IT Procurement – Why does it matter these days?

Today’s IT procurement setups underlie rapidly changing requirements – either internal, from product centric and agile IT organizations or external from changing commodity markets. A state-of-the-art IT procurement can become an efficiency lever for organizations. To ensure a successful implementation the collaboration model between Procurement and IT need to be adapted in alignment with procurement processes, commodity management and the procurement steering model.

The omnipresent digital transformation of companies is a major driving force behind the transformation of corporate IT organisations: Almost every IT organisation incorporates agile principles in their daily operation and offers “IT products” to respective internal or even external customers. 

IT products often underly a rigorous budget regime, aiming for maximum output or outcome with given budget. Internal personnel costs often take up the majority share of this given budget, which reduces the freely available amount. In this situation, an economical spend of the remaining budget is compelling and a supporting value chain partner most welcome: IT procurement is the efficiency lever for optimizing given budgets by thoroughly managing external IT spend. 

Rapidly changing IT commodity markets impose a need for urgency

Additional pressure on IT budget is imposed by rapidly changing IT commodity markets and their respective cost categories. 

  • A continued high demand in external IT personnel, especially with non-commodity profiles, e.g., for Industry 4.0, production oriented or IT security topics. Need for short-term availability, flexibility in contracts and – to a certain degree – regulation further aggravate the complicated market situation. 

  • Hardware & telecommunication as a seemingly commoditized market, suffers from massive scarcity and disruptions in logistic chains. Hence, procurement attention shifts from cost pressure towards availability and cost avoidance. 

  • The software market structure is further polarizing between large suite suppliers (e.g., Microsoft, SAP, Oracle) and a fragmented micro-Software as a Service market (e.g., collaboration, coordination, or development tools). License models become more heterogenous – from classic purchase and maintenance model to subscriber models. 

  • Finally, the omnipresent cloud trend reflects on procurement and commercial structures, e.g., substitution of backend hardware by Infrastructure as a Service or the described change within the software market 

Four procurement optimization levers

In face of the depicted circumstances and challenges, four optimization levers should be considered to implement a state-of-the-art IT procurement. 

Adaption of an agile collaboration model: Many coordinative issues between an agile IT and a – mostly process oriented – procurement, arise from not adapted collaboration models. Agile IT organizations rely on ceremonies, where all necessary information is “radiated” to or pulled from all participants. Procurement organizations expect to be triggered via defined processual interfaces. These differences could be overcome by dedicated procurement-related ceremonies. Commodity group dynamics are reflected with an increased cadence of ceremonies, e.g., as “monthlies”, “bi-weeklies”, “weeklies” or “dailies”. Other agile elements are easily incorporated, i.e., cross functional teams, time boxing, open information, open attendance, inspection and adaption. 

Increased cadence of strategic procurement processes: Agile principles could be transferred to strategic procurement processes as well. Procurement strategy could be practiced as systemic approach in terms of a transparency, inspect and adapt cycle. Inspection hereby relies on information generated in day-to-day procurement processes or collaboration ceremonies. Through inspection of this information, the backlog of interdisciplinary procurement teams is filled in various categories, e.g., commercial, governance, processes etc. Prioritization and submission to cross-functional agile procurement teams yields an adapted approach for upcoming iterations. Commodity group specific dynamics are – again – reflected by an adapted cadence of planning and review ceremonies. 

Adaptions in commodity group management: The changes in commodity markets need to be reflected in viable commodity groups (see above for a procurement market-oriented proposal of commodity groups). Also, the current IT service paradigms need to be reflected in commodity group management and concrete procurement situations. For example, the procurement of an infrastructure as a service should be jointly conducted by hardware, lines, and cloud buyers to provide know-how in hardware equivalents, bandwidth and cloud specifics. 

Setup of a balanced steering model: A balanced steering model broadens the view on procurement performance, moving forward from a strict savings perspective. To be clear: the contribution to ITs economic success remains top priority for IT procurement. But given the described market situations, this could also be achieved by avoiding cost, not solely by savings. Beyond economic success, obtaining scare resources, providing delivery on time, procuring top quality etc. needs to be considered as categories for IT procurement performance. Such as steering model should be installed to reinforce the afore mentioned measures. Finally, the implementation should be reflected in the day-to-day mode of operations of cross-functional procurement teams, either as targets or as temporary objectives and key results. 

Horváth is your partner for comprehensive IT procurement optimization – from organizational setup to concrete commercial optimization measures. Please feel free to contact us for insights in our project experiences and a dialogue on how to improve your IT procurement.

Burmester, L. / Hambsch, K. / Praus, L.