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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This was first published in August 2006