Buying Well Is the Best Revenge,10801,75019,00.html


OCTOBER 14, 2002


In these difficult economic times, everyone is looking for ways to reduce costs. Buyers and sellers are eager to cut quick end-of-year deals to improve 2003 prospects. Outsourcing is often touted as a panacea for reducing costs. But before you make decisions, develop a sourcing strategy to explore all of your alternatives.

Few CIOs would consider developing a major new software application without knowing how it fit into their overall architecture. Even fewer would start the project without technical specifications and a good systems development methodology. Yet many IT organizations still approach acquisition and outsourcing decisions one at a time, without an overall context or a rigorous process. As the role of IT continues to shift from building applications to acquiring them effectively, the same rigor must be applied to sourcing decisions.

A sourcing strategy provides linkage among your architecture, your technology, the functions that IT performs, and your purchasing decisions. It determines how to acquire IT products and services against a plan. Here's how to get started:

1. Define your potential acquisition components. Segment all the functions within your IT organization. A typical list might include server center, WAN, desktop, applications development and applications maintenance. Include business processes such as payroll and HR if applicable. Use a level of granularity appropriate to the size of your organization. For example, a "server center" might be broken down further into server operations, help desk and production control.

2. Select a delivery channel. Choose the approach that provides the best way to supply each component:

Insource: Use in-house resources.

Resource augmentation: "Rent" expertise (consultants, contractors).

Facilities management: Transfer resources, retain location.

Outsource: Transfer resources to an outsourcer.

3. Assess your motivations. Determine the optimal balance between cost and service. Will you outsource a function critical to business success if you can save money? Is your company biased for or against outsourcing?

4. Address critical considerations. How will you refresh skills and technology? How will privacy and security be protected? What is your exit strategy? What is the optimal length of the contract involved? What are your contingency plans if a supplier files for bankruptcy protection or is acquired? How will you address the cultural issues?

5. Once you have determined your sourcing strategy, select a new or existing supplier to provide each component. After all suppliers are designated, carefully analyze the entire scope of all components, products and services you wish to acquire from each supplier. Look for gaps and overlaps. If you need to switch suppliers in any area, determine an effective migration sequencing plan. For example, if you choose to outsource payroll but are about to change your compensation structure, you will probably want to make those changes first.

6. Now, reassess your negotiation and concession wish lists. As a result of the protracted buyer's market, almost all technology suppliers are willing to make major concessions. Rather than negotiate strictly on price, smart IT buyers are using their leverage to influence other areas. For example, you could ask a supplier to do any of the following:

Modify components of its architecture to support your needs.

Deliver new features earlier than planned.

Alter its product rollout schedule.

Increase service and support levels.

Work with your major suppliers to create a mutually beneficial partnership. Remember that it won't always be a buyer's market.

The sourcing strategy enables you to realize your IT strategy more effectively through better acquisition of products and services. It will reduce costs, align your suppliers' directions with yours, and provide an overall plan that keeps sourced components from being acquired in isolation. The bottom line: A sourcing strategy allows you to buy the right things in the right ways for the right reasons, all at the right price.

Bart Perkins, former CIO at Tricon Global Restaurants Inc. and Dole Food Co., is managing partner at Leverage Partners Inc., which helps CIOs manage their IT suppliers. Contact him at