Developing a sourcing strategy

During the first half of 2010, Forrester’s Sourcing and Vendor Management team received close to 1,000 enquiries from sourcing and vendor management (SVM) clients. Forty-two per cent of these queries focused on developing a sourcing strategy, ranging from questions on market
trends and outsourcing strategies to understanding the next generation of governance and risk management and requesting assistance in vendor evaluations and selection processes.

Based on our enquiry breakdown, SVM professionals’ main concerns remain focused on making the right strategic decisions during the vendor selection process and management planning. For example, with many organisations contemplating new technologies and services, SVM teams are considering vendor selection strategies – getting information on the right questions to ask in requests for proposals (RFPs) and whether market changes dictate adjustments in how projects are measured.

Much of this stems from a growing interest in innovation – sourcing professionals want to understand sourcing strategies for new areas such as social media tools. This focus has also created a related interest in vendor viability, as most emerging technology spaces are populated by small vendors that would not normally fit a large enterprise’s definition of “financially stable”.

To better understand current SVM concerns, I have addressed several of the enquiries we received during the first half of the year below.

How do I choose the best provider for my business objectives?

When selecting a vendor, it is essential for sourcing professionals to ensure alignment between business technologies and business objectives. This will help the selection team address critical success questions instead of wasting time on questions that ultimately will not affect their satisfaction.

At Forrester, we recommend sourcing executives use a standard framework to grade RFP responses. Using this starting template, SVM professionals can work with business executives to determine which criteria will ultimately provide the most value.

What are the market and industry trends?

Many of today’s SVM professionals are working towards a deeper understanding of the business, in order to help it succeed. This means 2010 is the year to step back and focus on the big picture. Last year, SVM teams became more important to their firms by helping save money and improve service through vendor rationalisation efforts.

Now that SVM has the ear of leadership, smart executives will take advantage and continue that success by moving into more strategic conversations about how SVM can help the business achieve its goals. SVM professionals should be armed with insights on market trends that will become even more valuable for the firm.

What should I outsource?

Many large firms have been outsourcing and offshoring for years – and it is easy to become complacent with past successes. But changes in service delivery models, alternative geographies, and cloud services’ impact on outsourcing make now an important time to reassess your outsourcing and offshoring strategy. Strategy conversations should include discussions with business units concerning new requirements, how outsourcers are changing, and what changes are happening in service delivery.

How should emerging technologies and innovation play into my sourcing strategy?

All SVM teams should cultivate the ability to help users evaluate emerging technologies in 2010. Not only are there a number of emerging technologies, such as social media, crowd sourcing and cloud services, but these technologies are services that can be self-provisioned by a motivated end user. As a result, sourcing can quickly become irrelevant if it does not help the business with these new technologies.

One recommendation is to invest resources in a research function. The purpose is not to duplicate what your firm’s enterprise architecture group does, but to specifically determine the most effective sourcing strategies for those emerging technologies. It will also increase the strategic value SVM brings to the business.

A big pressure sourcing teams face is internal stakeholders that want to “sign this contract by the end of the week”. But jumping right into a deal without understanding the bigger picture inevitably leads to challenges later on – such as finding that the business really needed a different solution. Stepping back to look at all the options, even in the face of an urgent need, helps sourcing teams deliver more value to the business.

Christine Ferrusi Ross is vice president and research director at Forrester Research, serving sourcing and vendor management professionals