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IT Transformation in the Eyes of Procurement

22 March, 2020 | By Sergii Dovgalenko

After many years and companies, I developed a high respect for my IT colleagues. Outside they could be edgy, but inside they are super smart, ever supportive and ultra-resilient. It is tough to get into in their circle of trust, but once you are there, you can rely upon them at all times.  

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 that of the 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.

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 are moving to the cloud and freeing up capital expenditures, so the budget can reserve more funds for change and innovation. In general, technology money flows into three main buckets – business operation support, process change, and innovation. Every dollar is dedicated either to protecting existing revenue or contributing to the top or bottom line (new income or savings).

Overall, our colleagues going through a similar transformation as procurement – their strategy subordinated to the business, their work measured by the effect on P&L, they need to manage ‘shadow IT’ (unauthorized implementation of technology by end-users) and have to develop internal financial capabilities to plan, allocate, and analyze the efficiency of investments.

The IT operational model becomes Bimodal, where Reliability mode applies to traditional areas (eg, infrastructure operations) and focuses on quality, stability, and TCO. The second Agility mode solves problems with innovation and focuses on value, efficiency, and collaboration.

The similar approach observed in the Adaptive Sourcing model, where procurement suggested to operate in three modes – Run, Differentiate, and Innovate. “Run” mode deals with established IT services that are subject to the highest controls in terms of security, compliance and financial and technical compatibility. “Differentiate” mode applies to services that enable ongoing improvement of unique company processes and industry-specific capabilities, which have a medium life cycle (one to three years) and need frequent reconfiguring to accommodate changing business practices and customer requirements. Naturally, “Innovate” mode caters to services that are sourced on an ad-hoc basis to address emerging business requirements or opportunities and entail a short life cycle and use departmental, external and consumer-grade technologies. Each of these modes should have the custom category strategy, sourcing levers, and vendor management strategy.

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 to software development and project delivery, procurement is also expected to become agile – light on compliance, hard on outcomes, modular on processes and collaborative with the business and suppliers. 
  • As “Shadow IT” becomes legalized and business taking over the ownership of custom IT platforms and services and IoT technologies relax requirements on corporate standards, procurement gets excessively decentralized and merges with the business, hence less obsessed with the “maverick” spend.
  • 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, it is the business value and time to market.

Eventually, our functions are no longer support ones (back office), but strategic business enablers. Therefore, we need to be on this journey together to transform in the way our business and consumers would demand. Our faith is in the choice of being unicorns or dinosaurs.

Sergii Dovgalenko is the CPO of JSC “Ukrainian Railways” and the author of “The Technology Procurement Handbook: A Practical Guide to Digital Buying”

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