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A New Era Requires New Models of Sourcing

Government IT teams should learn how to manage a vendor porfolio that considers all of their organization's needs, not just a desire to reduce risk and costs

With the average government organization spending over 65% of its IT budget on external providers in 2015, many IT departments are reassessing their sourcing strategies.

Earlier this year, the White House directed federal agencies to establish “acquisition innovation labs” (pdf), with a recommended focus on IT procurement. This mandate echoed a message that has reverberated throughout the private sector: where once it only played a supporting role, technology is now a critical component of implementing business strategy, and finding an advantage over competitors.

And in an era where speed has become increasingly important, organizations that fail to adapt their IT sourcing strategies to these new realities are quickly falling behind – be it in the private or public sector.

The Limits of Traditional Sourcing

Traditional IT sourcing models focus on two components: risk mitigation and cost considerations. With many agencies and other government organizations not yet viewing technology as a key component of their overall strategy, sales reps from vendor firms have focused less on helping with innovation and more on providing current state services, as requested, for the lowest possible cost.

Now, as technology needs and organizational strategy have become irreversibly intertwined, this approach is not helping vendors or their customers, especially in the public sector.

First, IT buyers place a disproportionately large focus on past performance in evaluating vendors. This puts new, innovative firms at a disadvantage, and the government procurement process magnifies this issue via the difficulties of navigating federal acquisitions regulations. Second, the structure of multi-year, “waterfall” projects, which have notably failed to produce the hoped-for results for government agencies in several instances, are ill-equipped for today’s climate, which favors speed and flexibility.

Third, Government CIOs face several issues that their private sector counterparts don’t: uncertain budgets, the prospect of a looming administration transition, and the difficulties of coordinating and consolidating IT investment across agencies and bureaus.

How to Modernize a Vendor Portfolio

CIOs and their teams should take three steps to improve how they identify, onboard, and retain vendors.

  1. Flex vendor selection by their capabilities: By assessing vendors in terms of the agency or organizational capabilities they help with (running a payments system, say, or rolling out an innovative app to help people access government services), and how good they are at doing so, will help IT departments build a diversified portfolio that prioritizes risk mitigation in some areas while encouraging innovation in others.

  2. Encourage a variety of firms to bid on contracts and become vendors: Increasing outreach to emerging vendors and small businesses introduces new perspectives and solutions into IT investments, and can help with agencies’ inclusion objectives too.

    Additionally, framing request-for-proposals in terms of product vision, not just final outcomes and “how-to” specifications, encourages the potential for new thinking and more original proposals.

  3. Help colleagues to participate in the sourcing and vendor management process: By delegating management of more stable vendor relationships to others within their organization, even outside of IT, CIOs are able to devote their attention to less stable, “high-risk” relationships while developing vendor management expertise and accountability across a broader swathe of the organization.

New proposals, like the establishment of acquisition innovation labs, are a good start. But the need for effective sourcing and vendor management strategies across all elements of IT, in both the public and private sectors, will only continue to grow.

By acquiring and managing a vendor portfolio that considers all of their needs – not just risk and costs – IT departments and their business partners will be able to unlock the full potential of technology throughout their organizations.

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