This article has been updated from the original, published on April 18, 2017, to reflect new events, conditions, or research.
All too often, we hear about “us” and “them” between sourcing, procurement and vendor management. Teams complain that someone in the chain “dropped the ball” or did not want to engage. The result is that IT sourcing and vendor management (SVM) leaders may be perceived as a bureaucratic roadblock to digital projects that is best avoided.
How little or how much SVM leaders focus on addressing this challenge will likely define their level of success in 2018 and beyond. Their ability to engage, communicate, network, collaborate influence and leverage others’ key capabilities affects how well their organization can compete over the next three to five years. In terms of the extent to which they avoid being late or selecting the wrong services for the business or being partially marginalized by the business when value or timeliness is lacking.
“Through 2019, every dollar invested in innovation across the business will require an additional $7 in IT execution, which SVM leaders will have to manage,” said Claudio Da Rold, research vice president and distinguished analyst at Gartner.
“To do this job well, they will need to get involved proactively in rapid innovation, lead the use of low-cost cloud services and intelligent automation, advance their sourcing strategy to include new digital options, and commit to managing the emerging digital ecosystem.”
There are often better opportunities to optimize costs outside the IT organization, yet many CIOs are reluctant to surmount the cultural and political barriers involved
4 key SVM leader challenges
There are four challenges SVM leaders must address to ensure their roles remain relevant and in line with their organization’s digital business initiatives.
Enable digital business and bimodal IT.
Traditional SVM organizations and practices typically struggle with the Mode 2 aspects of bimodal IT and are therefore frequently late delivering on top business priorities. The most common criticisms from stakeholders are a lack of flexibility with regard to processes, poor competency in new technological domains and an overly tactical approach that fails to strategically align SVM efforts with key business priorities.
“SVM leaders must bring a sense of urgency and flexibility to make their organizations more relevant,” says Da Rold. “They should plan to be agile in their identification of sourcing models, styles and providers, to support rapid innovation. This may require identification of innovative sourcing managers within SVM teams — people who are best suited to Mode 2 initiatives — or planning to hire such people.”
Increase the efficiency and scope of technology procurement
As technology spending grows rapidly outside the IT organization, SVM teams must engage with innovators in business units to ensure they are involved early and deeply enough to deliver business value. This allows them to efficiently deliver projects.
“Outdated cultures and organizational structures prevent IT procurement teams from being trusted and engaged where they are most needed,” explains Da Rold. “Shake up old ways, structures, rules and processes, and foster new ways to communicate and collaborate with stakeholders across the business.”
Deliver aggressive cost optimization
IT costs typically represent a small fraction of business costs: 4.3% on average. There are often better opportunities to optimize costs outside the IT organization, yet many CIOs are reluctant to surmount the cultural and political barriers involved. During times of disruption or economic stress, however, business leaders have an increased appetite for radical change.
SVM leaders should exploit this by identifying sourcing opportunities that can streamline and standardize business processes. At the same, they can restructure organizational technology spending into channel funds, which can drive business value in areas like digital business innovation, competitive differentiation and renovation of core IT.
Manage complex vendor ecosystems
Using vendors for digital business initiatives can bring innovative solutions.to your organization, but may also expose you to potentially devastating performance and security risks.
“IT vendor management teams need to get out of the back office and establish a more prominent role in achieving strategic objectives,” says Da Rold. “They need to categorize vendors based on their strategic value and risk, and communicate compliance expectations to current and potential vendors.”
He adds that, teams need to create clear incentives for vendors to cooperate and collaborate and must use tools and analytics to measure performance in compliance, collaboration and project delivery.