Engaging with the Market to Leverage your Buying Power
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Engaging with the Market to Leverage your Buying Power

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IT Sourcing - managing the risks for success. ...

IT Sourcing - managing the risks for success.

1. Strategic Sourcing – what does it mean?
2. What factors influence the decision-making process?
3. Assessing different models for streamlining buying and effectively structuring procurement
4. Effectively managing risk while delivering business value and constructing back-to-back deals
5. Expanding the sourcing options to include offshore in-house.

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Engaging with the Market to Leverage your Buying Power Engaging with the Market to Leverage your Buying Power Presentation Transcript

  • Engaging with the Market to Leverage your Buying Power Walter Adamson Digital Investor Pty Ltd [email_address] Advanced IT Contract Management and Negotiation Conference, November 2003
  • Contents
    • Strategic Sourcing – what does it mean?
    • What factors influence the decision-making process?
    • Assessing different models for streamlining buying and effectively structuring procurement
    • Effectively managing risk while delivering business value and constructing back-to-back deals
    • Expanding the sourcing options to include offshore in-house.
  • Strategic sourcing – what does it mean?
    • Strategic sourcing requires a new question
    • Tactical sourcing is inefficient, and often ineffective
    • A common cause for current disappointments
    • Future sourcing will be more complex
    1.1
  • Strategic sourcing requires a new question “ What is the best source for every IT service” NOT “What do I have in IT that seems appropriate for outsourcing” 1.2 Gartner - 30% of companies are unprepared
  • Tactical sourcing is inefficient and often ineffective
    • Bottom-up view of the role of IT
    • Often aided by IT’s reaction:
      • IT efficiency-focused in fear of CEO/CFO
      • Over-segmented and fear of loss of control
      • Often aided by ‘advisors’ who generate work
    • Complicates relationships
    • Hidden management costs
    1.3
  • A common cause for current disappointments 1.4 The single most common mistake is that organisations did not identify, and then build and retain, the strategic, management and complementary operational skills needed to create and capture the potential benefits of outsourcing. Walter Adamson
  • Future strategic sourcing will be more complex
    • Strategic sourcing is a growth industry:
      • US$68.5b business growing to $100b in 2007
      • More knowledgeable buyers
      • New pressure for growth and innovation
      • BPO a new global growth market
      • Offshore in more complex forms
    •  More complex, cross-functional relationships
    1.5
  • Factors influencing decision-making
    • Three key dimensions:
    • Business-level decision-making
    • New organisational models – outtasking
    • Extended options – going global
    2.1
  • Business-level decision
    • Benefits from the tactical approach exhausted:
    • Cost , competencies , assets
    • Focusing on contract yields no benefits
    • Future requires holistic strategy:
    • Improve business risk, value chain, EVA
    • More cross functional and “extended enterprise”
    • Deliver value as a strategic management tool
    2.2
  • New organisational models
    • Most advanced thinking is Cisco’s ‘outtasking’ :
    • Extending the organisation ‘deeply’
    • Cisco holds the keys to the overall data architecture and systems interfaces
    • Clear thinking about the customer value chain
    • Clear thinking about core and non-core
    • Sophisticated alliance relationships
    • Clear performance metrics
    2.3
  • New organisational models - 2
    • Key concept, mission critical can be outtasked:
    2.4 Non-mission-critical Mission-Critical Out-task – Type 2 In-house CORE Contract Sourcing Out-task – Type 1 CONTENT Sourcing and Implementation Strategy
  • Extended options – going global
    • The global options cannot be ignored:
    • Moving from tactical to strategic
    • Moving up the value chain
    • Moving across functions - BPO
    • Rapidly improving offshore capabilities
    • Not restricted to 3rd party outsourcing
    •  More complex, cross-functional relationships
    2.5
  • Assessing different models for structuring procurement 3.1 The funnel is often the other way around! Management Benefits ROI Contract
  • Strategic sourcing relationships 3.2 Fee-for-service Contract/Relationship Risk/Gain Sharing (new vision) Transformation (market breakthrough) (value-chain reengineering) Effectiveness (process integration) (service) Efficiency (cost) VALUE REPEAT what they know RE-APPLY what they know RE-INVENT what they know Need more flexibility to cater for uncertainty
  • Multiple service provider 3.3 (new vision) Transformation (market breakthrough) (value-chain reengineering) Effectiveness (process integration) (service) Efficiency (cost) VALUE Traditional Contractual Relationships Teaming & Preferential Relationships Advisory and Trusted Relationships Boutique Fit for Purpose (No prior contract) Relationship Best of Breed (Panel Contract) Long-term Competitive Contract Fee-for-service Contract/Relationship Risk/Gain Sharing
  • Contracts reflect relationships 3.4
    • Multiple relationships are needed:
    • Different relationships suit different purposes and responsibilities and measures and expectations
    • Axiomatically no one IT service firm can provide best of breed at all levels of the value creation and capture hierarchy
    • But not within the one relationship level !!
  • Managing Risk and Back-to-Back Contract Construction Client Service Provider Contract Terms and SLAs 4.1
  • A recent lesson in back to back #
    • Effective variations although not “in writing”
    • Contract required variations “in writing”
    • Actions of parties reflected new intentions
    • Subcontractor failed to show that failure to provide “in writing” terminated sub-contract
    • “ Agreement to vary” enforceable contract
    • “ Real intention” prevailed over written
    • #GEC Marconi Systems Pty Ltd v BHP Information Technology Ltd Feb 2003
    4.2
  • Expanding Sourcing Options to include Inhouse-Offshore
    • Benefits of off-shore plus control of inhouse:
    • “ Inhouse Offshore” IHOS
    • Capture economic value directly
    • Smooths integration of offshore process
    • Reduced relationship costs vs outsourcing
    • Knowledge retention
    • IHOS not a panacea but complementary
    5.1
  • Inhouse offshore risks
    • The risks are different to outsourcing:
    • How to set up offshore - government, tax, legal
    • Establishing management, performance goals
    • Training, staff exchange and career management
    • Systems interfaces and data management
    • Finding a reliable local partner & advisor
    5.2
  • Resources for IHOS
    • Manage the risk of setting up offshore:
    • Investment capital
    • Domain expertise
    • Structured deals, risk offsets, and exits
    • Local review and audit of process
    • London-based and other firms e.g. Ariadne Capital
    5.3
  • Contact: Walter Adamson [email_address] www.digitalinvestor.com.au +61 403 345 632 5/45 William St, Melbourne 3000