The traditional approach to sourcing is top down, waterfall style. The underlying purpose of the contract is to ensure service provider accountability for predefined requirements. This creates a ‘control and command’-focus, where the buyer monitors the service provider through various KPIs/SLAs with associated penalties. Traditionally, companies have approached IT sourcing through a sequential strategy development process; business strategy feeds IT strategy, which in turn defines the IT sourcing strategy. The sequential approach; cascading downwards to the service providers, doesn’t give room for input from the service provider, which means the outsourcing company loses the opportunity to benefit from the vendor’s expertise outside of what has been contracted. In 3gamma’s experience, IT sourcing strategies developed using this approach also lack alignment with business strategy. The strategies applied are often generic and provide limited support for the business strategy. The sequential approach is rigid and inflexible: it creates a false sense of certainty and leads organisations to lay detailed plans and principles for a large number of areas. In an ever-changing environment, these plans soon become obsolete and misaligned, causing missed opportunities and disjoint internal processes.
Cascading strategy formulation is fraught with risk of misalignment. Each organisational unit involved in the strategy formulation process risk accentuating the misalignment following their interpretation of the overall objectives, its internal politics, existing legacy and external forces. In addition, it’s a slow process where misalignments are cemented into long sourcing contracts.
A symptom of this rigid and inflexible approach is that business units go directly to service providers, bypassing the IT organisation and IT sourcing team, in order to ensure fit-for-purpose buying. This way, business functions bypass the rigid processes connected to IT and sourcing. But more importantly, they’re able to source IT in line with their expectations. If this approach becomes a norm within an organisation, the IT sourcing landscape becomes fragmented and costs will increase. But if the IT organisation fails to drive innovation, the business will acquire it elsewhere.