Good service provider selection not only frees up expensive internal resources or complements non-existent internal skills, but can also significantly contribute towards achieving business goals. This is especially true for small and medium businesses that do not have sufficient funds to appoint people in all the required roles.
But how to approach this topic and how to decide when to insource and when to outsource? And are we not sometimes able to just buy the cheapest option versus developing and investing in a strategic partnership?
Strategic Sourcing is the fourth of 15 BTM Competencies Every IT Leader has to Master, but it keeps popping up as a topic in our Mastermind Groups and thus I feel that it warrants a blog article of its own.
In this article I will introduce the concept of linking outsourcing to your business strategy and assist with identifying some initial leverage opportunities in your business.
Before we look at resourcing any function / activity in an organisation, it is important to consider the stance towards Outsourcing or even better Strategic Sourcing. Virtually no SME will be in the position to insource all IT needs, but how to approach this topic?
It is imperative that the Business and IT Leadership is able to clearly articulate when to insource and when to outsource a specific role and even further to determine the type of relationship that should be started with the respective provider once the decision to outsource is made.
As has been stated in the introduction, it is essential for any business, but especially any SME, to talk about strategic sourcing before making any decision in terms of resourcing any function. It is just not feasible and, as will be shown, often not even advised to employ all the resources we need internally.
One of the first things to realise is that outsourcing is not necessarily mainly a cost decision. It should rather be linked to the business strategy and each decision should additional to the price tag be qualified according to both, potential for competitive advantage as well as the current internal capability to perform that action.
Even in enterprises it has been shown that decisions about whether to outsource a specific function can be made in a day using the easy methodology introduced below.
IT is in a great position to introduce this topic. The real value will, however, only be realised when the methodology is used throughout the business over time, increasing the credibility of you as a leader.
Already as far back as 2000, Richard C. Insinga and Michael J. Werle did develop a 2-dimensional matrix that clearly links outsourcing to business strategy.
If you would like to know more about this diagram, I can greatly recommend that you read the original article and another interpretive resource by Denis Chamberland, applying Insinga and Werle’s methodology specifically to IT.
When engaging with the methodology, we found that it was still quite intricate when dealing with smaller organisations. To allow for even easier decision making in SMEs, we have subsequently developed a simplified 2x2 matrix:
As with any methodology it is vital that you do not follow it blindly, but that you understand its applicability and also its limits in your environment. The motto will be to “adopt and adapt”.
I would suggest that you start by mapping any function / position that you currently aim to recruit for or outsource in your company.
The first imperative is to define the position on the two “axes” of these functions (“Potential for Competitive Advantage” and “Internal Capability”).
There might be some low-hanging fruit that become immediately obvious.
It is always easier to understand a new methodology if one can apply it to one’s own business and environment.
In the past few years since we developed our matrix, I have introduced it to many IT and business leaders and it has always amazed me, how quickly it can be implemented and the immediate simplification of decision making it provides.
Strategic sourcing is a key competency to acquire and, especially if you have a limited budget, it is vital that you get a strong endorsement by your company leadership and establish the mindset to leverage service providers effectively.
Mapping any functional decision on the strategic sourcing model has to become a habit. Once it is used, I can guarantee that you will very soon reap the benefits.
To summarise - strategic sourcing:
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Please feel free to tell us in the comments below whether you found the information valuable or if you would like to relay some of your experiences with this topic. You can at any time also contact us directly.
Business Agility Coach | Abundance Thinker | Helping Mid-Market Companies Evolve by Using the Kanban Methodology - As trained Industrial Engineer with close on 25 years' experience as IT Professional and Business Executive in the mid-market IT industry, Mathias Tölken loves to share his experiences and expertise with others.
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