Adaptive Sourcing Holds The Key To Business Growth: Gartner

New Delhi, India, May 16, 2014: Organizations are increasingly turning to digital means to find new revenue and drive growth. However, few are ready for the velocity of customer-centric innovation or the myriad technology and business options that will define the next generation of business and market leaders, according to Gartner, Inc. In this disruptive environment, sourcing executives must move away from approaches that were “built to last” to sourcing strategies that are “built to adapt.”

The 2014 Gartner CEO and senior executive survey showed that CEOs’ interest in IT has reached the highest level in a decade, as 64 percent cited growth as one of their top three priorities this year. In a global environment where macro level economic growth is far from certain, CEOs see digital business as a route to growth through increased competitiveness and competing in new markets.

“This is clearly an opportunity for the IT organization to demonstrate its increasing value to the business and to reinvent itself as a driver of growth,” said Claudio Da Rold, vice president and distinguished analyst at Gartner. “However, Gartner’s latest CIO Agenda survey found that many IT organizations are simply not ready to support this kind of innovation and rapid change.”

According to the Gartner CIO Agenda survey of over 2,300 CIOs, conducted in the third quarter of 2013, 51 percent said they cannot respond in a timely manner to digital opportunities, 42 percent said they lacked the skills necessary to enable digitalization, and 70 percent said they must change their sourcing mix during the next three years.

To face this challenge, Gartner recommends sourcing leaders embrace a new approach that Gartner has called “adaptive sourcing.” This approach helps organizations move away from a traditional layered sourcing strategy and aims to adapt their IT sourcing to respond far more quickly to changes in customer demand, or to harness opportunities in new sectors and markets.

“The one-size-fits-all sourcing strategy is no longer appropriate for an IT organization that will increasingly be asked to be accountable for end-to-end production services, which will, of necessity, be based on a hybrid IT approach,” said Mr. Da Rold.

“IT must continue to run the essential business operations. It must differentiate the business through improvements to business processes, and it must also innovate — providing access to new digital opportunities. If IT fails to drive innovation, the business will acquire it elsewhere — because IT purchasing is already moving beyond the IT budget.”

To achieve this innovative approach, many CIOs are creating a bimodal IT organization — with one mode continuing the traditional aspects of IT (run and differentiate). The second mode of operation — which is much faster and more flexible than the traditional mode — is intended as an IT innovation engine, focused on the kind of agile development that can address the business demands for digital marketing and digital business transformation.

In parallel, sourcing executives must create a bimodal sourcing capability that is able to handle the rapid innovation needed to cope quickly with digital innovation with a controlled level of risk. Key elements of a bimodal sourcing capability will be:

• Leveraging existing sourcing and IT expertise that demonstrates the right behaviors: that is, a spirit of innovation, a problem-solving attitude and a willingness to achieve business outcomes while controlling risk.
• Reusing existing sourcing processes, tools, templates and checklists where these accelerate execution, help to evaluate and reduce risk, and enable achievement of results within the required time frames.
• Avoiding the use of compliance, security, risk and procurement gates and procedures to reduce the speed of innovation or to stop the innovation; because this positions sourcing and procurement specialists as part of the problem, rather than part of the solution, and causes disintermediation.

“The ‘built to last’ sourcing strategies of old are simply not sufficient in the digital age,” said Mr. Da Rold. “For a business to compete effectively, its IT must be ‘built to adapt’ — both to new technologies and opportunities as they arise, and to the demands of the customer and the supply chain.”

Detailed analysis is available in the report “Enhance Your IT Agility and Grow the Business by Optimizing the Three Layers of Adaptive Sourcing Strategy.”