Vendor Management

IT Sourcing Strategy Based in
Business Capabilities

A Fragmented
Vendor Landscape

IT functions now deal with a vast and diverse array of vendors. From startups to large enterprises, these vendors support rapidly changing areas of technology, such as big data, digital marketing, customer experience, SaaS, and employee productivity. This fragmented and often immature marketplace presents a new set of sourcing and vendor management challenges.

Traditionally, corporate IT has tried to assert control by minimizing the number and variety of vendors that the enterprise works with, and standardizing its interactions with vendors to reduce costs and risks.

The One-Size Model
Does Not Fit All

However, these one-size-fits-all approaches often require putting smaller, less mature vendors through the same process steps as larger, more established vendors. This heavy burden often drives smaller vendors away from potential customers, and frustrates business partners who want to work with new or emerging vendors, or launch a vendor engagement quickly.

Corporate IT’s standardized approach inadvertently drives business partners to circumvent IT to procure vendor solutions. In turn, this forces IT to react to unplanned demand, and compromises IT's strategic sourcing goals.

3 Factors Undermining
IT Sourcing

Three key factors contribute to the mismatch between how business partners want to interact with vendors, and how IT’s existing approach to sourcing currently works:

  1. Business Technology Demands Are More Fluid: Business partners’ technology needs are increasingly varied and fast changing.
  2. Standardized Processes Can't Flex: IT sourcing processes do not change based on the type of problem that business partners are trying to solve. 
  3. Business Partners Want To Experiment: Business partners are often looking to test ideas rather than implement well-defined solutions.
 

IT Sourcing Driven by
Business Capabilities

Progressive IT organizations base their sourcing strategy in business capabilities—the clusters of activities that the enterprise performs to achieve its desired business outcomes. This approach enables IT to target where to focus effort on evaluating and managing vendors that can help business partners generate competitive advantage.

Segmenting sourcing strategy in this way also helps IT surface where it can afford to spend less time and attention, freeing up resources for other needs.

Create a Comprehensive
Sourcing Strategy

Traditional vendor selection and evaluation tends to favor larger, incumbent vendors. Yet niche and emerging vendors can provide business partners with significant value. To capture this value, IT's sourcing strategies need to adapt.

  1. Define an Adaptive Strategy: For business activities that require speed and innovation, define sourcing strategies in collaboration with business partners.
  2. Devolve Vendor Management Decisions: Delegate decision-making to employees closest to the point of value delivery. 
  3. Apply Adaptive Evaluation Metrics: Evaluate vendors on their ability to solve problems creatively.

Avoid Common Pitfalls
in IT Sourcing

Avoid these common IT sourcing pitfalls to gain maximum value from vendor relationships:

  1. Don't select vendors that don’t support emerging business needs: Ensure your vendors support business needs by aligning your sourcing strategy to business capabilities.
  2. Don't track irrelevant sourcing metrics: Develop vendor KPIs in collaboration with business partners.
  3. Don't let vendors and IT get out of sync: Onboard vendors with a self-service guide to interacting with your company, and monitor vendor relationships for any friction that develops.

The Product

CEB CIO
Leadership Council

Innovative Chief Information Officers work with CEB to optimize the performance of their function and business. Our research and insights support your organization’s day to day as well as longer-term strategic initiatives. Key topics include IT sourcing, budgeting, IT strategic planning, IT organizational design, IT talent, and performance meassurement.

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Meet the Experts

Meet the experts behind our IT Vendor Management insights.

Andrew Horne

IT Practice Leader

Read Biography

Mark Tonsetic

IT Practice Leader

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Decision Making Tools

Checklist

Vendor Collaboration Improvement

Key activities to be completed before and after supplier collaboration workshops.

IT Fundamentals

IT Sourcing

Introduction to defining a sourcing strategy and effective vendor management.

Implementation Guide

Business Capability-Driven IT Sourcing

5 steps to implementing business capability-driven IT sourcing.

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