IT Transformation in the Eyes of Procurement

The congruent evolution of IT and procurement

After many years and companies, I greatly respected my IT colleagues.

Outside, they could be edgy, but inside, they are super intelligent, supportive, and ultra-resilient. Getting into their circle of trust is tough, but once you are there, you can always rely upon them.

Besides such behavioral sympathies, procurement and IT evolution is alike.

Since technology is the backbone of most business functions, its strategy is expected to align with its business. Technology investments need to fulfill business goals. New services must provide value to end clients, and resilience should be dictated not by internal IT standards but by the importance of revenue generation.

The shift in the IT operating model

Furthermore, there has been a fundamental shift in operating models and cost structures. 
Technology jobs are extensively outsourced or offshored. Back-end systems and infrastructure move to the cloud, freeing up capital expenditures so the budget can reserve more funds for change and innovation. 
Technology money generally flows into three main buckets – business operation support, process change, and innovation. Every dollar protects existing revenue or contributes to the top or bottom line (new income or savings).
Overall, our colleagues are going through a similar transformation as procurement—their strategy is subordinated to the business, their work is measured by its effect on P&L, they need to manage ‘shadow IT’ (unauthorized implementation of technology by end-users), and they have to develop internal financial capabilities to plan, allocate, and analyze the efficiency of investments.
The IT operational model becomes Bimodal, where the Reliability mode applies to traditional areas (e.g., infrastructure operations) and focuses on quality, stability, and TCO. The second Agility mode solves problems with innovation and focuses on value, efficiency, and collaboration.
Bi-modal IT operational model
A similar approach was observed in the Adaptive Sourcing model, where procurement suggested operating in three modes – Run, Differentiate, and Innovate. 
“Run” mode deals with established IT services subject to the highest controls in terms of security, compliance, and financial and technical compatibility. 
The “Differentiate” mode applies to services that enable ongoing improvement of unique company processes and industry-specific capabilities. These services have a medium life cycle (one to three years) and need frequent reconfiguring to accommodate changing business practices and customer requirements. 
Naturally, the “Innovate” mode caters to services that are sourced on an ad-hoc basis to address emerging business requirements or opportunities. These services have a short life cycle and use departmental, external, and consumer-grade technologies. 
Each mode should have a custom category strategy, sourcing levers, and vendor management strategy.

IT and Procurement commonalities

Some more commonalities can be observed between IT and procurement in the process of our continuous transformation:
  • IT moves from HW to SW-defined products and services as cloud and virtualization technologies consume the physical infrastructure and office peripherals. Similarly, IT procurement transitions from sourcing HW and SW commodities as physical objects (SKUs) to delivering end-to-end value-generating services. 
  • Just as IT extensively employs agile methods for software development and project delivery, procurement is also expected to become agile—light on compliance and hard on outcomes, modular processes, and collaboration with the business and suppliers. 
  • As “Shadow IT” becomes legalized, Business takes over the ownership of custom IT platforms and services, IoT technologies relax corporate standards, and procurement becomes excessively decentralized. It merges with the business and is less obsessed with the “maverick” spending.
  • IT and procurement are no longer hierarchical organizations; we become relationship brokers in the network of stakeholders, suppliers, and customers. 
  • TCO and savings are not the dominant measures of our success; they are business value and time to market.
Eventually, our functions will no longer be support (back office) but strategic business enablers. Therefore, we must embark on this journey together to transform our business consumers' demands. 

Our faith is in the choice of being unicorns or dinosaurs.

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