In 1979 Joe Strummer sang about being lost in the supermarket of life. Today’s CIOs and IT procurement teams face similar challenges.

IT expenditure and value for money are coming under increasing levels of scrutiny. Unlike the heyday of the 1980’s, people do sometimes get sacked for making what appeared the safe and obvious choice.

The sourcing of external IT services is now a complex and potentially risky activity. I’d like to shed some light on the ever-changing world of IT sourcing strategies.

Continuing with the supermarket analogy, the choices appear somewhat aligned. CIOs can adopt the following strategies:

• The home delivery: take a traditional one-size-fits all approach to outsourcing, engage with a global outsourcer, taking the good with the bad for the sake of convenience

• The low-cost international supermarket: engage with a pure offshore provider who delivers volume, commoditised, services at lower cost

• The local supermarket: select your mix of branded and own-brand products satisfying the majority of your requirements, whilst also retaining the option of shopping elsewhere

• The corner shop: niche single-product providers where you need to pay for additional shoe leather to manage multiple providers in parallel.

I can’t claim this supermarket analogy as my own. About a year ago, we were delivering a managed service for a number of client Microsoft databases, and the client contacted us to ask if we would also be able to manage their Oracle ERP solution as well. The client had previously received their ERP services from a larger, more commoditised, provider and felt that the flexibility offered by a more ‘local supermarket’ approach better suited their needs. By delivering these seemingly disparate services within a standard service engagement framework, the client gained trust and confidence in the services delivered before committing further.

This selective outsourcing approach is becoming more common in today’s battle to balance cost against quality. CIOs and IT procurement teams are continually being challenged to show a tangible return on investment in the form of true business value from their external sourcing activities. Selective outsourcing means a move away from the all-or-nothing perception people have of outsourcing IT services. It allows you to keep key technology people in your business as the bridge between the technology and the business, whilst simultaneously providing commodity services or those that are too niche - or expensive to find and retain - under a framework that works.

Selective outsourcing also provides the ability for a CIO to blend internal skills that are key differentiators to their business with these ‘selected’ outsourced skills. There’s a common misconception that outsourcing means giving it all to someone else to run – who doesn’t understand what the business is trying to do, which is why many CIO’s shy away from it. Thanks to selective outsourcing, this is no longer an all-or –nothing choice.

What type of store are you looking for?

All too often the I.T. selection process by-passes the first step which is to ask: what type of provider do I want?

Take for example, an ERP solution. Many buyers would look for a provider who specialises in that particular ERP platform – the corner shop analogy. Surely they are the best people to manage that solution? But what happens when you end up with a multitude of specific providers all interfacing with each other through the IT fabric of your business? As the client, your energies are expended on managing this multi-sourced arrangement, and the entire business-case for external sourcing becomes more questionable. Without a robust Supplier Management function, and flexible yet clear contracts to underpin it, this approach can very quickly become a tangled-web of unclear responsibilities and conflicting supplier commitments.

At the other end of the scale, the buyer may elect to use their Home Delivery Company (maybe in the form of their outsourced infrastructure provider perhaps) to provide the ERP support? This gives them a single supplier to manage doesn’t it? Well, maybe not. The service providers are also under the same pressures as the IT department to maintain that cost vs. quality equilibrium and, unless it is one of their core service offerings, they will be: (a) taking a risk with your core business application by overextending their capabilities or; (b) sub-contracting the services to a niche provider. Either way, your business is more exposed than you might think.

And the low-cost international supermarket choice of global offshoring? This works extremely well when your Supplier Management team is a mature, established function with experience of working with such organisations. With the ever-changing global economic climate are you prepared – and contractually permitted – to move those services to lower cost markets when the supply moves elsewhere?

In part 2 of this article, I’ll discuss how to choose a selective sourcing shortlist and some of the key considerations before making a selection.