„Make or buy „in the IT sourcing strategy for international retail companies – flexible and yet from a single source

The strategy and sourcing consultants at noventum consulting have helped a leading international wholesale and retail company to restructure its IT sourcing landscape. A balanced system of centralized management and centralized service on the one hand and national and local autonomy on the other hand allows the Group to keep quality and costs under control. Today, it is strategically well positioned for future developments in the IT sourcing world.

GROUP ORGANISATION OFFERS IT SERVICES – COUNTRY ORGANISATIONS CAN CHOOSE FREELY

The trading company has a parent company and a branch system of food retailing throughout Europe and beyond. Each of the country organizations purchases central IT services from its own IT service provider, but is also free to procure dedicated IT services independently. Each country makes use of its previous experience and trusted suppliers.
The central department "Sourcing" in the parent company, which is the client of noventum consultants, sees itself as a future internal service provider of the country organisations for all aspects of "Sourcing". She would like to support them in their plans to have IT services performed externally. In addition, she would like to put IT services out to tender centrally herself. This gives the country organizations the opportunity to purchase a standardized service without major internal effort.

noventum supported the central "Sourcing" department in the implementation of the following activities:

• Definition of a sourcing process
• Development of a partner database
• Development of standardized tender documents
• Development of training materials

The sourcing strategy covers both services for the retail stores and regional distribution centers (warehouses) as well as services required in the countries‘ headquarters.

MAKE OR BUY "- THE DECISIVE QUESTION OF THE SOURCING STRATEGY

One of the aims of the noventum consulting project was to develop a sourcing strategy. A key aspect of this strategy is to define a policy based on "make or buy" criteria that allows decision-makers to make their individual decisions for in-house operation (make) or external operation (buy) of IT services on an individual basis according to uniform criteria.

In the first step, the objectives were defined and prioritized, which must fulfill a sourcing decision in the future.

The company has currently implemented a global organizational model that structures the services provided in the IT organizations per country. It’s divided into four sections:

A PARAMETERS FOR A COUNTRY-SPECIFIC "MAKE OR BUY" DECISION

The model results in the first criteria for a "make or buy" decision. In the future sourcing model, external operations are to be increasingly targeted for the delivery and run phases. This applies above all to commodity services (housing, hosting), i. e. interchangeable standard services, which can be obtained from many suppliers in comparable quality and which require little company know-how.

In some country organizations, it makes sense to evaluate "make or buy" decisions by other criteria, if necessary. An analysis/decision is made on the basis of

• a layered model with different responsibilities for service performance
• the business criticality of service objects and services
• the sourcing maturity
• the existing personnel and know-how
• the current or future service catalog

MAKE OR BUY "DECISION BASED ON A LAYERED MODEL

A layered model structures the services from the provision of commodity services (housing of the data center, hosting server, SAN, hardware) to application management/application outsourcing, which requires a higher level of company-specific know-how. This is referred to as a vertical power cut when the underlying services are also contracted out externally, e. g. the application management layer. The horizontal power section is assigned externally only one layer.

MAKE OR BUY DECISION BASED ON BUSINESS CRITICALITY

This question becomes relevant if, on the one hand, the customer presents services/applications with a high level of business criticality, but the possibility of an "appropriate" level of protection in the in-house operation is not or only to a limited extent given.

For the definition of an "appropriate" hedge, the following aspects need to be considered:

• Can availability requirements for the business-critical operation of one or more services/applications in internal operation be met? If service quality requirements are met with regard to

o the reliable data center operation,
o the architecture of the infrastructure,
o the operational performance of the internal staff,
o the processes of the operating performances?

• Are investments to increase the service quality/availability possible/desired?

MAKE OR BUY DECISION BASED ON THE MATURITY OF THE SERVICE MANAGEMENT PROCESSES

The development, maturity, sustainability and effectiveness of existing IT service management processes can also determine whether it makes sense to operate services in-house or externally. The decision in favour of a possible external operation of services necessitates adjustments in the internal service provision in the operational and organizational structure in order to provide future controlling interfaces to the external service providers. The extent to which the organisation currently has the necessary degree of maturity is highlighted by means of a questionnaire to ascertain the current status of service provision.

Relevant questions are:

• How strong is the general use of IT service management processes?
• What is the current state of development / maturity / sustainability / effectiveness of individual necessary IT service management processes?
• What efforts are needed to change the quality of service delivery according to requirements and are they directly beneficial to a changed delivery?
• Are investments to increase the service quality possible/desired?

“MAKE OR BUY" DECISION BASED ON HUMAN RESOURCES AND THE PROFESSIONAL KNOW-HOW OF INTERNAL EMPLOYEES.

Relevant questions are:

• Are there sufficient internal employees available to meet the requirements of the target hierarchy "Sourcing"?
• Are the technical know-how and experience of the internal employees sufficient to meet the requirements?
• Is the fulfilment of the requirements in the in-house operation prevented or made significantly more difficult by concrete basic conditions (e. g. a 7×24-hour operation)?
• Can know-how/knowledge or the core competencies of internal employees be replaced by external services without losses (buy) or is the necessary knowledge so specific to the company that they must be evaluated as a unique selling proposition of the employee/team (make)?
• Is the internal provision of services more cost-effective or do qualitative aspects play a greater role?

MAKE OR BUY "DECISION BASED ON THE CURRENT OR FUTURE SERVICE CATALOG.

The sourcing of the customer can assign individual or all services within the areas (e. g. all services of the store service) here. The evaluation is usually based on an individual assessment of the services or in a professional cluster and it also includes aspects of human resources and technical know-how. The evaluation of individual services in the service catalogue can be based on the following questions:

• Is the service still strategic and necessary?
• Are there any redundancies in the provision of services?
• Is the service a standardized service or is it very specific?
• What is the quality of service provision?
• What is the quantity of the service provision?
• Is the provision of services efficient/effective?

A FLEXIBLE SOURCING STRATEGY REQUIRES STRICT STANDARDS AND A HIGH DEGREE OF FLEXIBILITY

Each decision criterion results in recommendations for the stores for their own or third-party operations, which are weighted, evaluated and analyzed. With regard to the sourcing decision, it is now possible for decision-makers to use the results obtained as a basis to question how much they support the target hierarchy "sourcing" and thus to make derivations for strategic decisions. Measurable results enable comprehensible options for action, which can support the decision-making process transparently. However, subjectively made decisions against measurable results that are "obvious" are also valid if they are consciously made and thus represent exceptions.

JUDITH WAGENER, noventum consulting

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