Outsourcing buyers, how important is being fully in control of your sourcing operation? If you answered “Very”, then you’re on the right track. Nearshore Americas has continually focused on vendor management and governance as a key factor in the success of any outsourced project. On the other hand, the value proposition of procurement sourcing is that the procurement organization knows more about vendor selection, management and offshore spend than you do. Therefore, relinquishing control of those aspects frees your team to focus on the core competencies of your own business. While small amounts of procurement for tactical functions may be a good idea, we think buyers should be extremely cautious with strategic end-to-end procurement.
Cassio Dreyfuss, Vice President at Gartner Research, feels the same way. In this special Q&A, he speaks directly to buy-side CIOs and sourcing leaders on how to adapt to the global ITO landscape, and why vendor management must be performed in-house.
In terms of vendor management, and integrating IT outsourcing into the enterprise, what are the main questions clients are asking about this?
Dreyfuss: Most clients have not invested enough in sourcing management. They have not indentified roles and assigned responsibilities, or invested in setting up one specific leader to coordinate and integrate the various roles. In other words, they have not really created a true sourcing organization. If you’re planning to increase the budget that you spend on services, but you don’t manage them well, you will never be able to harvest the full benefit of the services that you’re receiving. Your outsourced project will not be integrated and aligned to business objectives – only the client organization can do that.
The vendor management team is not an isolated box in the company. Instead it’s a group of people, many of whom will be outside that box and will hold partial roles in procurement, in legal, in finance and in many other departments. So unless you implement this concept of a sourcing organization with specific roles, coordinated by somebody high up in the hierarchy of the enterprise, the outsourcing project will not be able to meet the user’s expectations for value.
This is more and more critical after 2009 because business leaders everywhere are looking at IT and asking what its real business value is. The IT department is under close scrutiny from the other areas of the organization, to deliver value to the service. And delivering value through IT outsourcing requires that you have this organizational approach – that you create the roles, responsibilities, governance framework and leadership to really leverage the services received. Buyers are not doing those things.
Why not? What has changed about global IT sourcing that buyers have not been able to adapt to?
Dreyfuss: It’s mostly because outsourcing has grown from individual isolated service contracts with small budgets, to large scale projects that eat a sizeable part of the budget. But buyers are still operating those projects in the same way they used to earlier. Many don’t realize that they have to work to align with the parent enterprise, and integrate those services.
The second reason is that firms don’t think they have to spend more on sourcing management – instead they have someone else doing it for them. That’s a huge problem. Managing your outsourced project is by definition a strategic activity in the organization. You cannot and should not relinquish your responsibility for managing your service provider. The service provider is executing something for you, but in the end the CEO holds you responsible if something goes wrong.
(Editor’s note: This view is the opposite of other experts we’ve spoken to in the past, who believe that end-to-end strategic management of your outsourced project should be passed to a procurement organization for increased cost savings. Read our previous report here.)
Clients are also very confused about how to deal with cloud services, because again, it changes the rules of the game completely. Many buyers don’t have a cloud strategy. They may even be using cloud services, but they don’t have a strategy for it. It’s true that very few clients will need to have a completely cloud-enabled architecture, and firms will discover along the way the best balance between traditional IT and cloud. But one thing is for sure – you have to start moving in that direction. I always tell clients that they have to start moving from that traditional IT architecture to a cloud enabled architecture.
Can Latin America really succeed in higher-end tech sourcing functions like R&D and complex software development?
Dreyfuss: Not on the scale in which they can do it in India or China, but definitely yes. You can see high end companies sprouting in countries like Brazil. For instance if you go to Campinas, all around UNICAMP (the university there) there are many interesting start-ups doing business. Some of them will be just the proverbial garage company, and some will be more advanced with a team and an office already. But in all cases there are some very intelligent people, with high end interesting ideas.
What characterizes those high end companies is that they will always tend to be around universities. There are many incubators either as part of the universities themselves or as part of government agencies. And many of those start-ups go on to become large firms providing services internationally.
(Editor’s note: By contrast, former Costa Rican president Oscar Arias believes that entrepreneurs don’t get the support they need in Latin America. Read his views here.)