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CCG sourcing management-beyond outsourcing


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Paper 3 of 3 in the series on Sourcing Management

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CCG sourcing management-beyond outsourcing

  1. 1. Sourcing Management: Beyond outsourcing A CHERUBLEEGREEN White Paper by Mark Probyn and John Liburti CONTENTS Introduction ....................................................................... 3 Business forces shaping the need...................................... 6 Managing in-house services .............................................. 8 Managing shared services ............................................... 12 Conclusion ....................................................................... 15
  2. 2. Sourcing Management: Beyond outsourcing PREFACE This paper is the final in a series of three CHERUBLEEGREEN white papers on the subject of Sourcing Management. The first two papers in the series, titled Sourcing Management: What’s the Problem? and Sourcing Management: Prepare for excellence were published in June 2008 and July 2008 respectively. Both papers are available at The series presents insights into CHERUBLEEGREEN thinking on the subject matter and précis our approach to helping our clients establish the mechanisms and disciplines necessary for effective management of sourced services. AUGUST, 2008 © 2008 Cherub LeeGreen Pty. Ltd. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. CHERUBLEEGREEN disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although CHERUBLEEGREEN may discuss legal issues related to business, CHERUBLEEGREEN does not provide legal advice or services and its research, reports, advice or presentations should not be construed or used as such. CHERUBLEEGREEN shall have no liability for errors, omissions, or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice. 2|Page
  3. 3. Sourcing Management: Beyond outsourcing Introduction In the first two papers of our tri-part series we identified that the key to achieving excellent results from outsourcing deals and realising sourcing strategy objectives is excellence in the discipline of sourcing management. The problem we all too often encounter is a lack of appreciation as to what holistic sourcing management really entails. As found in a study by Vantage Figure 1 The sourcing management function and stakeholder groups Partners et al1, at least 15% of Service Recipient Service Provider the total outsourcing contract value is at risk if the deal is not Enterprise Vendor well managed. Senior Senior Management Management Five capabilities Service Performance Management We presented our view that the sourcing management Championing Relationship Service function is comprised of five Innovation Management capabilities: Sourcing Management Function  Relationship Management;  Service Performance Contract Administration Service Financial Management; & Management Management  Service Financial Vendor Service Service Management; End-Users Delivery  Contract Administration & Agents Management; and  Championing Service Innovation. Four stakeholder groups We identified that effective sourcing management interacts with and influences both the service recipient and the service provider. There are therefore four main stakeholder groups to be managed:  Enterprise senior management – the persons sponsoring and responsible for the sourcing strategy;  End user community – the persons within the enterprise who actually use the contracted services on a day-to-day basis;  Senior management of the service provider – the persons responsible for profitability of the deal at the vendor enterprise; and  Service delivery and support agents of the provider – the persons responsible for the day-to-day operational supply of the contracted services. 3|Page
  4. 4. Sourcing Management: Beyond outsourcing Two fundamental aims Information Servicesi (IS) department; or it may be an entity established and jointly In addition, we identified two fundamental owned by several enterprises or autonomous aims for the sourcing management function: entities such as State or Federal Government 1. Ensure that sourcing arrangements departments. deliver to desired outcomes and Regardless of the sourcing model – in-house, objectives. shared or external provider – the fundamental 2. Foster, facilitate and channel open issues and challenges for successfully communication between the four managing the holistic relationship and stakeholder groups. achieving the target outcomes and objectives Figure 1 depicts the communication paths are largely the same. Despite differences in between the four groups and the sourcing who the stakeholders may be; who the management function. provider is accountable to; what form the service contract takes; and so forth the issues We also presented an overview of the key and challenges will respond well to a competencies we believe sourcing management model that applies the five management practitioners must be proficient capabilities we have defined. in if excellence in the discipline is to be attained. For convenience, Figure 2 Whilst the services in question may be IT reproduces the competency map from our related or business process related, in this second white paper of the series in this paper, we will take a look at the IT in-house document. service and shared service models as they provide the most complete and mature Where else may a sourcing examples to date. management capability be used? We will explore how and why the force of We would like to round off our discussion of business demand for greater IT cost efficiency the sourcing management function by on the one hand, and greater business value- identifying where else such a capability may add from IT on the other, makes an excellent, be used to great effect. holistic sourcing management capability ever more necessary. Sourcing management, as an enterprise capability, need not be only applied in relation to traditional outsourcing arrangements. Note: We define Sourcing Management as applying If a holistic sourcing management capability to all sourced services, be they internally provided can be used to great effect where services are services from the IS department, internally provided sourced from an external vendor, then it can services from other departments, and externally also be used to great effect where services are outsourced services. sourced from an internally owned entity. That internally owned entity may be a service department of an enterprise, such as the i ...or Information Systems, which has become the less commonly used title in recent years 4|Page
  5. 5. Sourcing Management: Beyond outsourcing Figure 2 Key competencies map Sourcing Management Capabilities 1 2 3 4 5 Service Contract Key Competencies Relationship Performance Service Financial Administration & Championing (in descending order of commonality to the 5 Sourcing Management Capabilities) Management Management Management Management Service Innovation Communication – aural, verbal and written      Negotiation, Mediation & Conflict Resolution      Auditing abilities    Capacity for Thoroughness and Attention to Detail    Constructive Criticism – both giving and taking    Emotional intelligence    Information and Record keeping abilities    Investigative, Analytical and Interpretive competencies    Adherence to policies and procedures   Facilitation   Leadership   Persuasion, Influence and Advocacy   Service domain knowledge   Ability to identify risks and consider impact, likelihood and mitigation tactics  Change catalyst - the ability to initiate, manage, and lead in a new direction  Enterprise business value chain and process knowledge  Knowledge of applicable regulatory requirements and contract law  Knowledge of business and commercial practices  Knowledge of financial accounting and accounting processes and procedures  Lateral thinking  Legal literacy and comprehension  Numerical abilities  Numerical and statistical abilities   Please note that the list of competencies is not intended to be exhaustive. 5|Page
  6. 6. Sourcing Management: Beyond outsourcing Business forces shaping the 2. Business demand for more effective and sophisticated services from the IS need department. As the competitive business cycle has accelerated, so too has the Figure 3 Pressures on the IS Department demand for new or enhanced application Demand for functionality to be rolled out ever more Increased Internal Business rapidly. As personnel on the business side Forces Value-Add have grown more technology savvy, Business has increasing looked to the IS Demand for Significant & department to provide greater business Cost Efficient Ongoing & Effective IT Technological value contribution. Business expects the Services Change IS department to work closely with it to identify how it may better exploit IT and Competition External enhance or transform the value chain. from Forces External 3. Significant and ongoing technological Service Models change resulting from innovations such as distributed systems platforms; internet technologies and web-based applications; Since the late 1980’s there has been service-orientated applications increasing pressure placed upon what was the architecture; new applications traditional, in-house enterprise IS development tools; and so forth. department. In 2008, we see four main forces 4. Competition from external service and at work, creating that pressure: applications delivery models such as 1. Business demand that the IS department outsource services, application service become highly cost efficient in its internal providers, software-as-a-service vendors, processes and that it provide the business etc. with effective, cost efficient IT infrastructure. Two of the four forces we see today – competition from Added Value Growing external services and increasingly and ever more technology Capability savvy business users – were first identified as working to of Users Business reshape the IS department in 1991 by George Cox in the Requirements Wentworth Research Program paper “Time to Reshape the Identification IS Department?”. Systems and The theme was subsequently taken up and expanded upon Impact Information by Stamford, USA based IT research and advisory firm, Architecture Gartner in the mid-1990s and onwards. System Gartner has produced a number of research reports and Development presentations on the topic to date and refers to reshaped and Maintenance role of the IS department as ‘IS Lite’. Computer Growing Operations External Services Cost Efficiency IT Balance of Business Knowledge Expertise Knowledge Required Source: “Time to Reshape the IS Department?”, George Cox, Wentworth Research Program, 1991 6|Page
  7. 7. Sourcing Management: Beyond outsourcing In response to these pressures, the traditional Figure 5 Service-orientated, customer-focussed IS department structure in-house IS department has evolved significantly. CIO That evolution has been both in culture and in Strategy & organisation structure. In some situations it Architecture IS Policy, has been accompanied by amalgamation, Quality & Project Process rationalisation and transition to a shared Management services operating model. Business Services The old style in-house IS department has Application IT traditionally been technology orientated and Solution Sourcing internally (that is, IS department) focussed. Delivery Services The organisation structure was siloed with the IT functional units reflecting the technical Service Infrastructure domains of operation and staff technical Desk & Operations Services competencies. Figure 4 Traditional technology orientated IS Three aspects of particular note with this new department structure structure are: CIO a) The establishment of a Business Services unit as the point of contact and interface Project Strategy & between the Business and IS. Typically, Management Architecture the Business Services unit provides business analysis and requirements Data definition services to the Business. Some, Service Network Centre many or even all of the business analyst Desk Systems Operations personnel may in fact be embedded in the business units they serve. Others may Applications Desktop report to the various business units but be Development Systems & Support embedded in the IS Business Services unit. In addition, the Business Services unit has The newly evolved IS department has a ownership of and responsibility for the service orientated, customer focussed ethos. relationship between the Business and IS. The organisation structure reflects the new b) The prominence given to delivering culture with the technical silos dissolved; application solutions through to the replaced with functional units organised Business. The emphasis is no longer on around service delivery and support applications development (and support) capabilities. but on acquiring and delivering the Figure 5 depicts the common elements found required functionality through to in the typical new IS organisation structure. production operations. While the detail and nomenclature will vary from one IS organisation to the next, the main structural elements remain the same. 7|Page
  8. 8. Sourcing Management: Beyond outsourcing c) The establishment of a functional unit Regardless of whether the operating model is devoted to developing IS policy and that of an in-house department or a shared service and service processes and to service we are seeing the same fundamental ensuring the quality and integrity of those IS organisation structure emerge time and processes. again. Not surprising, given the common pressures faced. The new IS structure and culture is backed by new service-orientated IS processes and CHERUBLEEGREEN recognises the new IS sourcing management mechanisms which culture and structure as representing current include: industry best practice.  ITILii industry best practice service delivery Managing in-house services and support processes; The technical-silos IS department frequently  A defined portfolio of business-relevant IT suffer from having none or limited controlled services replete with a published service or controllable paths of communication catalogue containing statements of works, between itself and the Business. Requests for responsibility matrices, etc.; action on IS initiatives could and would come  Written and approved Service Level from all levels of the Business and often be Agreements defining the required service directed to whichever level of the IS performance levels and any attendant organisation deemed best able and likely to penalty or reward clauses; respond.  Written and approved Operating Level As a consequence IS resources were often Agreements (OLAs) between each of the subject to monopolisation by those business functional units of the IS department, as units with the greatest political or financial and where required to ensure effective clout. end-to-end service delivery through to the Business. In some instances, OLAs may Programme and project priorities would also be in place between the Business become skewed, as would the IT architecture. units and IS functional units depending Effective overall management of IS resources upon the responsibilities defined for each would break down. All of which would party in relation to particular IS services; inevitably increase the pressure from the  Regularly conducted customer satisfaction Business for the IS department to either lift its surveys; and performance or be replaced by externally  IS service cost identification, allocation sourced services. and if appropriate, recharge, back to the consuming business units. ii IT Infrastructure Library - ITIL is best practice in IT Sourcing management, developed by the UK Office of Government Commerce and supported by publications, qualifications and an international user group. ITIL is the most widely accepted approach to IT sourcing management in the world. 8|Page
  9. 9. Sourcing Management: Beyond outsourcing In some instances attempts Figure 6 Managed communication paths between Business and the evolved IS were made to control the department workload by attempting to CIO channel all contact from the Business through the IS Strategy & Business service desk and/or the Architecture IS Policy, Unit #n Quality & project management office Business Project Process and/or the office of the CIO. Unit #3 Services Management Unit #2 In the absence of a service- Service Performance Management Unit #1 Championing Service Relationship orientated, customer Management Innovation Application Service Management Function IT focussed culture, with Contract Service Solution Administration & Management Sourcing Financial Management Delivery Services attendant lack of a defined and published service IT catalogue, written and Service Infrastructure Desk & Operations agreed service level = Official Paths of Communication Services agreements and mature end-to-end IS service processes, these attempts often resulted in bottlenecks and delays (or the IS department. Direct communication worse) in response to, and follow-through should and does occur between those other IS with, the business units; and so usually failed. units and the Business, but with the knowledge of and coordination and guidance The new IS culture and organisation structure from Business Services. The only usual which we have seen evolve in recent years exception to that being confidential uses the capabilities of the Business Services discussions between the CIO and senior unit to manage the communication between management of the business units. the Business and the other functional units of Figure 7 Multiple paths of communication between Business and the traditional IS department If the enterprise operates an = Official Paths of Communication in-house IS department that is: = Unofficial Paths of Communication CIO a) service orientated and Project Strategy & customer focussed; and Business Management Architecture b) structured along the Unit #n lines shown in Figure 6; then Unit #3 having an effective Business Data Unit #2 Service Network Services function is crucial to Centre Unit #1 Desk Systems Operations the success of the IS culture and overall organisation. Applications Desktop Development Systems & Support 9|Page
  10. 10. Sourcing Management: Beyond outsourcing The five capabilities we have identified for for the day-to-day operational supply of effective sourcing management are essential the agreed services to the agreed capabilities of the Business Services function if performance levels. it is to succeed and excel. The key competencies that underpin those five Figure 8 maps which of the stakeholder capabilities are therefore also required. Of groups would benefit from effective application of each of the five capability course, they will not be the only competencies required. The Business Services domains that comprise the sourcing function also needs appropriate and proficient management discipline. It clearly illustrates competencies to generate capability in the the importance of having appropriate proficiencies in the five capabilities if the service delivery and support tasks of the unit. For example, business analysis, requirements enterprise is to foster, facilitate and channel definition, business process improvement, open communication between the workflow engineering and other such tasks. stakeholder groups and make the service orientated, customer focussed ethos work. In the introduction to this paper we reiterated the four stakeholder groups to be managed through the sourcing management capability. For those services which the enterprise continues to source in-house there remain four key stakeholder groups for the IS sourcing management function to influence and manage:  Enterprise and Business Unit senior management – the persons upon whom the enterprise’s IS department relies for ongoing political support and funding; the persons who ultimately decide to be or not to be customers of the enterprise IS department;  End user community – the persons within the enterprise who actually use the services provided the IS department on a day-to-day basis;  The CIO and the senior management heading each of the IS department’s functional units – the persons responsible for ensuring cost efficient, highly effective IT services are delivered through to the Business; and  The IS department’s service delivery and support agents – the persons responsible 10 | P a g e
  11. 11. Sourcing Management: Beyond outsourcing Figure 8 In-house IS: Sourcing management capabilities mapped to stakeholder groups Sourcing Management Capabilities 1 2 3 4 5 Contract Service Service Administration Championing Stakeholder Relationship Performance Financial & Service Group Management Management Management Management Innovation Enterprise and Business Unit Senior      Management End User Community    CIO and IS Functional Unit Senior      Management IS Department Service Delivery and    Support Agents 11 | P a g e
  12. 12. Sourcing Management: Beyond outsourcing Managing shared services As we noted earlier, in some situations the pressures on the traditional in-house IS department have led to amalgamation, rationalisation and transition to a shared services operating model. Typically this has been the response in environments where there are two or more autonomous or near- autonomous entities that operate as part of some over-arching organisation and which have similar IT infrastructure and services needs (perhaps of differing scale however). Examples can be found in commercial enterprises where individual companies are subsidiaries of a larger entity and in Government departments at all levels of government. At the time of writing the South Australian, Queensland, Western Australian and Victorian State Governments each have shared service initiatives underway. In the shared services model it is usual for the entities which are establishing the model to set up a separate company to provide the shared IT services. That new IS service entity takes over provision of those IT services deemed suited to the shared model from the internal IS department of each participating entity. The new IS organisation inevitably is required to be service orientated and customer focussed in culture and organisation. Figure 9 illustrates our view of generic IS organisation structure and the communication paths through to the participating entities. Figure 9 Managed communication paths between Business and Shared Services IS entity Shared Service Entity Entity N CIO Unit #n Strategy & Unit #3 Entity BUnit #2 Architecture IS Policy, Quality & Business Unit #n Business Unit #1 Project Process Entity A Unit #3 Services Management Service Performance Unit #n #2 Unit Championing Management Relationship Service Management Innovation Business #3 UnitUnit #1 Service Management Function Application IT Contract Service Unit #2 Administration & Management Financial Management Solution Sourcing Delivery Services Business Unit #1 IT Service Infrastructure Desk & Operations Services = Official Paths of Communication It is immediately apparent from Figure 9 that the task of the Shared Service entity is considerably more challenging than that of an in-house IS department in a single enterprise. In particular, the functions of the Business Services unit are considerably more challenging due to the multiplicity of the participating entities and the complexity of the resulting communication paths. 12 | P a g e
  13. 13. Sourcing Management: Beyond outsourcing Further challenge arises if there is significant highly effective IT services are delivered variation in the scale and political or financial through to the participating entities; and clout of the participating entities.  The Shared IS entity’s service delivery and Despite the significant complicating factor of support agents – the persons responsible multiple participating entities, there are still for the day-to-day operational supply of four key stakeholder groups for the IS the agreed services to the agreed sourcing management function to influence performance levels. and manage: As was the case with the evolved in-house IS  Enterprise and Business Unit senior department discussed in the preceding management of each participating entity section, having an effective Business Services – the persons across the entities upon function is crucial to the success of the shared whom the shared IS entity relies for service model and to the success of the ongoing political support and funding; the internal culture and organisation of the persons who ultimately decide to be or Shared IS entity. The additional challenges not to be customers of the shared service posed by stakeholders from two of the four entity; groups being distributed across multiple,  End user community of each participating largely autonomous participating entities entity – the persons across the make an effective Business Services function participating who actually use the services even more critical to success. provided the Shared IS entity on a day-to- Again, the five sourcing management day basis; capabilities are essential capabilities of the  The Shared IS entity CIO and the senior Business Services function if it is to succeed management heading each of the IS and it follows that the key competencies that entity’s functional units – the persons underpin them are also required. responsible for ensuring cost efficient, Figure 10 maps which of the stakeholder groups in a shared services context would benefit from effective application of each of the five capability domains that comprise the sourcing management discipline. It too clearly illustrates the importance of having appropriate proficiencies in the five capabilities if the enterprise is to foster, facilitate and channel open communication between the stakeholder groups in a shared services model and make the service orientated, customer focussed ethos of the Shared Services IS entity work. 13 | P a g e
  14. 14. Sourcing Management: Beyond outsourcing Figure 10 Shared Services IS: Sourcing management capabilities mapped to stakeholder groups Sourcing Management Capabilities 1 2 3 4 5 Contract Service Service Administration Championing Stakeholder Relationship Performance Financial & Service Group Management Management Management Management Innovation Enterprise and Business Unit senior management      of each participating entity End user community of each    participating entity The Shared IS entity CIO and the senior management heading each      of the IS entity’s functional units The Shared IS entity’s service delivery and    support agents 14 | P a g e
  15. 15. Sourcing Management: Beyond outsourcing Conclusion CHERUBLEEGREEN’s definition of and approach to the sourcing management discipline provides a sourcing management capability that may be applied and used to great effect regardless of whether you source services in-house, externally, or through a shared services arrangement. Equally it is applicable regardless of whether the services in question are IT services or business process services. From our examination of the pressures on the traditional IS department and the new style of service orientated, customer focussed IS culture and organisation structure that has evolved, we have seen that it is the Business Services unit, with responsibility for providing the interface between the Business and the IS (or business process) service entity, that needs the holistic sourcing management capability in order to succeed and excel. Excellence in the sourcing management discipline will enable your enterprise to obtain maximum benefit from its sourcing strategy and deliver enhanced value through to the business. Figure 11 Sourcing management capability excellence delivers to target objectives Business Objectives Service Performance Management Sourcing Objectives Championing Relationship Service Management Service-specific Provider(s) Recipients Innovation Objectives Service Service Service Management Function Contract Service Administration Financial & Management Management 15 | P a g e
  16. 16. CHERUBLEEGREEN is a specialist advisory and consulting firm that brings together a rich heritage of experience and expertise in business and ICT sourcing and vendor management. Our clients rely on us to deliver solutions that address their complex and challenging sourcing and vendor management issues. We are about practical solutions – combining specialist skills in governance, strategy, performance management, with our know-how in IT sourcing, vendor and contract management and program assessment and benefits realisation to provide our clients with a comprehensive and powerful business advisory asset. We provide the thought leadership, guidance, proven methodologies, templates and tools to help our clients navigate through complex sourcing initiatives, and actively work with them to mentor and coach their procurement leaders and key staff to maximise the benefit from established vendor and supplier relationships. Our core services include:  Strategic Planning service  Sourcing and Selection services  Vendor and Service Management services  Benchmarking services  Program and Portfolio Management services Contact details Mark Probyn John Liburti +61 419 376 411 +61 403 484 948 1 Study completed in 2006 by US-based consultancy Vantage Partners working in conjunction with Cutter Consortium, BT’s Vital Vision Program and EquaTerra of approximately 200 participants comprising outsourcing buyers, providers and influencers