Purchasing Transformation

According to an IDC report quoted by Sweden’s Dagens Industri (in an article highlighting India’s IT-wonder – exemplified by Tata Consultancy Services) IT-outsourcing rise from 12 percent in 2004 to 27 percent in 2009, during the same time frame the share of companies that consider IT-outsourcing has risen from 5 to 37 percent.

Now, IT-outsourcing covers a wide array of services ranging from help desk functions to network management to systems architecture so although the numbers may be right in a rough sense when one looks closer at the category I suspect that certain subcategories are more prominently represented than others.

In any case, this development will create quite a challenge for IT-procurement – especially when it comes to consultancy services. In fact, the development has gone as far as to prompt Stockholm University to offer courses in Computer Science focused on managing IT-services in low cost countries. For purchasing the major challenge will be to win the confidence of the internal stakeholders, acting as the margin hunter whose only task is to negotiate lower cost per hour will inevitably see a rift open up between IT and purchasing no matter how strict the corporate guidelines describing processes are. Any slack of quality will be seen as a reason to sidestep purchasing – turning any project into the battle of the C-s. And chances are that the remaining management will side with the IT-side of the story instead of opting for the (in theory) right side (when it comes to purchasing policy).

So how does one assure quality when purchasing IT-consultancy services?

One rather simplistic answer was given to me by an experienced (and almost cynical) senior purchaser. His blunt answer was this:

Go for the small boutique firms, any extra cost per hour will be saved due to the fact that they are forced to deliver results. If they don’t their reputation is in jeopardy and due to their size their reputation is their only selling point. In essence they need to deliver on every single assignment since they are judged solely on the last assignment. Exploit the fact that they have no room for failure.