IT Contracting: Should it be part of Procurement?
This is a question that never seems to go away - and it was posed to me again today by an IACCM Member who asked: 'We are urgently looking for a high level differentiation or comparison of the differences and / or structure between the old traditional focus of a Procurement versus Commercial department (ICT focused Commercial and Contracting team).'
This member is dealing with a territorial battle between the CFO (and Procurement) versus the CIO (who owns contract and relationship management resources). Here is my answer. What would yours be?
“Perhaps a good way to look at it is whether the business is more interested in ‘inputs’ or ‘outcomes’. Traditionally, a procurement group reporting to the CFO is focused on –and by – relatively short-term measures of price. Historically, when the main IT acquisitions were bits of hardware and software, that was often a reasonable focus. But in those days, it was largely up to the CIO to have the technical skills to make all the pieces work, to gain investment for updates etc. Procurement got the components. The CIO strung them together and was responsible for the outcome.
But now, IT acquisition is very different. Much of it is about services and solutions. There is far more responsibility on the supplier to deliver results. The CIO department is far less focused on technology and far more focused on enabling business needs through technology. As such, they have to be far more aware of supplier capabilities and they have to partner far more with their suppliers to safeguard performance and business results.
The history of where ‘commercial support’ sits has transitioned several times. In the early days of IT, the IT procurement group tended to be part of the CIO organization because it was seen as a specialist area with unique knowledge. As Procurement matured, and as consolidation, compliance and ‘commoditisation’ became core principles of purchasing, it was common for the IT Procurement group to move to the (increasingly centralised) Procurement organisation (and frequently therefore reporting to the CFO, who wanted to control spiraling IT costs). Today, we are seeing some shift back towards the CIO. However, we are also often seeing a split of function; this may mean that there are IT Category Management Teams in Procurement, responsible for acquisition, and there is a Commercial or SRM team in the CIO organisation, responsible for interaction with key suppliers and for managing the contract and relationship post-award. They may also partner with the Category Team in up-front selection and negotiation.
I think the key issue related to ‘best practice’ is the need for coherent, consistent life-cycle management of contracts and relationships. Whether this is through consolidated groups within a single function, or through connected groups in different functions, is not the most important point. There are distinctions in expertise and IT acquisition and management require different skills at different points in the process. The real issue is a consistent process with clarity over expectations and measurements, management approaches that demand cooperation rather than rivalry.
It is important to recognise that IT has changed and will continue to change. The cloud, mobile apps, continuous evolution of technology, shifting demands from customers and the impact of constantly evolving regulation are going to make the delivery of effective IT solutions an extremely challenging role. Much of that delivery will be through third party partners and their effectiveness and costs will be substantially impacted by your ability to offer them clarity, consistency and appropriate interfaces.”