If you’ve ever been in the thick of a major strategic sourcing initiative, you’ll understand the sense of relief when the ink is drying and the celebratory cake is being sliced - all the while knowing that there will be tricky renegotiations or eventual renewal/retendering somewhere on the horizon.
The buzz word at the moment is Disruption, which, in its less-glamorous, un-hyped guise is actually Change. Change is nothing new. It’s why most organisations revisit their strategies at increasingly regular intervals with shortening time horizons. And we’ll all getting used to the increase in pace.
What does this acceleration mean for your past and future sourcing choices? It’s worth examining some key disruptions that impact your strategic sourcing agenda - that could give cause for you to revisit those deals perhaps only recently put to bed.
1. The Sourcing Market Is Changing
In the Noughties we had lots of choice with an abundance of Western Tier 1/2/3 suppliers and broadening capability amongst Indian service providers. Throughout that decade, we saw smaller vendors swallowed up for their client base.
The past decade has seen further consolidation with many big names in the West and East submitting to the apparently inevitable. Some of these new mega-suppliers are thriving, but others are struggling with their gene pool.
Meanwhile, there is growing cynicism about who is enjoying the spoils of labour arbitrage and whether indeed P is being outweighed by Q in the PxQ consumption models we demand exacerbated by doubts about true transparency.
These market conditions have seen small (or at least medium) sized Western vendors come back in vogue alongside multi-sourced best of breed specialists offering new lean, typically cloud native, delivery models.
A fresh look at the market is an essential when end-of-contract term is approaching…if you can afford to wait that long.
2. Technology As A Catalyst For Change
Cloud services have clearly had a disruptive effect on service models and have provided their fair share of headaches for organisations invested heavily in their own tin.
Technology is having (or about to have) an equally disruptive effect in one of the most glacial areas of IT…Network infrastructure. GDPR has the most tech-illiterate CEO waking up in a cold sweat, Googling CISO and quadrupling the security budget. This newfound anxiety coincides with a new generation of software defined networking with the promise of a step-change in the ability to detect and respond to an exponential growth in cyber threats.
Suddenly, the single biggest barrier to switching network providers (wholesale kit refresh) is no longer a deterrent to change and it’s open season on those aged fat and happy telecoms deals. The fringe benefit of opening the tech sweet shop for the Network boffins is that they will probably achieve sufficient operational savings to fund all the new toys.
3. Agile Is Changing How We Need To Source Project Work
The old dilemma was whether to award project work on fixed price or T&M. It always felt like a game of Heads they win and Tails I lose. With Fixed Price, I’d know there was a premium to pay. With a well-crafted agreement, I might even know the value. With T&M, I’m holding the risk if things don’t go to plan. And yes I know, the same is can be said of change control risk with Fixed Price.
Despite those downsides, the old world was reasonably bounded. I’d have a finite statement of work with milestones to ensure everything was on track. I might even have some insight into resourcing to ensure PxQ wasn’t subject to creative accounting. In short, I could point to clear, objective creation of value for all the cheques being written.
Agile is great at delivering functionality that the organisation actually wants and ensures that the dud projects are spotted and fail fast. In principle, the conversion of investment to return should be at higher rates with much shorter lead times and this may be the reality from a product owner’s perspective. The sourcing viewpoint is a little less rosy with difficulty in measuring output and a feeling of vulnerability to what can seem like a T&M gravy train for suppliers.
Contract structures, delivery metrics, demand management and commercial models all need a radical re-think to get to a better place where Agile is transparently delivering higher value than the methodologies it has displaced.
4. The Body Shop Is Back
Back in the day, I remember having to persuade some now big name Indian service providers that they needed more skin in the game than being a pure body shop offering. In those days many were feeling stung by clients (re)defining the requirements after receiving the deliverable. In the first instance, CMMi came to the rescue and instilled disciplines around not committing to unbounded scope. Perhaps they have learnt the lessons too well, but that’s another blog!
Today the pendulum is swinging away from looking to pin maximum accountability on suppliers. To some extent this can be put down Agile/DevOps ways of working and a need for joint teams where it is harder to ringfence accountability. I also think it is addressing some trust issue that can be eroded in a long-distance relationship. What’s for sure is that we are seeing an increasing appetite for augmentation models (aka body shopping).
As a result, the Q in PxQ is now about Quality rather than Quantity. Sourcing agreements and sourcing metrics need to pivot to tackle this new form of relationship.
5. Suss Out The SaaS
I was tickled the other day by a client telling me very earnestly that their next generation application suite would ‘radically’ stick to Vanilla flavours of the product sets they were procuring. It’s over 20 years since I first heard the V-word and we’re still trying to tackle technical diversity (rebranded technical debt).
SaaS may offer a large part of the solution with limited configurability of apps, in-built software maintenance and APIs that allow them to integrate seamlessly into an ecosystem of microservices.
However, Nirvana is never quite that clear cut and there are some Sourcing look-outs when it comes to selecting those SaaS solutions.
How SaaS is the service in front of you? It’s in the Cloud…tick, but that just means it’s in a data centre somewhere. It’s a standard solution for multiple clients…tick, but that can just mean they have multiple clients buying what is the same or a similar solution…for now!
There are some clues to tell you whether the service is true SaaS:
- Firstly, you can ask some questions about how the service is hosted and configured…client instances or client segmentation?
- Is customisation available or (as you should expect) configuration only?
- Is specific hardware or licensing part of the conversation? This could mean a solution is being built just for you!
- What is the licensing deal or is it a subscription model more akin to services?
- Is there a pre-existing product roadmap and are future enhancements inclusive?
- What happens if there is a major upgrade? Is transition included at the contracted price? Is there a cost or service impact of switching? What happens if you don’t or can’t switch right now?
Then there’s the ‘we’re different’ defence that means SaaS couldn’t work for us. Whilst often born out of a groundless resistance to change business processes, the exceptions where business impacts can be material mean that these challenges need to be tested during the sourcing programme rather than dismissed out of hand.
'One Size Fits All' is good for shared service economies of scale, but that tends to mean one contract fits all too. In the past, we might have relied on a negotiation phase to secure key protections. Unless you have exceptional strategic importance to the vendor, there is unlikely to be huge amounts of flexibility as suppliers need to limit client constraints on their freedom of action. This means that contract scrutiny is needed much earlier in the process when there is still time to choose between solutions.
One of the intuitively attractive aspects of SaaS is the PxQ consumption based models they typically offer. Differentiating between one solution and another may, however, require a bit of modelling to establish which has the best fit.
Subscription models can be akin to pure software licensing with site, seat, concurrent user options all available at different rates. Burst capacity is another feature that could be attractive for peaks in usage, but adds complexity to the evaluation. Then with some solutions there may be a variety of subscription options based on the features being consumed, user personas or other relevant drivers.
So, as with the broader contract, reasonably detailed conversations about the commercial model need to be kicked off at a relatively early stage.
In summary SaaS solutions will bring ‘commodity-like’ simplicity and scale economies if they are true evergreen cloud native shared service offerings. It is important, however, to check the credentials of ‘cloud-like’ offerings and not just ‘click here’ against standard terms or your Vanilla may be tainted with a streak of witches' blood!
At Coeus we provide support to clients on their sourcing journey, from helping to select the most appropriate sourcing strategy and the right suppliers, to negotiating contracts that work in the real world.
To find out more about our offerings have a look at our Sourcing Capabilities here.
View a recent Disruptive Sourcing case study here.