Trends in the commoditisation of information technology and the need for strategic approach to sourcing


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Understand exactly what is meant by the commoditisation of information technology and define a framework for achieving optimal business benefits from appropriate exploitation of commoditisation

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Trends in the commoditisation of information technology and the need for strategic approach to sourcing

  1. 1. Trends in theCommoditisation ofInformation Technology andthe Need for StrategicApproach to SourcingAlan McSweeney
  2. 2. Objectives• Understand exactly what is meant by the commoditisation of information technology and define a framework for achieving optimal business benefits from appropriate exploitation of commoditisation 29 December 2010 2
  3. 3. Topics• Commoditisation of Information Technology?• Framework for Exploiting Commoditisation in Information Technology• Sourcing Competence• Supplier Management Competence• Achieving Effective Exploitation of Commoditisation in Information Technology 29 December 2010 3
  4. 4. Arguments About Information TechnologyCommoditisation - Who Is Right? “IT is Dead, IT Does Not Matter” “IT is Strategic” “IT’s Strategic Importance Has Diminished” “IT Can Deliver Significant Business Value” “Oh Yes It Has” “Oh No It Hasn’t” 29 December 2010 4
  5. 5. Commoditisation of Information Technology• Elements of certainly information technology have become commoditised − A view that information technology is generally a commodity is at best a simplification and at worst deliberately misleading − The word commodity is being misused and misrepresented• But information technology is not uniform − Complex set of layers with complex interaction• How much of your information technology landscape is fungible? − Freely exchangeable or replaceable in whole or in part for another of a similar nature − Characteristic of a commodity• Lower level IT components and specific elements are transferrable between parties• Care needs to be taken when treating information technology as a commodity − Vast oversimplification 29 December 2010 5
  6. 6. Qualities of a Commodity• A commodity is a good for which there is demand and which is supplied without qualitative differentiation across a market• Commoditisation happens when goods or services lose their differentiation• Good and services become generic and uniform with implied quality• Commoditisation is caused by the diffusion of the intellectual capital necessary to produce goods or services efficiently and cost- effectively• Special skills no longer required to produce• Price governed by supply and demand factors 29 December 2010 6
  7. 7. What Is So Great About Commodities Anyway?• Price of Pork Bellies – the ultimate commodity – from 2006-2010• Could you run an IT function with such variability in the price of goods and services?• Is Information Technology a Pork Belly?• Is this really a desirable outcome?• Even if information technology is commoditised, what special skills are needed to take effective advantage? 29 December 2010 7
  8. 8. Lots of Words Associated With InformationTechnology as a Commodity 29 December 2010 8
  9. 9. Layered View of Information Technology Landscape Operations, Usage, Layer 8+ Management, Control, Governance What the Business Layer 7 Applications, Systems and is Concerned With Business Processes Layer 6 Data Presentation, Data Security Layer 5 Communication Layer 4 Connection What IT is Concerned With Layer 3 Network Transmission Layer 2 Storage and Network Addressing Storage Media and Network Layer 1 Signals 29 December 2010 9
  10. 10. Levels of Commoditisation Within Layers ofInformation Technology Landscape Layer Components Level of Commoditisation Layer 8+ Operations, Usage, Management, Control, Limited and Specific Elements Governance Layer 7 Applications, Systems and Business Processes Limited and Specific Elements Layer 6 Data Presentation, Data Security Pervasive Layer 5 Inter-system Communication Pervasive Layer 4 Connections Pervasive Layer 3 Network Transmission Pervasive Layer 2 Storage and Network Addressing, Physical Pervasive Addressing Layer 1 Storage Media and Network Signals Pervasive• Some elements of Information Technology have become commoditised and others have not• Commoditised elements can be outsourced - others cannot• Also bear in mind that out of sight cannot be allowed become out of mind 29 December 2010 10
  11. 11. What Ever Happened to Application ServiceProviders (ASPs)?• Forecasts in 1999 − IDC (International Data Corporation) - worldwide ASP market worth USD$16 billion in 2002 − Forrester - USD$21 billion by 2001 − Gartner - worldwide ASP market would reach USD$22.7 billion by 2003• The reality was around 10% of the forecast values• Many suppliers jumped on the ASP bandwagon• What was the ASP model but just a early manifestation of cloud computing?• Lessons − Hype surrounding ASP was never delivered on − Lots of businesses entered into ASP market leading to lots of failures because of inadequate business models − Generic software provided by ASP model is less useful than software customised to suit your exact needs − What lessons can be learnt and applied to today’s information technology trends and fads? 29 December 2010 11
  12. 12. Be Careful About Jumping on Bandwagons• The ride can be uncomfortable and unpleasant 29 December 2010 12
  13. 13. Framework for Exploiting Commoditisation inInformation Technology 29 December 2010 13
  14. 14. Commoditisation of Elements of InformationTechnology Landscape …• … Means you have to become good at: Implementing and operating an effective sourcing strategy Understanding and Understanding what can managing outsourcing risk and cannot be outsourced effectively Implementing and operating an effective supplier management strategy 29 December 2010 14
  15. 15. It’s Not About xShoring/xSourcing …• … It’s about having a sourcing strategy of which xShoring/xSourcing are constituent tactics 29 December 2010 15
  16. 16. Risks in Outsourcing – Lots of Them Outsourcing Risks Strategic Reputation Compliance Operational Termination Financial Country Contract Access Concentration/Systemic 29 December 2010 16
  17. 17. Strategic Risks• Outsourcing provider may conduct activities that are inconsistent with the overall strategic goals of the outsourcer• Outsourcer fails to implement appropriate and effective oversight of the outsourcing provider• Outsourcer has inadequate expertise to oversee the outsourcing provider 29 December 2010 17
  18. 18. Reputational Risks• Outsourcing provider delivers a poor service• Outsourcer’s customer service does not meet expectations in areas serviced by outsourcing provider• Outsourcing provider practices do not comply with stated practices of outsourcer 29 December 2010 18
  19. 19. Compliance Risks• Outsourcing provider does not comply with relevant laws and regulations• Outsourcing provider does not comply with consumer laws• Outsourcing provider has inadequate compliance systems and control 29 December 2010 19
  20. 20. Operational Risks• Outsourcing provider experiences technology failures that impact outsourcer• Outsourcing provider has inadequate financial capacity to fulfil obligations and/or provide remedies in the event of failure or breach• Outsourcing provider experiences fraud or error• Outsourcer experiences difficulties or high costs in undertaking inspections 29 December 2010 20
  21. 21. Termination Risks• Outsourcer has no exit strategy are not in place because of from over-reliance on one provider or the loss of relevant in-house skills• Ability to return services from outsourcing provider is difficult, time-consuming or costly because of a lack of staff or loss of intellectual capacity 29 December 2010 21
  22. 22. Financial Risks• Inadequate cost controls and charging mechanism leads to unexpectedly higher costs for outsourcer• Changes to services requested from outsourcing provider are very expensive 29 December 2010 22
  23. 23. Country Risks• Outsourcer cannot enforce contract• Incorrect selection of applicable legal jurisdiction 29 December 2010 23
  24. 24. Access Risks• Outsourcing arrangement negatively impacts ability to provide accurate and timely information• There is an additional layer of complexity in understanding activities of the outsourcing provider 29 December 2010 24
  25. 25. Concentration/Systemic Risks• Concentration of services from multiple outsourcers in small number of outsourcing providers can mean lack of control by individual outsourcer and overall systemic risk 29 December 2010 25
  26. 26. Principles of Outsourcing• Need a comprehensive policy to guide the assessment of whether and how activities can be appropriately outsourced• Senior management needs to be responsible for outsourcing policy and related overall responsibility for activities undertaken under the policy• Need to establish a comprehensive outsourcing risk management programme to address the outsourced activities and the relationship with the service provider• Need to ensure that outsourcing arrangements does diminish its ability to fulfil obligations to customers and stakeholders• Need to conduct appropriate due diligence in selecting outsourcing service providers• Outsourcing relationship needs to be governed by contract that clearly describes all material aspects of the outsourcing arrangement, including the rights, responsibilities and expectations of all parties• Need to establish and maintain contingency plans, including a plan for availability and disaster recovery and regular testing of backup arrangements• Need to take appropriate steps to ensure that outsourcing providers protect confidential information from intentional or inadvertent disclosure• Need to be aware of the potential risks posed where the activities of multiple outsourcers entities are concentrated within a small number of outsourcing providers 29 December 2010 26
  27. 27. Using Risks and Principles to Achieve EffectiveSourcing• Use as a checklist to validate any outsourcing activitiesRisk Mitigation/ Principle Complied With or Circumvention/ Reason for Acceptance DerogationRisk 1 Principle 1Risk 2 Principle 2Risk 3 Principle 3Risk 4 Principle 4Risk 5 Principle 5Risk 6 Principle 6Risk 7 Principle 7Risk 8 Principle 8Risk 9 Principle 9 29 December 2010 27
  28. 28. Core Competencies for Exploiting Commoditisationin Information Technology• Sourcing – having an effective approach to outsourcing − Concerned with managing the IT function like a business• Supplier Management – plan, analyse and manage the ongoing relationships with suppliers − Concerned with managing the IT function• Need frameworks to measure and manage organisational maturity in these key areas• Systematic approaches in these areas improves value IT can derive from its suppliers• IVI (Innovation Value Institute - IT CMF (IT Capability Maturity Framework) to measure and develop maturity and competence• Measurement provides an objective assessment of where you are, where you want to be and where to invest to get greatest returns 29 December 2010 28
  29. 29. Sourcing and Supplier Management• Supplier Management competence and associated processes operationalises the strategic decisions taken within the Sourcing competence Supplier Sourcing Management 29 December 2010 29
  30. 30. Sourcing and Supplier Management Procurement of IT Services and IT Hardware/Software Sourcing Competence Supplier Management Competence Sourcing Competence Order Contract Strategic Management Supplier Management Sourcing (Ordering/ Selection (Payment, Decision Delivery/ Penalties) Distribution) Performance Supplier Supplier Contracting Measurement Evaluation Engagement Communications And MonitoringGovernance and Supplier Risk Supplier Partner Transition Monitoring Development Integration 29 December 2010 30
  31. 31. Sourcing Competence 29 December 2010 31
  32. 32. Sourcing Competence Planning Cycle Strategy Objectives Sourcing Business Case Organisational Alignment and Scoping Model Calculation Readiness Partner Partner integration Contracting Transition Reevaluation Selection and Governance Sourcing Cycle 29 December 2010 32
  33. 33. Sourcing Competence• Define sourcing strategy and sourcing model• Evaluate outsourcing potential of IT processes• Select optimal partner(s)• Manage the transition to selected partner(s)• Setting the basis for a successful relationship with selected partner(s) to maximise business value contribution 29 December 2010 33
  34. 34. Sourcing Competence Scope• Strategic sourcing decisions on what processes are in- or outsourced to what extent• The decision on what sourcing model is applied − Internal/external − Onshore/nearshore/offshore − Single vs. multiple vendor relationship• Calculation of business cases for outsourcing projects• The process of selecting the optimal partner(s)• Preparation, negotiation, closing and re-evaluation of contracts with selected partner(s)• Managing the transition process and setting up requirements for an enduring and successful relationship with partner(s) 29 December 2010 34
  35. 35. Dimensions of Sourcing Competence MeasurementFramework Sourcing Strategy• Measure state of Sourcing competence along three dimensions − Sourcing Strategy − Contracting − Sourcing Execution• Define facets of each Contracting dimension• Measure each facet in terms of: − Associated processes and their state of development − Scope or extent within the Sourcing organisation Execution 29 December 2010 35
  36. 36. Measurement Framework for Sourcing Competence Sourcing Competence Maturity Assessment Framework Sourcing Strategy Contracting Sourcing Execution Strategy Alignment Partner Selection Transition Contract Preparation and Partner Integration and Objectives and Scoping Closing Governance Sourcing Model Selection Business Case Calculation Organisational Readiness Reevaluation 29 December 2010 36
  37. 37. Measurement Framework for Sourcing Competence Strategy • Aligning sourcing strategy with overall IT- and business strategy. Alignment • Evaluating whether a process should be in- or outsourced and clarifying sourcing objectives (e.g. quality, cost, flexibility, risk) so that expectations are clearly understood Objectives and and established. Scoping • Selecting processes to be outsourced or out-tasked according to an agreed prioritisation scheme with focus on qualitative aspects. Setting up comprehensive criteria for this scheme. • Defining of structural dimensions of the sourcing model: onshore/nearshore/offshore, Sourcing internal/external, single/multiple vendor relationship. Model • De-averaging structural dimensions into process criteria: partner/location selectionSourcing Selection criteria (e.g. existing knowledge, cost, quality, political stability, country specific legalStrategy issues etc.). • Baselining and forecasting cost and volume as well as calculation of business cases for Business Case services according to selected model. Calculation • Integrating qualitative aspects (e.g. performance, quality, flexibility) into business case. • Determining the organisational readiness (e.g. process standardisation, org structure, Organisational available resources and skills) as well as the cultural readiness for outsourcing (e.g. Readiness change willingness, restructuring experience). • Designing the structure of the retained organisation. • Regularly reviewing chosen sourcing strategy with focus on generated value, realised cost Re-Evaluation savings, changed business context (e.g. M&A) and new opportunities – this includes a plan-B-design (e.g. re-insource). 29 December 2010 37
  38. 38. Measurement Framework for Sourcing Competence • Selecting the optimal partner based on "hard" criteria defined under sourcing model as well as "soft" criteria such as fit of company culture and trust between partners Partner • Selecting partner consists of creating a long list of candidates, a request for information, a Selection short list, a request for proposal and the final decision on vendor(s). There is a differenceContracting between a first bidding process and a renewal. Contract • Developing own position (negotiable and non-negotiable items) in advance, but also Preparation considering incentives for the vendor to deliver on time and on quality – understanding and Closing the vendors success criteria to create a win-win-situation. • Defining joint transition support units, esp. project management office, HR, communication team. Ensure infrastructure connectivity and access rights to ensure a Transition smooth transition of knowledge, staff, and assets to provider. • Developing project reporting tools for tracking project progress and implement reporting.Sourcing • Communicating progress and any deviances from project plan to all stakeholders.Execution Partner • Designing the governance model for the partnership and integrating outsourcing partner Integration into overall governance model including integration of services and systems. and • Setting the basis for evaluating achieved benefits, impact and business relationship by Governance defining a comprehensive monitoring and managing system. 29 December 2010 38
  39. 39. Sourcing Maturity Profile LevelsHigh Maturity Strategy Contracting Execution The effectiveness of the scheme for The partners success criteria are Project management tools are evaluating outsourcing potential is considered during selection continuously reviewed, new 5 constantly reviewed and new criteria Contracting activities are constantly techniques are introduced are added reviewed to realise potential synergies Governance model is continuously Optimising Business cases for sourcing decisions with IT/corporate procurement optimised based on experiences are regularly reviewed from the collaboration A scheme for evaluating the Different processes for a first time bid Transition projects have a full set of outsourcing potential of all IT processes and a renewal are in place KPIs ensuring timely and reliable 4 is applied Contracting is fully integrated in the delivery - KPIs tracked permanently A standard business case development enterprise-wide procurement process The governance model includes Advanced is always part of the sourcing decision considerations of inter-supplier process relationships There is a scheme for evaluating the A detailed selection process is in place All transitions are managed as outsourcing potential of certain (including an initial list of candidates, RFI, projects with basic set of project 3 processes short list, RFP) management tools Business cases are consistently Contracting usually involves input from There is a defined governance Intermediate developed as part of the process for the IT/corporate procurement function model for the partnership in place, evaluating sourcing options which is generally adhered to Cost saving is the only criterion for Partner selection process consists of a Some large transitions are managed evaluating the outsourcing potential of request for information only as projects with an existing project 2 processes Large sourcing contracts are prepared plan Sourcing decisions are occasionally and closed with input from the IT The most important interfaces of Basic supported by business cases procurement function between the partners are defined and documented Processes to be outsourced are Partner selection is ad hoc A sourcing transition is not actively selected in an ad hoc way IT/corporate procurement function is not supported by the organisation Low 1 No formal business case is developed as involved in contracting There is no governance model for Initial part of the sourcing decision-making the partnership process 29 December 2010 39
  40. 40. Assessing Current and Future Desired SourcingCompetence Maturity 1 - Ad-Hoc 2 - Defined 3 - Repeatable 4 - Managed 5 - Optimised Strategy Alignment Objectives and Scoping Sourcing Model Sourcing Selection Strategy Business Case Calculation Organisational Readiness Reevaluation Partner Selection Contracting Contract Preparation and Closing Transition Sourcing Execution Partner Integration and Governance Current Sourcing Competence Maturity Level Desired Future Sourcing Competence Maturity Level 29 December 2010 40
  41. 41. Measuring Sourcing Maturity and Importance 5.0 Partner Integration 4.0 and Transition Governance Level Strategy Alignment Business Of Case 3.0 Reevaluation Maturity Calculation Objectives Partner Selection and Scoping 2.0 Sourcing Model Selection Organisational Contract Readiness Preparation and Closing 1.0 1.0 2.0 3.0 4.0 5.0 Level of Importance 29 December 2010 41
  42. 42. Supplier Management Competence 29 December 2010 42
  43. 43. Supplier Management Competence• Supplier management is concerned with the execution of the IT supplier strategy and manages the suppliers on an operational basis• Supplier management operationalises the strategic decisions of IT suppliers and contracts agreed in the Sourcing competence• Effective supplier management provides opportunities for cost reduction from better control of assets and people, as well as value-creation opportunities by supporting IT supplier collaboration and innovation 29 December 2010 43
  44. 44. Supplier Management Competence Scope• All activities related to managing ongoing (operational) relationship with suppliers and associated systems/ tools• Analysis of existing suppliers to identify suitable ongoing engagement strategies at an individual and portfolio level• Manage supplier relationship in line with evolving IT strategy• Measure and monitor supplier performance from both the organisation’s own perspective and the supplier’s perspective• Manage the ongoing external risks (e.g. supplier insolvency) and ongoing internal risks (e.g. unchecked SLAs) derived from the organisation’s relationships with its suppliers• Long-term development of suppliers, their products and services to help them improve internally to achieve improved levels of innovation, quality and performance, and to be aligned optimally with the enterprise 29 December 2010 44
  45. 45. Dimensions of Supplier Management CompetenceMeasurement Framework Supplier Alignment• Measure state of Supplier Management competence along three dimensions − Supplier Alignment − Relationship Management − Performance And Risk Management Relationship• Define facets of each Management dimension• Measure each facet in terms of: − Associated processes and their state of development − Scope or extent within the Performance And Risk organisation Management 29 December 2010 45
  46. 46. Measurement Framework for Supplier ManagementCompetence Supplier Management Competence Maturity Assessment Framework Performance And Risk Supplier Alignment Relationship Management Management Supplier Analysis Supplier Communications Supplier Risk Management Performance Measurement Supplier Portfolio Analysis Relationship Operations and Monitoring Supplier Engagement Supplier Development Strategy 29 December 2010 46
  47. 47. Measurement Framework for Supplier ManagementCompetence Category Capability Description Analyse existing suppliers based on criteria such as quality, TCO, market conditions, level Supplier Analysis of product/service innovations, etc in order to support selection of appropriate ongoing engagement strategy Joint analysis of all IT suppliers to identify the relative roles of each supplier within the overall IT supply chain and the interplay between suppliers and the enterprise processes, with the objective of enhancing the ongoing value of the supplier portfolio to the IT organisation Supplier Portfolio Analysis This can help to identify the relative importance of suppliers and the opportunities to leverage certain relationships at different stages of the relationship lifecycle (based on volume), or alternatively to identify paths for consolidating suppliers, thereby enhancing the overall value of the supplier portfolio to the IT organisation. Supplier Alignment Develop and implement appropriate ongoing supplier engagement strategy based on results of supplier analysis and supplier portfolio analysis. This strategy will state the optimal approach to be taken for the supplier portfolio and individual suppliers. As such, changes in IT Strategy and Enterprise Procurement Strategy Supplier which occur over the duration of these supplier relationships must be reflected in the Supplier engagement strategy to enable continued strategic alignment – similarly, Engagement identifying potential new opportunities for enabling the IT strategy through our suppliers Strategy must also be highlighted. This will enhance the potential for identifying collaborative win-win relationships with suppliers to provide innovative products with a customer they value and trust, without introducing unnecessary risks to the IT organisation (such as migration from supplier to partner). 29 December 2010 47
  48. 48. Measurement Framework for Supplier ManagementCompetenceCategory Capability Description Plan and manage communications approach with suppliers (inc internal organisation, supplier organisation, mapping of relationships, meetings plan, review points, shared Supplier vocabulary, external marketing of relationship, basic rules of engagement, etc.). Communications The level of activity for each supplier will typically vary in accordance with the supplier engagement strategy. Undertake fundamental relationship activities to enable supplier operations in line with the agreed supplier engagement strategy. Relationship This encompasses activities such as: regularly communicating with supplier, providing Relationship Management input on ongoing requirements/orders, agreeing actions to overcome deficient supplier Operations performance, imposing sanctions/penalties/bonuses in response to quality/performance/delivery issues, advocating supplier within organisation and vice versa, understanding new product/service roadmaps, managing issues and escalating conflicts via agreed joint management process, managing legal aspects of relationship. Facilitate value-driven, long-term improvements in supplier products/services/relationship from key suppliers by identifying critical areas for Supplier development (e.g. ISO 9001 certification, low levels of innovation) and working with Development supplier in a collaborative fashion to drive improvements in these areas. (e.g. education, extensive info exchange, joint development of new products, etc.). 29 December 2010 48
  49. 49. Measurement Framework for Supplier ManagementCompetenceCategory Capability Description Monitor ongoing supplier relationship risks and evolving external environment risks and implement appropriate mitigating actions. Supplier Risk These risks may originate internally (e.g. through overly frequent changes inPerformance Management requirements), from the Supplier (e.g. changes in financial viability of supplier/SingleAnd Risk Point of Failure / lack of integrity) or from changes in the external environment (newManagement product from supplier rival). Performance Perform performance measurement and monitoring of relevant KPIs across multiple dimensions (e.g. balanced scorecard approach) potentially using automated systems, Measurement and covering both internal and supplier performance (and benchmarking), in line with Monitoring requirements defined in the suppler engagement strategy. 29 December 2010 49
  50. 50. Supplier Management Maturity Profile Levels Maturity Supplier Alignment Supplier Operations Supplier Performance andHigh Risk Monitoring Engagement strategy is focused on Optimised order management processes OLAs in multi-supplier environments enabling collaboration and innovation (across supply chain) Metrics support measurement of 5 across IT supply chain Incentives rewards innovation and compliance with IT Strategy Senior level representation at key collaboration Risk across extended IT supply chain Optimising strategic and operational meetings Direct investments in IT suppliers (capital, monitored from each party time) with shared risk Engagement strategy extended to Robust order mgmt processes with Monitoring focuses on efficiency knowledge sharing / shared objectives enterprise-level prioritisation and effectiveness of interactions underpinned via aligned incentive between IT, IT suppliers and 4 mechanisms Compliance focus is on improving business communication and alignment Advanced Strong IT-Supplier advocacy roles Supplier development targets gaps based Long-term strategic risks monitored function in both directions on IT roadmap (e.g. supplier insolvency, legislative changes, etc.) Ongoing engagement strategy now Order management in place but Monitoring tracks performance and extended to include quality, and is prioritisation at departmental level quality vs SLAs 3 aligned with IT Sourcing strategy, Compliance focus is on rewarding good Medium term operational risks IT Supplier interfaces are formally performance monitored (e.g. dependence on a Intermediate defined for all points of interaction single IT supplier, stability of Supplier development addresses identified SLA issues business requirements, etc.) Engagement strategy is defined but Basic order management processes are Performance monitoring focuses on primary focus is price and delivery defined and implemented availability and price 2 Communication via nominated IT and Compliance focus is on penalties Risk focus is on tactical events (e.g. Basic supplier contacts Informal approach to supplier short term availability dips, Basic operating principles agreed development unexpected price inflation, etc.) No defined strategy for engaging with Ad hoc order management, not Ad hoc monitoring of IT supplierLow 1 suppliers on an operational basis formalised performance Ad hoc approach to IT supplier No formal processes to manage contracts Minimal awareness of IT supplier Initial communications risk No supplier development 29 December 2010 50
  51. 51. Assessing Current and Future Desired SupplierManagement Competence Maturity 1 - Ad-Hoc 2 - Defined 3 - Repeatable 4 - Managed 5 - Optimised Supplier Analysis Supplier Portfolio Supplier Analysis Alignment Supplier Engagement Strategy Supplier CommunicationsRelationship RelationshipManagement Operations Supplier Development Supplier RiskPerformance Management And Risk PerformanceManagement Measurement and Monitoring Current Supplier Management Competence Desired Future Supplier Management Competence Maturity Level Maturity Level 29 December 2010 51
  52. 52. Measuring Supplier Management Maturity andImportance 5.0 4.0 Supplier Analysis Level Supplier Portfolio Of Analysis Relationship 3.0 Operations Maturity Supplier Supplier Risk Engagement Management Strategy 2.0 Supplier Communicat Performance ions Supplier Measurement Development and 1.0 Monitoring 1.0 2.0 3.0 4.0 5.0 Level of Importance 29 December 2010 52
  53. 53. Achieving Effective Exploitation of Commoditisationin Information Technology 29 December 2010 53
  54. 54. Using Measurement Framework Effectively• Identify gaps in current areas of sourcing and supplier management competence• Define roadmap to fill the gaps• Get good at making sourcing decisions and managing sourcing relationships• Take strategic advantage of opportunities made available by information technology commoditisation 29 December 2010 54
  55. 55. Phases of Outsourcing Relationship Outsourcing Organisation Analysis Determine if outsourcing represents a business opportunity Plan for outsourcing of selected services, evaluate and select a service provider, Initiation create an outsourcing agreement and transfer resources and personnel to service provider Implement the capability to manage the service provider, administer the Delivery agreement and the issues, challenges and changes that arise after the agreement has been reached, reviewing the service provider’s performance Develop outsourcing strategy management, manage relationship with service Ongoing provider, ensure value, implement knowledge management processes, manage technology and manage risks and threats Plan for completion, ensure service continuity, transfer resources and personnelCompletion from outsourcing organisation and transfer knowledge 29 December 2010 55
  56. 56. Key Capabilities Within Outsourcing Lifecycle forOutsourcing Organisations Outsourcing Organisational Governance Relationship Value Strategy Change Management Management Management Management ManagementTechnology PeopleManagement Management Ongoing Threat KnowledgeManagement Management Analysis Initiation Delivery CompletionOutsourcingOpportunity Analysis Outsourcing Outsourcing Outsourcing Planning Agreements Completion Outsourcing Approach Service Sourced Service Provider Services Transfer Evaluation Management 29 December 2010 56
  57. 57. Key Capabilities and Constituent Practices for OutsourcingOrganisations - 1 Outsourcing Capabilities and Skills Analysis Phase Initiation Phase Delivery Phase Completion Phase1 Outsourcing 2 Outsourcing 3 Outsourcing 4 Service Provider 5 Outsourcing 7 Sourced Services 8 Outsourcing Opportunity 6 Service Transfer Approach Planning Evaluation Agreements Management Completion Analysis 3.1 Establish 7.1 Perform 1.1 Define Current 2.1 Outsourcing 4.1 Communicate 5.1 Negotiations 6.1 Service 8.1 Completion Outsourcing Outsourcing State Approach Requirements Guidelines Transition Planning Project Management 4.2 Evaluate 1.2 Outsourcing 3.2 Service 5.2 Confirm 7.2 Performance 8.2 Service 2.2 Business Case Potential Service 6.2 Verify Design Criteria Definition Existing Conditions Monitoring Continuity Providers 3.3 Service 4.3 Select 8.3 Resources 1.3 Demand 2.3 Governance 6.3 Resources 7.3 Financial Provider Selection Candidate Service 5.3 Negotiations Transfer from Identification Model Transferred Out Management Procedures Providers Service Provider 8.4 Personnel 1.4 Outsourcing 2.4 Impact and 3.4 Evaluation 5.4 Agreement 6.4 Personnel 7.4 Agreement Transfer from Options Risk Analysis Criteria Roles Transferred Out Management Service Provider 3.5 Prepare 7.5 Problem and 8.5 Knowledge 2.5 Outsourcing 5.5 Define SLAs 6.5 Knowledge Service Incident Transfer from Initiation Decision and Measures Transferred Out Requirements Monitoring Service Provider 7.6 Service 5.6 Create Delivery Change Agreements Management 5.7 Amend 7.7 Service Change Agreements Management 7.8 Review Service Performance 7.9 Stakeholder Feedback 7.10 Service Value Analysis 7.11 Continuation Decision 29 December 2010 57
  58. 58. Key Capabilities and Constituent Practices for OutsourcingOrganisations - 2 Outsourcing Capabilities and Skills Ongoing Phase Competency Governance Environment and Change Focused Focused Focused 139 Outsourcing 10 Governance 11 Relationship 12 Value Organisational 14 People 15 Knowledge 16 Technology 17 Threat Strategy Management Management Management Change Management Management Management ManagementManagement Management 12.1 17.1 10.1 11.1 Service 13.1 Prepare for 14.1 Assign 15.1 Provide 9.1 Outsourcing Organisational 16.1 Asset Outsourcing Outsourcing Provider Organisational Outsourcing Required Sponsorship Outsourcing Management Risk Policy Interactions Change Responsibilities Information Performance Management 17.2 10.2 Service 11.2 Service 13.2 9.2 Outsourcing 12.2 Capability 14.2 Personnel 15.2 Knowledge 16.2 License Organisational Provider Provider Stakeholder Constraints Baselines Competencies System Management Risk Management Relationships Involvement Management 14.3 9.3 Potential 10.3 Internal 12.3 Benchmark 11.3 Internal 13.3 Define Organisational 15.3 Market 16.3 Technology 17.3 Intellectual Outsourcing Stakeholder Outsourcing Relationships Future State Outsourcing Information Integration Property Areas Management Processes Competency 10.4 Defined 12.4 Improve 13.4 Human 9.4 Outsourcing 11.4 Issue 14.4 Define 15.4 Lessons 17.4 Security Outsourcing Outsourcing Resource Objectives Management Roles Learned and Privacy Processes Processes Changes 9.5 13.5 10.5 Align Organisational Communicate 15.5 Share Strategy and 11.5 Cultural Fit 12.5 Innovation 17.5 Compliance Outsourcing Organisational Knowledge Architectures Strategy Changes 10.6 Business 11.6 12.6 Business 13.6 17.6 Business Process Collaborative Value and Organisational Continuity Integration Relationships Impact Change 12.7 10.7 Adapt to 11.7 Innovative Outsourcing Business Change Relationships Alignment 29 December 2010 58
  59. 59. Key Capabilities and Constituent Practices• Idealised set of steps for an outsourcing organisations to perform when taking on a new outsourcing service• Provides a detailed checklist of work to be done• Each practices contains a set of activities and tasks• Can be modified to suit the circumstances: scope of outsourcing, size of service, duration of contract• Can forms the basis of a project plan for elements of outsourcing work such as initiation• Reduces risk of failure 29 December 2010 59
  60. 60. Summary• Commoditisation of elements of information technology is a fact• Opportunities exist to take advantage of commoditisation• Need to understand opportunities and take effective decisions• Use a measurement framework to quantify maturity in sourcing competence 29 December 2010 60
  61. 61. More Information Alan McSweeney 29 December 2010 61