Tuesday, January 20, 2015

Five Principles to Improve Maturity of IT Procurement

A holistic understanding of procurement across all domains and the cohesive collaboration cross-functionally is critical in managing an efficient, effective and agile IT procurement.

Nowadays IT procurement is not simple managing the vendor relationship, but it includes the pursuit of the business value of any investment. Ensure that any service agreement and goods are properly attached to the right business value, If it is only the fact of procuring, you might have a partial view of the problem. In weaker organizations, there isn't much of a tight alignment between the cross-functional groups (IT typically does their own procurement without much involvement from a central group). In more mature organizations, regardless of where the solid line reporting relationship is, there is a tight alignment where a resource is accountable back to both the CIO and the procurement executive. In detail, what are the principles to improve IT procurement maturity, from efficiency, effectiveness to agility?

The first principle is that you do IT procurement the same way you do the rest: centralized, decentralized or hybrid. Ultimately whether something is considered "better" or "worse" means that it must have some criteria and standards against which it is being assessed. All business focuses on ultimate and strategic objectives if there is any vision or strategy at all in your business. Whether you have a procurement organization or if IT handles procurement, its effectiveness can only be assessed as "better" or "worse" based on how it achieves those ends. Communication, establishing standards and specifications, skilled resource requirements and all the project management elements of scope, schedule and budget still belong to the department doing the work effectively.

The second principle is to build cross-functional alignment and collaboration. The role of IT procurement is to ensure the right products are evaluated and selected. CIOs are responsible for optimizing any activity, including procurement, in the IT organization in line with organizational goals and objectives. The CIO will be acting as a catalyst between the IT procurement team which essentially comprises of technology experts & evaluators, and enterprise procurement functional team. These partners provide products and services that are ultimately passed through to the business and are therefore extensions of the IT team's capabilities. Enabling the greatest value realization from these partners begins with setting proper expectations in establishing and continuing to develop a collaboration relationship - and the sourcing and procurement function is the beginning of that process. The greater the alignment between IT procurement, the IT and Business executive sponsors, and the program and vendor management, the greater the likelihood of developing a strategic relationship with a partner that provides the greatest value back to the business.

There is an “Agile Way” to manage IT procurement as well. To understands the procurement model that is needed for it. This is especially important for "procurement" of custom software. if you do it fixed price, then you need to define all the features ahead of time, and that is really, really hard (and foolish) to do for most custom IT systems. That is the whole point of "Agile" - that you evolve the requirements throughout development, as users try things and refine their concept of what is needed. So for strategic custom IT systems, the best approach is a resource procurement model where either you manage the process, or the vendor manages it, but you have really good transparency into things. What matters in complex business circumstances is not having a universal one-size-fits-all approach, but instead understanding the nuances of different situations and having the willingness and flexibility to apply the different approach to different situations. Software development will follow a methodology and the procurement process should compliment that methodology. If you are using an Agile methodology that the procurement process needs to track the benefits realization. If you are using Waterfall then you could, in theory, fix the price after the Design phase and manage all variations through change control. As with software development methodologies, there are pros and cons to the different approaches to procurement. In all too many cases that Finance / Procurement departments push for a fixed price agreement, so that they gain certainty to price and to negotiate the 'best price', when the project want an Agile and flexible approach.

Set IT governance discipline that is meaning of management oversight. The size, duration and complexity of software contracts and managed service contracts are beyond the skillset of a general Procurement Department. Hence, regardless where it sits, IT procurement happens to be one of the functions which need the attention of the CIO or IT department. As a CIO of the organization, you have to play different roles within the organizations, Suggest new ways to make thing easy or increase productivity, implement a new strategy, shape the strategic option been taken by the organization, oversee the operation, reduce cost.etc...  The key to success is that each team understands and respects the professionalism of the other. The procurement team must have a certain level of IT knowledge and the IT people must understand that the procurement process is not some willy-nilly scheme to slow down progress and squeeze a few bucks out of the price. The procurement processes are here to protect the company from commercial and, to an extent, legal risks. They can also help ensure that SLAs and KPIs are developed in such a way that they can be included in a contract and made understandable and measurable by both the buyer and the seller. This is at the heart of making any deal work in an organization.

Well align IT procurement processes. One of the effective models is that IT has accountability for IT procurements, but they are supported by a separate Vendor Management; or Procurement team who can bring both best practice and objectivity to the process. The same applies to the ongoing relationship. The I.T. Department along with business leaders are the decision makers. IT will tend to know the technical requirements better than procurement, and in complex buys better understand the vendors offerings. However, Procurement would likely be more knowledgeable in negotiations, as well as making sure that purchases are properly competitively bid, and follow procurement documentation/contract requirements and controls. The procurement team is responsible for ensuring that contract/SLA risk is properly managed, and contract/SLA terms and pricing are optimal. In addition, the procurement team can use aggregate company spend as a way of enforcing contracts/SLA's or even requiring their modification as necessary. Working with Procurement Specialists in the Procurement Department throughout the I.T. procurement process provides the following benefits:
1). A Well Defined Procurement Process
2). Specialists in Contract Terms, Contract Pricing, and SLA Negotiation
3). Ability to Use Aggregate Company Spending to Negotiate Contract/SLA Terms and Pricing
4). Proper Legal Review
5). A Holistic Understanding of Procurement Across All Domains

IT procurement is important to run an effective IT, and IT is part of the company, integrated with global objectives, There is a relentless pressure to consolidate things - from procurement to every other function. One of the problems is that people are fighting for functional benefits, not for his/her company goals and projects. Together is the right way to create better results and to advance in any projects, jobs, and planning. So the preferred approach is to draw together the resources across functions with the expertise applicable to a particular situation in order to ensure best outcomes with optimal use of the resource. Procurement collapses when the items are not the commodity or cannot be calculated as P*Q= Value. A holistic understanding of procurement across all domains and the cohesive collaboration cross-functionally is critical in managing an efficient, effective and agile IT procurement.


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