Activist sourcing is the future

Activist sourcing is the future

A new approach will streamline service management and ensure no money is wasted, says Andrew Parker

For many years, the approach taken to IT supplier management focused on contracting activities within the overall procurement function. But things are changing.

A report from Forrester Research shows the rise of a new approach that we call activist sourcing.

Companies adopting the approach aim to boost IT performance ­ as well as eliminate cost ­ by building a mature approach to the full lifecycle of each supplier relationship. Outsourcing has become a crucial target for such an approach.

A major European bank offers one example of the shift. The bank’s IT group had more than 100 service providers under contract and decided to create a formal vendor management office to impose more discipline across its relationships.

The bank implemented software governance tools to link underlying infrastructure and applications to specific business processes, and to measure vendor performance.

And the implemented governance tools became the fundamental platform for a new services management department, charged with oversight of all suppliers.

Along the way, the company identified several million euros worth of savings by eliminating overcharges and unused systems.

Vendor governance is just one part of an activist sourcing approach.

The full picture involves a set of pre-contract activities, such as setting sourcing strategy, requirements gathering and requests for proposal processes.

Post-contract, such activities give way to spend analysis, supplier reviews, compliance monitoring, process rationalisation and risk management.

Firms that typically set up a formal vendor management office (VMO) begin with only a subset of multiple activities, gradually expanding the responsibilities of the VMO to cover a spectrum of issues.

Forrester’s research reveals that about half of large European firms possess a formal VMO, but that the percentage is rising.

Staff numbers involved tend to be small: a typical VMO may employ fewer than 10 people, although the largest firms may employ 50 or more.

A typical pattern for the VMO involves setting up the group within the IT organisation and dividing work by spend category.

However, some very large companies choose a different setup, placing the VMO outside the IT group and creating a process-led responsibility.

In such cases, actual governance of the suppliers tends to be retained within individual business units.

Creating a greater formality of approach in managing IT suppliers provides more evidence of the increasing maturity of buyer behaviour in blue-chip technology.

The rise of activist sourcing will contribute to higher adoption of selective outsourcing, or multisourcing, as opposed to one-stop shop approaches.

Such approaches will maintain the downward price pressure in IT services markets, and continue to boost the use of more defined operational metrics around service delivery in IT services agreements.

Andrew Parker is vice president and research director at Forrester Research.