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h2index has just completed a major research project into global IT infrastructure sourcing for an international manufacturing company. The participants were nine multinational corporations employing approximately 750,000 people in the following markets: consumer goods, financial services, pharmaceuticals, manufacturing, energy, technology and chemicals.
Three recent changes in requirements for IT infrastructure are sending shockwaves through IT management.
- Geography: support is no longer focused only for the West; emerging markets are demanding equal levels of support. Companies are being forced out of their comfort zone: they now have to design their governance of infrastructure to work globally rather than nationally or regionally.
- Core business: global companies want to concentrate all their energies on this alone. This isn't new, but difficult trading conditions worldwide have increased the emphasis.
- Digital workplace: companies are scrambling to enable this. It's all pervasive, increases the complexity of everything, and puts great stress on infrastructure.
The result is a profound change: many companies now negotiate global contracts for all elements of IT, including infrastructure.
Extreme sourcing
Three distinct stages of outsourcing sophistication have emerged from h2index's research. The stages do not reflect the amount of outsourcing the company does, but the way it does it and how much it trusts its suppliers.
- Traditional: outsourcing in small defined segments, highly competitive letting of contracts, little sense of partnership
- Controlled: fewer contracts, fewer providers, greater trust, client retains control over technology used.
- Extreme: fundamentally all execution and design is outsourced, very thin layer of retained staff, high degree of trust.
Most companies are probably unaware just how far some companies have taken outsourcing, creating this new condition of "extreme sourcing". A key indicator of sourcing sophistication is the number of retained staff.
How do you make extreme sourcing work?
For some companies, for example in banking, IT is the operation. But for most, IT, although essential, can be separated from the business. In these circumstances, h2index sees extreme sourcing as their ultimate destination.
What stood out from the research was the mental shift required within organisations to learn how to make extreme sourcing work: a shift from frequent confrontation to total collaboration. Organisations require time to change their culture and the transition from traditional to extreme sourcing usually takes several years.
It is essential that certain strategic tasks are retained by the client. This is a key factor in enabling successful extreme outsourcing and will be covered in more detail in future newsletters, together with practical ways that the participants had adopted to nurture innovation in their suppliers.
What this means for our client
Simon Bennett, h2index partner: "Sourcing policies continue to evolve and our research is based on how nine of the world's biggest multinationals are operating right now. We've distilled this knowledge so that we can establish a client's position compared with its peers and propose suggested actions. The currency of our information is important."
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