Monday, 29 September 2014

Four sourcing strategies from automakers, companies will be better able to foster innovation and efficiency in their IT outsourcing

As many companies have discovered, much to their dismay, IT outsourcing doesn't always go as planned. In case after case, the lower costs, better service quality, and greater agility everyone was expecting turn out to be elusive. Looking for lessons in failed engagements has become a virtual pastime for the IT sector, yet the disappointments continue. Perhaps it is time to draw insights on outsourcing from another sector -- specifically from one that does a better job of it, the automotive industry.

By following four sourcing strategies from automakers, companies will be better able to foster innovation and efficiency in their IT outsourcing. Just as important, it will spur companies to manage IT as a core component of their business. 

1. Retain expertise: Rebuilding IT expertise will take time, so companies should get on their way. They can decide if any outsourced services could be taken back in-house, and add technical experts to their procurement teams. They can prioritize emerging key technologies, such as virtualization and the cloud, and gradually build skills by hiring or developing the necessary talent. Finally, sourcing and vendor management must become integrated parts of an IT career path and not treated as an end station, as is sometimes the case.

2. Pay attention to processes that provide an edge: In IT, all outsourced processes -- whether a "differentiator" or a more commoditized task -- tend to be handled in the similar, hands-off fashion, with the company relying on the vendor to get things right. The automotive industry approach would let companies' in-house IT teams focus their efforts where the payoff would be greatest. For instance, at a logistics company, one differentiating process might be the routing of trucks. The IT application that supports that routing should be flagged for special treatment, such as stepped-up collaboration or supervision. For here, improvements aren't just beneficial, they can bring competitive advantage. 

3. Challenge suppliers to deliver improvements: In many engagements, ambiguous contracts, hands-off management, and difficulty switching providers (or a reluctance to do so) give vendors little reason to focus on improvements. To get closer to the automobile model, IT organizations should move to standardized environments when possible, particularly in the cloud. They should also consider the "champion-challenger" model, where one provider does the bulk of the work, but another does some of it (and can step in further if necessary). Another approach is to assign one provider the execution of a task, but give another a quality control role, making sure the work gets done. 

4. Emphasize transparency: IT organizations, which typically pay for services on a volume-centric measure -- be it MIPS, terabytes, or number of transactions -- rarely have such an inside view. To gain such a view, they could devote procurement staff to better understanding costs, as well as promote more dialogue and information sharing with providers. As procurement staff members develop more expertise, they'll be better able to evaluate the pricing and quality of the services they are sourcing.

There is a reason IT organizations embrace outsourcing: It can really deliver benefits. But to see them, companies need to get back in the driver's seat, creating the right incentives, and balance, in their sourcing relationships. By embracing these four lessons from the auto industry, they can do just that -- and enjoy a smoother road ahead.

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