Are your attempts to address disruption being disrupted by procurement?

It’s happening across industries and across the globe: Entrenched leaders are being unseated, or at a minimum strongly challenged, by emerging brands born as a digital concept and deployed in the ether of low-cost, utility computing. The challenged, seeking to fight fire with fire, are formulating digital strategies of their own designed to leverage their existing brand recognition using the same tools and capabilities as their challengers. However, execution of these digital strategies is constrained by deeply-embedded governance for how to select and acquire the underpinnings of this new strategy.

Thriving on change

This is not the only constraint on large enterprises attempting to compete in a digital age. Siloed organizational structures, fearful cultures and years of cost-cutting measures have left many of these large enterprises too under-resourced, technologically, to respond rapidly to this emerging threat. However, in cases where businesses have been reaching out to IT professional services companies attempting to meet demands, their efforts have collided with old-age procurement rules and thinking.

To respond to emerging threats and market pressures to deliver a better customer and employee experience requires an ability to deal with ongoing and consistent change, combined with speed to bring new features to market. In turn, bringing new features to market more quickly requires that the entire process — that includes user experience design, development, integration with existing systems, testing, deployment and operations — be made as streamlined as possible, as this is one of the key advantages “born digital” companies have over their competitors; they can do this at an incredibly fast pace.

The optimal approach to meeting the demands of delivering software capabilities in the digital age is to use an Agile Software Development Lifecycle (SDLC) and to identify the Minimum Viable Product (MVP) — the minimal set of capabilities needed to ensure business viability. Then, continuously improve the product over multiple short-term time periods called sprints. Feeding these sprints is a set of features called a backlog that is defined by a product owner, usually a business representative linked to the business outcome delivered by these features.

No concept of “done”

This approach allows the business to continually prioritize that which is most critical to business outcome success and to deliver working capabilities on a continual short-term basis, hence being agile. Ensuring these work products become a part of production in a timely manner is part of a construct that has been called DevOps, which facilitates cooperation between development and operations to ensure rapid and smooth transitions for these short-term deliveries.

The key conflict between this approach and leveraging outsourced resources is that the Agile/DevOps approach does not define work in the traditional manner. It does not define what the final products will look like since it assumes that the needs of the business will change them on an ongoing basis. The size of a team may scale up and down based on the demands of a sprint. There is no concept of “done;” hence, it requires traditional procurement methods to continually define the statement of work on a sprint-to-sprint basis — a process that is far too time-consuming for most procurement departments.

Redefining procurement

In short, procurement often has difficulties contracting outsourced resources in a way that supports these needs. However, three new approaches have proven to be eye-catching:

  • Pay-per-sprint
  • Pay-per-user-story (user story is the term used to define a backlog item moving into development in Agile SDLC)
  • Co-investment

The first two items allow businesses to buy a block of sprints or user stories to be accomplished, with no qualification of what will occur during those sprints or user stories. When the block is used up the business can acquire more or switch vendors. This aligns well with the ongoing move to as-a-service models, where businesses can buy elastic services and easily move between service providers based on experience and need.

In the third item, co-investment, the service provider builds and hosts the application on behalf of the business, and the business pays a subscription fee for each user. In this way, the risk is minimal to the business (there are minimums to ensure the service provider does not lose money); risk shifts to the service provider in return for greater potential revenue from use.

Unfortunately, many procurement organizations have yet to develop approaches to acquire outsourced resources in this manner and often push back, attempting to drive a more traditional approach based on hourly rate cards or fixed-price bids. The former is problematic to the Agile/DevOps approach because it lends itself to the risk that one or more resources on one of your Agile teams could have constraints that could hinder their participation in this process, or that resources may be idle as workloads change.

Meanwhile, fixed-priced bids force businesses to define all possible work that needs to be done up front, opening the risk that the final product may not be as useful as first imagined, or that the business may be forced to wait longer than expected for a new high-priority feature.

These scenarios can effectively be addressed and risks mitigated by the Agile/DevOps approach.

Leveraging outsourced talent

It is highly unlikely that businesses are going to be able to hire internally for all their needs related to supporting their digital transformation agenda, which means they will most likely want to leverage outsourced resources. As businesses engage in digital transformation and work to develop a competitive capability for the digital era, it is critical that they work to address the known issues we have seen in procurement that limit the ability for businesses to effectively leverage outsourced resources to achieve the goals of their digital strategy.


JP Morgenthal, DXC Technology’s chief technology officer of Application Services, has been delivering IT services to business leaders for 30 years. He is a recognized thought leader in applying emerging technology for business growth and innovation. JP’s strengths center around transformation and modernization processes that leverage next-generation platforms and technologies. @jpmorgenthal

RELATED LINKS

The basics behind making your apps agile and user friendly

Transforming to a digital enterprise

Future-proofing government IT

Comments

  1. Well described. Too often large organizations place barriers to execution behind expanding supply chain controls, wanting customized contractual terms and volume based purchase strength sorted out too early in the process. Getting into a mode of proven consumption and leveraged with portability by not over-binding to a “native” capability of a vendor may be a wiser and more substantial a play in getting better pricing faster. Steering supply chain resources towards co-investment is clearly the most advantageous; however, negotiations of such still take too long. But first, in order to even start, they, the supply chain management, need to let the real consumers create the relationship and have authority to bring them in for “early-adopter” proof points, and be assigned equally a sprint’s duration to close the deal/negotiation.

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