The document provides a comprehensive overview of IT software sourcing, including spend taxonomy, sourcing arrangements, best practices, and key buzzwords. It outlines various sourcing strategies like insourcing, strategic alliances, and joint ventures while emphasizing the importance of careful vendor selection and negotiation. Additionally, it highlights the need for effective contract management, compliance, and addressing change management challenges to ensure successful software procurement.

1. IT Software Sourcing - Overview
MehulVora

2. Index
1. InformationTechnology SpendTaxonomy
2. IT Sourcing Arrangements
3. IT Software CategoryTree
4. IT Software BuzzWords
- IT Software BuzzWords continued..
5. Sourcing Approach & Strategy
6. Savings Levers
7. Contractual Best Practices
8. IT Software Category Management Best Practices

3. InformationTechnology SpendTaxonomy
Tier 1 - Group Tier 2 - Family Tier 3 - Category Tier 4 - Commodity (Subcategory) * Strategy/Execution
INDIRECT GOODS AND
SERVICES
IT/ TELECOM
IT HARDWARE
HARDWARE MAINTENANCE G/R or R/R
INFRASTRUCTURE G/G or G/R
IT HARDWARE OTHERS
WORKPLACE G/R
IT SERVICES
HELP DESK SUPPORT R/R
HOSTING SERVICES
IMPLEMENTATION & INTEGRATION G/R
IT CONSULTING G/G
IT MANAGED SERVICE PROVIDER G/G or G/R
IT NETWORK MONITORING G/G
IT STAFFING SERVICES R/R
IT SUPPORT SERVICES G/R
SECURITY
IT SOFTWARE
BUSINESS APPLICATIONS & SUPPORT G/G
ERP LICENSES G/G
ERP MAINTENANCE & SUPPORT G/G
INFRASTRUCTURE G/R
SECURITY G/R
SOFTWARE OTHERS
WORKPLACE
TELECOMMUNICATIONS -
EQUIPMENT, SERVICES AND
SUPPORT
AUDIO / VISUAL EQUIPMENT & MAINTENANCE R/R
CONFERENCING SERVICES & SUPPORT R/R
DESKTOP PHONES R/R
MOBILE EQUIPMENT G/R or R/R or R/L
MOBILE SERVICES & SUPPORT R/R or R/L
TELECOM MANAGED SERVICES PROVIDERS R/R
WAN EQUIPMENT G/G or G/R
WAN SERVICES & SUPPORT G/G or G/R
WAN TRANSPORT G/G or G/R
WIFI EQUIPMENT G/G or G/R
WIFI SERVICES & SUPPORT G/G or G/R
G = Global
R = Regional
L = Local
*The Strategy and Execution is dependent on the size of an organization, geographical spread, centralized vs.
decentralized model of the procurement function etc.

4. Companies typically pursue sourcing of IT in four different types of
arrangements.
Insourcing –
“Providing the IT services
internally”
Gartner Group.
• Differentiating Solutions Delivery
• Differentiating Infrastructure
Strategic Alliance –
“Integrating the core competencies
with external capabilities of allies
to generate growth” The Warren Company.
•Differentiating Solutions Delivery
• Differentiating Infrastructure
Joint Venture –
“Formalized alliances resulting in the
creation of a new space, separate
business entity” The Warren Company.
•Commodity Solutions Delivery
• Commodity Infrastructure
Differentiating
Commodity
Outsourcing –
“Contractual relationship with
an outside vendor to assume
responsibility for one or more
of IT functions” CIO Magazine.
• Commodity Solutions Delivery
• Commodity Infrastructure
Strategic Alliances leverage a
company’s
resources...and competencies,
adding
significant value to the
marketplace
and the bottom line.
There is a growing evolution
toward
vendors...partnering with other
vendors
to increase capabilities to win
business.
IT Sourcing Arrangements

5. IT Software CategoryTree
IT Software
Systems &
Network Software
•Operating System
•Office Productivity Suite
•Network Management
•Security
•Mobile Device Management
•Collaboration
Supply Chain
Management
HRM
Corporate
Performance
Management
Content
Management
CRM ERP
Business Application
Software
•WMS
•TMS
•Supply Chain
Planning
•Inventory
Optimization
•Customs filings and
brokerage
•FTZ Management
•Retail POS
•EDI
•Payroll
•Time & Attendance
•Benefits
Management
•Recruiting
•Training
•Performance
Management
•Leadership
Planning
•Budgeting, planning
and forecasting
•Profitability
modelling &
optimization
•Financial
consolidation, close
•Financial &
management
reporting &disclosure
•Catalog
Management
•Digital Asset
Management
•Authoring
Software
•Translation/
Globalization
Software
•Web Content
Management
•Help Desk
•Web chat/ email
•Sales automation
•Marketing
automation
•Call center
management
•Warranty & Claim
Management
•Customer Data
Management
•Product Life Cycle
Management
•Customer
Relationship
Management
•Supply Chain
Management
•Supplier
Relationship
Management

6. IT Software
BuzzWords
➢ Deploy: To install, test and implement a computer system or application
➢ In-memory Analytics: Business Intelligence deployments are typically disk-based, meaning the application
queries data stored on physical disks. In contrast, with in-memory analytics, the queries and data reside in
the server's random access memory (RAM). In-memory analytics helps improve the overall speed of a BI
system and provides business-intelligence users with faster answers.
➢ Legacy: In computing terms, the word legacy is used to describe outdated or obsolete technology and
equipment that is still being used by an individual or organization.
➢ Legacy Applications: An application in which a company or organization has already invested considerable
time and money. Typically, legacy applications are database management systems (DBMSs) running
on mainframes or minicomputers. An important feature of new software products is the ability to work with
a company's legacy applications, or at least be able to import data from them
➢ Multi-user interface: Typically refers to an operating system that allows concurrent access by multiple users
on the system
➢ OpenDocument Format (ODF): It is an ISO standard (ISO/IEC JTC 1/SC 34N0681). An open file
format enables users of varying office suites to exchange documents, such as text-based
documents, spreadsheets, charts, or databases, freely with one another. Any software maker can ensure its
own application can read and write this format.
➢ User Session: The period of time a user interfaces with an application. The user session begins when the
user accesses the application and ends when the user quits the application.
➢ Vertical Application: A vertical application is any software application that supports a specific business
process and targets a smaller number of users with specific skill sets and job responsibilities within an
organization. E.g.: ERP, CRM.

7. IT Software
BuzzWords
➢ Virtualization: Vvirtualization means to create a virtual version of a device or resource, such as
a server, storage device, network or even an operating system where the framework divides the resource
into one or more execution environments.
➢ User Interface (UI): The junction between a user and a computer program. An interface is a set
of commands or menus through which a user communicates with a program. A command-driven interface is
one in which you enter commands. A menu-driven interface is one in which you select command choices
from various menus displayed on the screen.
➢ Widget: Is a generic term for the part of a GUI that allows the user to interface with
the application and operating system. The term also refers to the program that is written in order to make
the graphic widget in the GUI look and perform in a specified way, depending on what action the user takes
while interfacing with the GUI. The term widget is used to refer to either the graphic component or its
controlling program or to refer to the combination of both.
➢ Customization
➢ Configuration: Configuration uses the inherent flexibility of the enterprise software to add fields, change
field names, modify drop-down lists, or add buttons. Configurations are made using powerful built-in tool
sets
➢ Customization : Involves code changes to create functionality that is not available through configuration.
Customization can be costly and can complicate future upgrades to the software because the code changes
may not easily migrate to the new version. Wherever possible, companies should avoid customization by
using configuration to meet their goals. Companies also should understand their vendor's particular
terminology with regard to this issue since words like "modifications" or "extensions" often mean different
things to different vendors.

8. IT Software sourcing requires detailed homework before going to the
market
Sourcing Approach
 Software sourcing process requires more than just the knowledge of application/ solutions but also the existing
best practices, key emerging industry specific trends
 Engaging research firms for initial conditioning and external SMEs for complex solutions (ERPs/ CRM) will
significantly reduce the failure risks, alternatively use RFI to understand market offering
 Leverage market competition to your advantage by giving all potential suppliers equal opportunity (no
preferential treatment for senior stakeholder’s recommended vendor)
 Finalize a preliminary budget, the extent of requirements will eventually determine the final price
 Combined RFI/RFP round, option to do a second round with shortlisted suppliers with an outlier report of their
initial offer to focus on the areas of improvement
Sourcing Strategy
 Invite supplier based on RFI score or if doing an RFP shortlist supplier based on research recommendations, post
RFP short listing engage with reference for evaluating services and satisfaction
 Use the sourcing process to assess difference license types and software delivery models for comprehensive TCO
analysis
 Focus on other costs like: Training, Hardware requirements, internal resource for solution administration,
helpdesk and support
 Provide opportunity to bidders to demonstrate the solution or share key business workflows that have been
useful to your organization Successful sourcing strategies include executing long term agreements,
 Finalize the process with a direct negotiation

9. Efficiently deploying savings levers can reduce upfront software
acquisitions costs
Procurement
Savings Levers
Effective Demand
Management
Improved
Purchasing
Processes and
Practices
Effective Supply
Management
“Strategic Sourcing”
• Identify bidders base on solution capability
• Capture pricing at a granular level
• Use SLA’s levels obtained during RPF/RFI as the
bases for Service delivery and management
• Push for pricing concessions over different contract
durations
• Negotiate on scope and the rate to avoid later
stage cost bumps
• Limit number of licenses at the start of the program
• Keep a pool of fixed and floater licenses to keep
costs down
• Develop process to manage licenses (IT asset
management program) to track license
requirements and allocations across Bus
• Consolidate T&M related activities for better
negotiations (a high and vague number will attract
additional & high T&M costs)
• Finalize costs of follow-up activities (T&M) charges
or ask for standard pricing for standard activities
• Track budget vs actual costs for controlling costs
• Incentivize vendor to provide a guaranteed
maximum pricing options

10. • Include mechanism/formula for price hike for license and maintenance fees once the initial term is
over. Consumer Price Index is a safe benchmark.
• In some cases, if the rollout plan is stretched, the clients explore the option of starting with SaaS (to
keep Capital Costs low) and switch to License Model when the number of purchases reach a threshold.
Include the verbiage/rates for switching at different point of times during the contract period.
• SLAs for support/maintenance and Subscription service offerings
• Escalation Matrix for prioritization of situation based on criticality and associated response/resolution time.
• The contract should carry clear credit structure to reimburse the client if services are not met.
• Termination Scenarios –
• Termination for Convenience from Client – Notice Period and Minimum Lock In period guidelines should be
defined. Generally a 1 year lock in and 1 month notice period is a good scenario for SaaS. Incase where
discounts are tied to contract time period, the contract should define client returning only the discount benefits
and not bear the impact of the entire software cost.
• Termination from Supplier – Pro rated license fees to be returned to the client incase of SaaS. For Licenses, the
unamortized cost (based on a negotiated formula) should be returned to the client.
IT Software - Contractual Best Practices

11. IT Software - Category Management Best Practices
Internal Resistance
Demand and Contract Management
Change Management
Issue Considerations
• Alignment of the business team is essential to drive supplier selection. Often
business units/teams clash on the choice of suppliers. Procurement can add value by
showcasing metrics like per unit cost/TCO over 3-5 year period along with capability
scores to drive home the selection.
•During Maintenance renewals
•Evaluate ticket data from previous years to analyze incident data and criticality data
from previous year . Question clients need for more expensive support plans
•Cancel support on licenses not being used. This is more pronounced in enterprise
user licenses where users leave the company but the company continues to pay
maintenance. True Up and Procurement analysis of the data is a key value add step
here.
• Change Management effort is significant as it involves resources on client side
• Time and efforts on client end should be aligned as per timelines.
• Ensure senior executive sponsorship
• Engage with key users and stake-holders early and throughout the process
Compliance
• Ensure strict guidelines to prevent rogue software purchases at a plant or office
level. Software malfunctioning can cripple the entire IT infrastructure.
• Year end follow ups with suppliers to true up on license numbers and savings check
(if the discounts are based on achieving certain number of volume targets)

12. ThankYou