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IT RFQs and IT sourcing strategies in transformation: is IT procurement taking over control?

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The outsourcing market already reached ever new record levels in the past, both domestically and internationally. The number and complexity of provider agreements keeps increasing, so do the challenges for the IT procurement department.

Not only does the latter have to master shorter sourcing cycles, but ever more frequently said department is also taking on the role of provider management. In the future, the IT procurement department – as central bearer of know-how – will decisively co-determine what’s going on in sourcing in the company. Whether or not the department assumes the leading role will, to a certain extent, depend on who within the company is one step ahead in terms of specialist knowledge.

The IT procurement department as hub of RFQ processes

Typically, IT RFQ processes cost a lot (of time) and require lots of intense communication. For many companies, the speed has increased significantly. Cost pressure, lack of IT know-how within the company itself, agile processes, and responding flexibly to customers’ needs are only some of the many reasons for the sourcing boom.

More and more often, the IT procurement department designs and is responsible for both the sourcing strategy as well as the design of the RFQ process of its company.  Why is this the case?

The ever shorter and ever more differentiated awarding processes require a continuous process optimisation for RFQ processes and contract negotiations. It is only in this manner that a consistently high quality in a company’s sourcing projects, and subsequently an effective provider control, can be ensured.

Quite often, this turns out to be difficult in practice, since the requirements posed to the IT procurement department grow more rapidly than the departments themselves. Here, too, the lack of specialists in the marketplace can be felt palpably. A scarcity of resources and the concomitant requirement, as IT sourcing hub, to be the smallest common denominator of all activities in the RFQ process presuppose a particularly effective control of processes. At the same time, such a professional specialisation of the IT procurement department must also be desired, and the purchasing departments must be enabled to be able to take on this role.

The number and complexity of provider agreements is growing

However, most of the time the real work is now only starting with the conclusion of the agreement: the strategic provider management is responsible for both the contractual as well as the commercial control of the sourcing agreement over the whole duration of the agreement. The intensity of control of the providers has increased in recent years:

More flexible performance specifications and shorter term agreements mirror the rapid development of the technology and the dynamic provider market. More and more provider agreements have to be managed and these are becoming increasingly more complex.
The shortening sourcing life cycles increase the pressure on future-oriented sourcing strategies – optimally suited to needs – that the IT procurement department must develop jointly with the responsible business unit.
By now, Second Generation Outsourcing is a peculiarity no longer, but rather has become a fixed contractual component. Where, in the past, agreement and their performance specification were more or less recycled and only minimally adjusted for the next RFQ, this luxury no longer exists by now.
New technologies and changed markets are necessitating a dynamic and flexibility in the negotiating and awarding processes that many companies still have to get used to.

Outsourcing requires communication and transparency

In each and every sourcing project, the close cooperation between the participating specialist departments is decisive for the successful selection of a provider. Even though this is easily said, it is actually the Alpha and the Omega of each and every IT RFQ. From experience, the diverse interests of the stakeholders in the company bring with them different objectives that must be brought into alignment. In this, a core principle must be that within these groups, and particularly across groups, communication and work must take place with maximum transparency.

However, in reality an immense time pressure is prevalent a lot of the time, a challenge that easily gets underestimated. Even within just a single IT RFQ it is already an ambitious objective to achieve a perfect exchange of information and a joint view. The more comprehensive the sourcing, the more people are involved, some of them only on partial segments or in sub-projects. To make the superordinate objective palpable for each and every individual is ambitious and cannot always be fulfilled.
Collecting know-how for the next time

Due to changing project teams and the, in turn, changing staffing of said team, it becomes challenging to develop best practices from preceding sourcings and to establish said best practices. The shortening sourcing cycles are another indicator of the profitability of such activities.

In practice, it can be advantageous at the beginning of an RFQ process to specify a cooperation model that describes the responsibilities and the methodology. This may, at first, sound right and barely innovative, but – in practice – it creates leeway for the individual teams due to clear guardrails.

Conclusion:

The IT procurement department is centrally involved in the awarding processes and therewith the native location for establishing such know-how. Said department can control the continuous improvement process and establish expertise that is also retrievable “next time”. In purchasing, optimisation potentials can be identified and transitioned into sourcing models and methodologies, always in coordination with the specialist departments. This way, the risks of the IT RFQ are gradually being minimised.