Strategic Sourcing Management ~ An Experiential Perspective
Evolving Challenges and Solutions
by Prabhu Sinha

Quality Waves Global Solution Inc. (QWGSI)
Sourcing Excellence Objective
Objective
The objective of this document is to provide an organization with an implementation perspective of an effective sourcing management office [SMO]. This document is a summary of our partner’s vast experience in enabling sourcing relationships, particularly offshore relationships. This is presented in the form of key challenges in offshore operations, and recommended process infrastructure with key benefits and risks. The final section outlines the establishment of an effective sourcing governance structure. QWGSI hopes that an organization finds this information useful in preparing for, establishing and effectively operationalzing its strategic sourcing initiatives.

Global Sourcing – The Key Challenges
While offshore software development or business processing is increasingly becoming a well-accepted strategy for global enterprises, they pose certain unique challenges. These challenges related both to establishing and managing offshore relationships as also change management challenges in the onshore IT organization. These challenges, along with recommendations for addressing them are presented in the following table:

Table 1 - Key Challenges for Global Operations

The above challenges can be summarized into each phase of the sourcing lifecycle, right from sourcing strategy and governance to relationship formation, management and improvement.
The above challenges have certain commonalities. Understanding these commonalities enables organizations to effectively address these factors.
• Need for planning activities in each phase of the life-cycle
• Managing involvement of multiple stakeholders
• Standardizing activities to ensure consistency, especially in vendor selection and vendor management
Need for measurement throughout the life cycle. For example, in the sourcing strategy phase measurement enables effective base lining of internal capabilities and accurate definition of the value proposition of sourcing. And in the contract development phase measurement enables effective definition of service levels. Further, in the relationship management phase having effective vendor performance scoring and tracking mechanisms is critical.


Processes for Global Sourcing
In order to overcome / mitigate the challenges outlined in the preceding section, several organizations are currently establishing processes for managing their global sourcing initiatives. They are doing so because a strategic process driven approach has proven effective in addressing the challenges outlined earlier, particularly in terms of effective strategic planning, coordination across stakeholders, measurement, etc. In QWGSI’s experience, processes play a key role across the sourcing life cycle right from strategy to program and project management, and also in effective execution of sourcing engagements.
Figure (2) presents the various stages of the typical global sourcing life cycle and the key process components, i.e. program management office and sourcing management office, for managing global sourcing as a strategic initiative.
The above life cycle begins with establishing a sourcing strategy and definition of an implementation roadmap. As mentioned in the preceding section, organizations need to ensure that they perform certain critical activities while developing the strategy and roadmap if they are to succeed in global sourcing. The life cycle has two potentially parallel streams; the first is to do with establishing sourcing relationships and the second is related to establishment of governance capabilities. While these are indicated as occurring in parallel, organizations at times prefer to perform these in sequence; with some establishing relationships first before governance capabilities and vice versa. QWGSI recommends a parallel approach to these streams as it optimizes the timelines and also enables effective synchronization between them e.g. while establishing a governance structure and processes for program management, having visibility into initial results from piloting offshore and initial experiences with processes and operating models can be helpful.

Overview of Process Components
This section describes each of the process components mentioned above, along with the value delivered to the organization. These are derived from QWGSI’s experiences, both as a partner in several offshore relationships with global customers and also from playing a consulting role in enabling establishment of such processes at several leading organizations globally.

Program Management Office [PMO]
The enterprise PMO is increasingly gaining traction as the preferred entity and set of processes for managing organizational IT Programs and Projects. While each project is a distinct endeavor to address a unique requirement, a program is a group of projects managed in a coordinated way to obtain benefits not available from managing them individually . Establishing a dedicated program management office enables the IT function to provide the extra focus and resources that complex projects demand. The PMO focuses on coordinating multiple projects under a program umbrella and acts as a ‘center of excellence’ that supports project managers in the implementation of activities required to achieve project(s) success.
The PMO offers project management tools, support, mentoring, project portfolio management and quality assurance. Depending on its envisaged role in the context of the overall organizational structure, the PMO could function as one or more of the following:
• ‘Repository’–serving only as a central source of information
• ‘Weather Station’ –reporting and tracking events without influencing them
• ‘Coach’ – participating as a trainer, consultant or mentor, providing information on project processes and often helping in the project set up and post-project review
• ‘Super Project Manager’ – a consolidated central function providing direct management or at least oversight (depending on scope and duration) of major projects



Figure 3 describes the typical processes handled by a PMO.
While establishing a PMO, organizations need to ensure that it fits well within their existing IT organization structure, in terms of its envisaged scope and in terms of enabling effective change management. Figure 4, depicts the various options available in terms of fitting a PMO into the structure of the IT organization. As can be seen, the PMO could potentially be at the level of a business unit, or cater only to development projects, or as a separate entity under the Administration & Planning area.

Sourcing Management Office [SMO]
The Sourcing Management Office is another process driven entity that organizations are increasingly focusing on. While the Program Management Office, outlined in the preceding section manages IT programs, the SMO is envisaged as the entity that will ‘source resources’ for implementing these programs.
The SMO:
• Is a distinct organizational unit that is responsible for centralizing the acquisition, integration and coordination of needed resources
• Plays a key role in establishing and managing sourcing relationships with internal and external entities
In a typical external sourcing scenario, the SMO would contain processes for managing the entire sourcing lifecycle; extending from strategy to vendor evaluation and selection to contracting and relationship management. However in an in sourcing scenario, the SMO would play the role of establishing contractual relationships (e.g. Internal Supply Agreements) with the in sourced organization and also serve as a single entity responsible for all projects / activities that are performed using resources from the in sourced organization.



Figure 5, represents the typical process architecture of an SMO. There are four distinct categories of processes, which address the entire sourcing life cycle. While the strategic processes provide the sourcing governance structure and workflow, templates and guidelines for developing a Sourcing Strategy and a Sourcing Plan, the Operational processes do likewise for the ‘Evaluation and Selection’ and ‘Contract Development’ phases. Further, the Enabling processes and Developmental processes address the ongoing ‘Relationship Management’ phase and provide capabilities for managing and continuously improving sourcing relationships.
While the SMO does provide organizations with the above capabilities, it also presents new challenges for its successful implementation.
Effective implementation of SMO processes requires cross-functional and cross-departmental teamwork and co-ordination. Further, since the SMO takes over some of the major sourcing related activities, which had hitherto belonged to project managers and operations managers, it may cause some shifts in organizational dynamics that need to be managed by the organization. Hence, all stakeholders need to have a sense of common purpose towards the SMO. Therefore, organizations need to manage soft issues relating to people, expectations, roles and responsibilities, in the changed environment, through a comprehensive “Change Management” strategy and plan.

Recommended Approach for Establishing Processes
While the preceding section gave an overview of the critical process components for effective global sourcing, it also highlighted several key challenges in establishing such organizational entities and processes. In this section QWGSI shares its experiences with supporting organizations in effectively implementing such processes. The key learning from such consulting engagements are presented below:
This section outlines the approach recommended by QWGSI for implementing effective sourcing governance and program management processes [See Figure 6]. This approach is in the form of the typical phases, the key objectives to be achieved and the associated deliverables. While this is generic in nature, it has proven to be quite effective in establishing processes both within QWGSI as well as for external customers. The overview of this recommended approach is presented below.
The timelines presented are the typical proportion of time spent in each stage. By adopting such a systematic approach, an organization can ensure that whatever processes are developed meet their intended purpose and eventually get used; this is achieved by involving stakeholders throughout the process right from planning to design to definition and deployment.

Conclusions
Global sourcing has emerged as a proven strategy for driving value in IT organizations. QWGSI believes that organizations can achieve excellence and derive lasting value from their Global Sourcing initiatives if they adopt a strategic approach and establish the required process infrastructure based on industry best practices. QWGSI hopes that the information presented in this document is of value to an organization in furthering their Global Sourcing strategies, establishing effective sourcing operations and mitigating sourcing related risks. QWGSI would be pleased to provide further information or clarifications required regarding any of the aspects presented in this document.
The author is Sr Vice President, Global Head, Quality Solutions, Satyam Computer Services