Engineering Launch Sourcing Type Product Managed Cloud Source Influences Business Strategic Project Dependent Market-Sourced s Contributes to realizing IT strategy and may possess substantial institutional or proprietary knowledge; may be external Contract Business Analyst Requirements Lead Project DBA Development QC Lead QC Requirements Analyst Implements Business Solution Project Dependent Market-Sourced s Market-Sourced s Executes the defined solution; high potential to outsource Administrative Assistant Launch Project Controller Launch Support Production Support Tier 2 Application Administration Production Support Tier 2 Production Support QC Analyst Developer QC Tester Production Support Tier 1 Systems Administrator Sourcing Roles Business User Delivery Sourcing Strategic Cannot Project Dependent Some Outsourcing Possible Market-Sourced s Candidate for Outsourcing 1 Pseudonym. Source: CEB 2008 Reshaping Skills Portfolio. INTRODUCTION: ALIGN WITH BUSINESS STRATEGY TEST SUITABILITY OF SOURCING MODELS ASSESS PROCESS READINESS ALIGN SOURCING STRATEGY WITH BUSINESS GOALS 7

8 Gaps in internal processes must be identified and addressed before undertaking sourcing initiatives. VALIDATE SOURCING READINESS Potential Process Gaps Process Readiness Assessment Tool Excerpts GSK tests internal process readiness for outsourcing suitability by identifying gaps in process definition, control, and enablement. Section 1: Process Definition Gaps Assesses understanding of processes and complexity Represents critical exposures Criteria High Suitability = Low Risk Assessment of Process Readiness 1. Objectives Clearly defined objectives, as a result of the outsourced opportunity, are definable, measurable, and realistic. 2. Application Uniqueness 3. Size and Complexity Industry standard or configured solution with standard technology, supporting a common process Measure of the complexity of application or process and underlying technology, e.g., enhancement, integration, number of technologies; how long does it take new users to understand it? Objectives undefined 1 10 Obscure, highly proprietary, supporting exclusive process Complex, requiring years to thoroughly understand 1 10 Objectives defined and regularly reviewed Common knowledge, e.g., configured standard solution 1 10 Simple and can be understood in a few weeks Risk R/Y/G Sourcing Type Product Managed Cloud Source Sourcing Roles Business User Delivery Sourcing Section II: Process Control Gaps Outlines oversight or monitoring deficiencies Exposures must be fixed before proceeding or at outset of deal. Section III: Process Enabler Gaps Focuses on potential workflow and efficiency risks Exposures require ongoing monitoring. 9. Delivery Processes 14. License Provision Source: CEB 2007 Process Readiness Assessment. INTRODUCTION: ALIGN WITH BUSINESS STRATEGY 15. Communications 16. Impact on Existing Roles The processes to produce required outputs are clearly understood and defined. This should Inconsistent and include processes associated with management undocumented of delivery (e.g., change control). Where GSK processes processes are used, training requirements should be defined. 10. Metrics Metrics for monitoring project/service delivery performance and quality are (or can be) defined. 11. Cost Baselined The project/service cost baseline and its composition are understood. 12. Project/ Management There is an overall project/service management capability planned to be resourced within GSK. Is there a possibility GSK will be expected to provide licenses for software accessed via or installed on the offshore desktop? Note: Refer to guidance in License Sheet tab in this workbook. Nature of required communications is understood. Mechanisms to overcome remote working and time zone differences can be implemented. Yes Y N No Frequent ad hoc, face to face communication required 1 10 No metrics defined 1 10 Current costs unknown with no estimates Unclear management roles or responsibilities Are GSK or CW roles potentially impacted (at risk)? Yes Y N No TEST SUITABILITY OF SOURCING MODELS ASSESS PROCESS READINESS Documented and enforced processes Metrics defined, regularly reported, and reviewed Current costs fully understood with estimates for all components Strong management capability with defined responsibilities Predictable and structured communication can be implemented. ALIGN SOURCING STRATEGY WITH BUSINESS GOALS 8

9 Segment sourcing proposals based on impact on business objectives and ease of implementation. A COMPREHENSIVE VIEW OF STRATEGIC FIT Portfolio Segmentation Grid Illustrative Set of Sourcing Proposals for Business Unit A Business Impact High Complex Project 5 Project 3 Collaborative Project 2 Project 8 Project 1 Project 7 Project 6 Project 4 Business Adapts to Sourcing Strategy Procurement proposes to accelerate qualification of new emerging market supplier. Business impact is to improve COGS while meeting local content requirements. Business decides to reallocate resources to fund project. Low 0 0 Hard SWAT Ease of Implementation Easy Sourcing Type Product Managed Cloud Source Sourcing Roles Business User Delivery Sourcing Sourcing Strategy Adapts to Business Procurement proposes to migrate to new regional maintenance service providers. Project Portfolio Segmentation Types Complex: High impact, difficult implementation Resource distribution 50% Procurement, 50% BU (crossfunctional team) Collaborative: Moderate impact and easy implementation Resource distribution 70% Procurement, 30% BU (Procurement lead) Source: CEB 2012 A House United: Securing Business Partner Commitment to Sourcing Strategy. INTRODUCTION: ALIGN WITH BUSINESS STRATEGY TEST SUITABILITY OF SOURCING MODELS ASSESS PROCESS READINESS SWAT: Low to moderate impact, easy implementation Resource distribution 100% Procurement (BU defines objectives and hands off) ALIGN SOURCING STRATEGY WITH BUSINESS GOALS 9

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