Imagine that you are a director on a board, perhaps an independent, non-executive director. Or maybe, if that does not suit you, imagine you are a senior public servant, or a CEO of a not for profit organization. Or perhaps you actually are in one of these roles. Either way, this essay is meant for you, the senior executive, but, for the sake of brevity, we will continue with the example of the director on a company board.
It is Friday afternoon, you are looking forward to a golfing week-end and contemplating how to fix your wayward drive, when a large parcel of papers is delivered to you, for next Monday's board meeting.
There is only one action item on the agenda: a proposal from the Chief Operating Officer to outsource the company's information technology operations...a proposal opposed by the Chief Information Officer, who wants to keep those operations in house.
After suppressing a colorful expletive that naturally bubbled up to the surface of your mind, you know you are in trouble. You know nothing about IT or outsourcing. You joined the board only because the fee was good and you were interested in the business. No one ever told you that you would have to make decisions about IT, computers and stuff like that.
Yet, you do know that as a director you are responsible for the good governance of the organization and you take your responsibilities seriously.
You should not have been surprised. Increasingly boards are being asked to make decisions about outsourcing information and communication technology (“ICT”) services and applications - sometimes extending to whole business processes. This is a relatively new phenomenon, as such matters have traditionally been left to CIOs and assorted other technical experts, but it is a phenomenon that is not going away.
Company boards, COOs, CEOs, CFOs, business unit managers and business proprietors will find in years to come that they are no longer be able to delegate this responsibility away.
As time goes by, the focus on outsourcing is shifting to sourcing: where is the business going to get the services, products, materials and people it needs to deliver ROI to its customers? If you look at it this way, it becomes easier to see why CEOs and boards should concern themselves with such matters.
It's Governance, Stupid
Get the sourcing strategy right and your business will grow or at least hold its own, even in turbulent times. Get it wrong and you may do serious damage to the performance of your business performance - or even sink the ship. Ultimately, this is an issue of governance.
The purpose of this essay is to provide the non-expert director, CEO, CFO, executive manager or business owner with a short guide to the development of a sourcing strategy, focusing on ICT: seven steps to success. The guide is based on personal experience, on research and on a deep understanding of how important ICT is to business, regardless of its size and budget.
On the subject of size, in reading and using the guide, please adapt each step to suit the scale and complexity of your business, applying sound risk management principles. Don't over-engineer. On the other hand, don't skip any of the steps, as each is fundamental to the next and, indeed, to all the others.
So, forget about golf for a while and read on.
Step 1. Determine what kind of business you are.
I suggest a different question: what is it that consumes your resources? Is it moving goods from place to place for other businesses or selling groceries or providing architectural advice to builders, just to give some examples. Notice that you are not being asked: do you run a shop or are you in a professional business or do you run a transport company? For the answer to have meaning, there has to be reasonable specificity implied by the question.
If you are David Jones or Nordstrom or Marks and Spencer, the answer should be something like: we sell a broad range of merchandise to the public from multipurpose facilities. The point is to ascertain what it is that you do that creates value. In retail, it is the activity of selling that creates value. Everything else is a cost center.
One would be unwise to outsource the activity that creates value, while one may find it useful to outsource anything that is a cost center. Note that that a choice has to be made even about the latter, which is why the core/non-core debate proved to be sterile. Boards and management must make choices, informed choices. How such choices are made is covered in the next six steps, starting with the step after the next.
To give you some notice of what may drive you to outsource or not, you need to ask yourself: what competencies do you rely on to create value for your customers? If the activity covered by a certain cost center is included under this rubric, it would be risky to your business to outsource it. Notice that a judgment is again required: it may be risky, but, taking all relevant matters into account, it may still be preferable.
