Gartner Identifies 10 Key Steps to a Business-Driven Sourcing Strategy

Organisations that follow a formal process to develop a business-driven sourcing strategy are more likely to achieve expected cost, performance and business outcomes, and take advantage of opportunities for innovation and low-cost IT from outsourcing, according to Gartner, Inc. The sourcing strategy process is complex and repetitive, involving multiple steps, each with deliverables. As a result, effective execution of the sourcing strategy phase requires investment in processes, people and tools.
 
“In the sourcing cycle, the sourcing strategy is the deliverable that defines the direction, portfolio, risk, and overall business case for costs and benefits,” said Claudio Da Rold, vice president and distinguished analyst at Gartner. “As such, this phase is critical in laying the foundation for the organisation. Organisations that fail to master this initial phase in the sourcing life cycle are subsequently less likely to select appropriate providers, negotiate a sound contract and effectively manage the deal.”
 
Gartner has identified 10 key steps in the sourcing strategy phase to help CIOs, IT leaders and sourcing managers understand what steps they need to follow to in order to get more from outsourcing:

1. Set context and objectives: Define the business's overall approach to sourcing, the priorities as well as rules and principles that will drive the sourcing strategy and every subsequent sourcing decision and activity. Define specific business, service and technical goals for sourcing initiatives and relevant measures of success.

2. Assess service delivery 'as is': Assess the organisation's current internal and external capabilities. Look at the cost, service performance of the internal and external sourcing and service contracts that are in place already. Take a critical look at the enterprise architecture and determine if it is adequate to support the service delivery evolution required to achieve objectives.

3. Assess service and multisourcing management capability: Determine the level, position and maturity of the 10 multisourcing competencies within the organisation to determine current and required capabilities. Evaluate knowledge and skills for managing service delivery on business, application and infrastructure processes.

4. Evaluate constraints and opportunities: Consider all types of constraints and opportunities, including business forces, overall economic cycles, disruptive technologies, regulatory environment and compliance requirements and internal organisational issues. Build sourcing risk profiles and apply a risk management framework.

5. Analyse gaps: Within the scope of a sourcing decision, define the set of needs and objectives, measure those as much as possible, and compare these with the 'as is' situation. Start determining what alternative approaches/scenarios the organisation could use to fill the gaps. Start a first comparison of scenarios against drivers, goals and risks.

6. Analyse external market: Evaluate the IT services market dynamic, changing vendor landscape and adoption patterns of competitors. Consider the availability, maturity, quality versus cost, and stability of service offerings. Leverage the market analysis to decide what type of services to adopt and when. Refine the alternative sourcing scenario to drive business value and stay ahead of competitors.

7. Conduct scenario planning: Compare the risk and potential value of different sourcing scenarios or models in terms of the organisation's requirements and potential direction. Assess 'softer' issues, such as the fit of the sourcing solution to business objectives and company culture, the gap analysis, the impact on critical skills and retained competencies. In particular, leverage the type of sourcing models, deals and relationships that best fit the company’s objectives, risk profile and current multisourcing capabilities and use this data to determine the best combination of providers and sourcing models.
8. Analyse risks: Analyse the risks associated with a specific scenario. This analysis should identify and understand the most common sourcing and vendor risks using a detailed risk-reward analysis for selected scenarios, use tools and guidelines to assess and manage vendor risk, tailor risk evaluation criteria to the types of vendors and products, and optimise the vendor risk management programme for execution across the whole sourcing cycle.

9. Develop business case: Analyse the total cost of sourcing (TCS) for the sourcing scenarios under consideration, the financial implications and the business and more qualitative issues. A TCS analysis should look at the costs of the internal IT sourcing team, selection and negotiation projects, the transition, transfer and transformation, while considering how workloads and service requirements are likely to evolve. Then determine the financial implication of the plan in net present value and return on investment.

10. Construct action plan: Develop the future view of the multisourcing business services blueprint. Define the deals and the expected time frame for completion. Define changes to sourcing governance, the sourcing management organisation and the relationship organisation. Define the communication and change management plan and develop the programme and action plan to implement the strategy.
 
A services sourcing strategy enables business executives to achieve their objectives by leveraging internal and external services capabilities. CIOs, IT leaders and sourcing managers can use the sourcing strategy to explain how the IT organisation is operating and how it is likely to evolve. “However organisations that fail to develop a thorough business-oriented sourcing strategy place their investments at risk and may find themselves unable to meet business requirements and demands,” Mr Da Rold said.
 
For additional information, see the Gartner report "Outsourcing Advisory: Sourcing Strategy Phase Overview" available on Gartner's website at http://www.gartner.com/resId=1771615.