Globalisation has opened up new sourcing opportunities
to help businesses handle large-scale change, demanding new skills
and attitudes from CIOs
Change is all around us: globalisation, the explosive emergence
of nimble new competitors, major shifts in corporate strategy,
changes in the organisation-wide risk profile and in the way risks
are assessed, managed and dispersed, recalibration of targets at
the enterprise level, and new regulations.
All of these large-scale changes have a direct and substantial
impact on IT directors and CIOs. And the scope and stimuli for
major change is expanding all the time. In such an environment,
CIOs have to anticipate early and respond effectively, and the
future of their organisations is on the line if they fail to do
so.
The tools available to CIOs as they seek to manage large-scale
change are also undergoing a transformation, and arguably the
foremost of these is sourcing. One of the most powerful legacies of
the “infocomm revolution” could be its impact on the way companies
source their services and capabilities.
High-speed, high-capacity and relatively low-cost
communications, coupled with commoditised processing power and
rapid globalisation, have opened up new vistas of sourcing
opportunity, and made geographical location virtually irrelevant
for many activities and services.
This sourcing opportunity is now reaching maturity, with
flexible and eclectic sourcing developing from a concept to a
philosophy, and ultimately to a discipline. As businesses worldwide
strive to come to terms with the pervasive impact of globalisation,
there can be little doubt that sourcing is now the major frontier
of business worldwide. And today’s CIOs are in the vanguard of this
revolution.
So, what is globalisation doing to enterprises, and specifically
to their CIOs? Look at your own business and you will see these
effects.
Globalisation is establishing and enforcing conformity and
regulation. It is creating an ever-increasing focus on price. It is
providing key aspects of international governance on data security,
on privacy and customer service.
And it is driving workloads to be relocated to those places
where they can be processed predictably, but more cheaply and
effectively.
As globalisation advances, it is increasingly clear that it is
sourcing in its many forms, rather than outsourcing, that will
provide the way for the Western world to keep its head above water
without suffering a dramatic fall in living standards.
The discipline of sourcing means looking constantly across
existing and potential suppliers and locations, and seeking out the
right balance between quality, economics, risk, flexibility and
innovation.
Rapid change is not just taking place on the buying side.
Already there are a host of specialist suppliers that corporations
can contract with to make use of those suppliers’ previous and
ongoing investment and resources in IT infrastructure, people
skills, intellectual property, geographic stretch and financial
flexibility.
These suppliers also have the ability to flip processing from
one part of the world to another in response to shifts in key
target markets, natural disasters or other events.
Developing nations are increasingly aiming to capitalise on the
changing sourcing flows and provide alternatives to India.
As a result, sourcing decisions are ever more complex and
predicated on risk, pricing and quality, rather than location.
Whatever choices are made, the key benefit throughout is that a
company can gain massive flexibility and enablement without the
huge capital investment which used to be required.
The strategic enablement created by this flexibility of
operation and cost has elevated sourcing relationships to a new
plane far above the traditional supplier/customer dynamic.
So, how does the CIO manage all this complexity? First, by
accepting that your interests and those of the suppliers are and
will remain closely linked. This in turn means that effective
selection and the ongoing motivation of suppliers has to be one of
the CIO’s core skills.
This motivation has to start at the top, because any change in
corporate or IT strategy will affect the capabilities the IT
director chooses to source, the way they are delivered, the costs
they involve and by consequence, the revenue of the company.
The increasingly close and long-term nature of outsourcing
agreements brings further implications. For example, contracts need
to be written with enough flexibility to manage the eventualities
that the client business may hit a downturn or suddenly experience
exponential growth.
This flexibility comes at a price to the client CIO, but this
price should be seen as operational insurance and offset against
the fact that the CIO would find it impossible or prohibitive to
achieve the same agility in-house.
Similar operational and financial flexibility can be realised
across the entire business by embracing outsourcing as a means to
execute strategy and to achieve both immediate performance
objectives and longer-term objectives.
The more that you use external sourcing to underpin
organisational development, the more you will find you create, and
ultimately encourage, strategic alignment with suppliers.
This alignment can be hampered by one of the major inhibitors to
successful long-term outsourcing relationships. Both sides need to
adapt to the needs of the other, and while customers are taking
this on board, outsourcing providers have historically been
reluctant to accept their own reciprocal responsibility for running
their business in a new way.
However, the generation of outsource suppliers now starting to
emerge will recognise the limitations of running their business in
a philosophically old-fashioned way, and will increasingly include
the customer in their strategic thinking.
What will this mean in practice? Every outsourcing supplier will
continue to ask their client’s IT director about their business’
strategy and its implications for the IT function. What will change
is that CIOs looking to buy outsourced services will increasingly
ask similar questions of the supplier.
Questions such as, “Mr Outsourcer, what new functions,
industries, capabilities or locations are you considering investing
in? How strong is your innovation capability? How do we fit into
your business’ future? How do you work with partners? How do you
outsource yourself?”
CIOs will also need to face up to the deep cultural implications
of using outsourcing on a widescale basis. To succeed, they need to
be able to blend their cherished corporate culture into a hybrid
culture with the outsourcing provider.
This cultural buy-in and visibility on both sides must be
demonstrated in day-to-day behaviour at all levels, or there will
be cultural polarisation between the business and the outsourced
delivery function.
The sourcing revolution is bringing CIOs new opportunities in
managing costs, flexibility and strategic optionality to handle
widescale change. But realising those benefits will require much
more than just signing a contract.
Jean-Louis Bravard and Robert Morgan are authors of “Smarter
Outsourcing”. Robert Morgan is a founder director of sourcing
advisory firm Morgan Chambers. Jean Louis Bravard is managing
director at EDS Global Financial Services Industry
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