I’ve spent quite a bit of time over the last 6 months writing about strategic sourcing decisions – whether to do something in-house, outsource it, or form a strategic partnership with a number of other organisations. This wasn’t my original plan, but events took a hold, as the news items just kept piling in.
In the private sector we had General Motors falling out of love with EDS, which they once owned; and a number of banks getting themselves into trouble, having outsourced their IT. And in the public sector, we had Cornwall Council and their ‘at the alter’ re-think on tying the knot with BT, whilst over in Barnet, we had their Council having a similar re-think, but deciding to tie the knot anyway, this time with Capita.
What struck me about all these goings on, is how little strategic thinking seemed to be behind much of the decision making. In the case of the banks, outsourcing their IT appeared to be just about costs – as if they were just doing a bit of spot-buying. In Cornwall’s case, the Council woke up just in time; shook off the haze of the marketing spin, moved the gearstick into the position marked ‘democracy’ and exercised a well executed three point turn – well almost.
The problem with sourcing decisions is that there are so many vested interests, particularly in the public sector. How do you chart a clear path, whilst for example, seeking the advice of potential suppliers and partners.
Ultimately, it comes down to thinking strategically about your supply chain and the careful consideration of the range of options available to you.
First think through what you want to keep in-house. What is mission critical, what is a critical capability, against which your business model lives or dies.
When it comes to thinking about the use of external suppliers, remember to look beyond the traditional, and consider more innovative approaches, such as crowd sourcing and user innovation.
Remember the appropriate application of scale and the importance of geography and other cultural factors. As a general rule, the more intimate the service, the closer a supplier needs to be to the customer and the wider community. And don’t forget that your nice local supplier can suddenly transform into a distant national or global one, through acquisition and market consolidation.
Avoid basing your decisions on unit costs. These rarely reflect the true cost of the service being delivered. Base it on delivering the nominal value to your customers.
Avoid ‘all-in-one’ long term contracts. In today’s changing market, these are too inflexible and cumbersome.
When considering the use of external suppliers, consider a mix of:
Cloud services and off-the-shelf packages for standardised services that meet your business needs, without modification, other than some simple configuration
Outsourcing, for those things that others can do much better than you and are not mission critical. Not promises, but visible and proven capability. For both core and supporting services, always operate these using Supplier Relationship Management, unless truly commodity in nature
Niche suppliers, for the more unusual, or access to leading edge technologies; and for speed of response and agility
Your sourcing strategy is a key element of your business model. Get it wrong at your peril.