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Posted by Christine Ferrusi Ross on August 2, 2013
There isn’t an IT sourcing and vendor management (SVM) client that I’ve spoken with in the past seven years – Forrester explicitly started writing for SVM professionals in 2006 – that hasn’t mentioned gaining more influence with executives as a key priority for their teams. A key reason for this lack of stature with the business, and often the resulting lack of promotion opportunity, is that IT's SVM staff are seen as focusing on an “indirect” spend category; they’re not responsible for buying/managing relationships for the core commodities that are used to make their company’s products (“direct” spend). However, that is about to change, as software and application development services are becoming direct spend for many companies.
Until recently, most companies made physical products by purchasing raw materials and building the products in factories. The factory operations were the heart of the business, supported by the sourcing of the raw materials needed to make the products. But more and more, physical products depend on software and other technologies to be viable. And while we traditionally thought of only high-tech companies as making software-dependent products, nontechnology companies of all kinds – retailers, banks, automotive companies, and others – rely on software as the key interface of their products. For example:
Forrester calls these software-dependent firms “software-is-the-brand” companies. My colleagues first started writing about this concept in 2011. But we’re hitting an inflection point on broad adoption of the idea. Software-is-the-brand companies are beginning to understand that technology is their supply chain – technology is becoming a “raw material” that allows today’s products to be built.
Why does this matter? Because people who handle direct spend are considered critical to the business. Their opinions matter because great product designs get built only if the company can source the right materials. And company strategies succeed or fail based on how effectively sourcing executes on those raw materials purchases. (Just consider how a spike in the price of steel affects the ROI of a new car launch).
Where does this move to software-dependent products leave us? In a business environment in which sourcing technology products and services – and managing the relationships with those key suppliers – is becoming a critical and integrated part of the business.
So what should you do if you want SVM to be the business instead of aligned to it?
How quickly IT SVM professionals can make the shift from indirect spend to direct spend (i.e., from important to mission-critical) depends on how well they can communicate their role in the shift to “software is the brand.” Smart CPOs and other SVM executives will make this communication a key priority for the rest of this year – and their top priority for 2014.
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