Strengthening The Link Between Software Sourcing And Supplier Management

Duncan Jones

I’m part of a team called “sourcing and vendor management” (SVM). Forrester organizes its research teams by individual client roles, so my teammates and I all focus on helping clients who are sourcing and vendor management professionals. Wait a moment. Should that read “helping clients who are sourcing or vendor management professionals”? Aren’t they separate functions within a client’s organization? This is a frequent question from our clients, and one that causes a lot of internal debate within our team.

My view, formed from witnessing the experience of hundreds of enterprises, is that, at least in the software category, sourcing and supplier management should be very closely linked, but not via org structure and reporting lines. This is because:

·         It is impossible to manage software suppliers effectively unless you can influence sourcing. The major players are so big and powerful that they usually have the upper hand in discussions about maintenance renewals and service levels. Even small software providers can build immovable, entrenched positions in their chosen niches. To have sufficient negotiation leverage to do a good job, the supplier manager must be able to credibly threaten to negatively impact the supplier’s ability to win future business.

·         Sourcing is infrequent but intensive, whereas supplier management is continual. The former consumes huge amounts of time and effort for a relatively small period, which risks dropping the ball on monitoring while you’re immersed in a big negotiation, or missing opportunities on the sourcing side due to distractions from the ‘day job’. You therefore need different people handling each side, but collaborating closely with each other.

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Tata Communications Lays A Foundation For Targeting Enterprise Accounts

Clement Teo

Tata Communications has emerged from its role as an incumbent Indian service provider to become a globally recognized provider of network connectivity services such as MPLS, Ethernet and IP transit as well as managed hosting in data centers, voice, data, and video.

It was also rated as a strong performer in the Forrester Wave on Managed Global MPLS Q1 2013- a rather impressive showing for a service provider that only just joined this year’s edition of the MPLS Wave report.

More importantly, it has started to become relevant to enterprise network connectivity buyers across Asia Pacific, which is detailed in my report, “Tata Communications Emerges As A Leading Connectivity Provider In Asia Pacific”.

What It Means

  • Tata Communications is starting to measure up to global carriers. I’ve received a number of inquiries on Tata Communications’ regional and global carrier wholesale strategy, as well as its market focus. This increased interest among Forrester clients is a sign that Tata Communications is getting some things right in its carrier business, as the aforementioned global MPLS report makes clear. Its continual network and cable investments are paying off for the service provider.
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THE PRIVATIZATION OF CHINESE IT SERVICE PROVIDERS – SHOULD YOU BE CONCERNED OR EXCITED?

Gene Cao

With Frederic Giron

On June 6, iSoftStone announced plans to make the company a wholly owned subsidiary of China Asset Management Co., Ltdand delist from the U.S. stock market. This is the fifth IT services (ITS) provider headquartered in China to announce plans to go private in the past 9 months. The others were Yucheng Technology, AsiaInfo-Linkage, Camelot and Pactera.

Why are these firms going private? Despite ambitious global growth plans, Chinese ITS providers have largely failed to articulate a compelling value proposition to U.S. and European clients. By focusing mainly on low-end application development services they have instead primarily competed with much bigger and much more experienced Indian providers – but without the ability to offer lower costs. In fact, the average profitability of Chinese ITS providerswent down from 10-15% to less than 5% over the past 2 years, when most large Indian firms are in the 15-25% range. Going private will give these5companies a chance to transform their current model relieved from the quarterly pressure to meet Wall Street analyst expectations.

Existing and potential customers of these ITS providers may have concerns seeing these providers going private, particularly regarding overall company transparency, including financial strength and corporate governance. I believe clients will have to balance their concerns against the potential benefits that going private may deliver, which include:

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ORANGE BUSINESS SERVICES ANALYST EVENT 2013: THE COBBLER STICKS TO HIS LAST

Clement Teo

Brownlee Thomas, Ph.D., Dan Bieler, Henning Dransfeld, Ph.D., Bryan Wang, Clement Teo, Fred Giron, Michele Pelino, Ed Ferrara, Chris Sherman, Jennifer Belissent, Ph.D.

Orange Business Services (Orange) hosted its annual analyst event in Paris July 9th & 10th. Our main observations are:

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ORANGE BUSINESS SERVICES ANALYST EVENT 2013: THE COBBLER STICKS TO HIS LAST

Fred Giron

Brownlee Thomas, Ph.D., Dan Bieler, Henning Dransfeld, Ph.D., Bryan Wang, Clement Teo, Fred Giron, Michele Pelino, Ed Ferrara, Chris Sherman, Jennifer Belissent, Ph.D.

Orange Business Services (Orange) hosted its annual analyst event in Paris July 9th & 10th. Our main observations are:

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Google Enterprise Services – Worth A Second Look

Clement Teo

Google is officially serious about the enterprise space. I met with Google Enterprise execs hosting their very first analyst day in Singapore recently, and was introduced to their enterprise suite of services, which was, unsurprisingly, similar to their consumer suite of services.

However, while they took their starting point from the consumer end, providing enterprise-ready solutions requires a different level of product calibration. To that end, Google cites spending of approximately US$3 billion annually on building/improving its data center infrastructure, investing in undersea cable systems, and laying fiber networks in the US specifically. In Asia Pacific (AP) last year, they spent approximately US$700 million building three data centers in Singapore, Hong Kong, and Taiwan.

In addition to infrastructure investments, Google has also acquired companies like Quickoffice to enhance their appeal to enterprises weaned on Microsoft Office, while also expanding existing offerings in areas like communications and collaboration (Gmail, Google Plus), contextualized services (Maps, Compute Engine, Big Query), access devices (Nexus range, Chromebook), application development (App Engine) and discovery and archiving (Search, Vault).

What It Means

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Oracle’s FY2014 Financial Results Point to New Opportunities for Sourcing Professionals

Duncan Jones

Sourcing professionals already understand the importance of monitoring financial performance to assess risk in their key suppliers’ ability to deliver commitments. Sometimes sourcing professionals can also find valuable negotiation leverage in the financial results of their key suppliers, as is the case with Oracle’s Q4 2013 numbers . In my opinion, the revealing aspects that you can use to increase your bargaining power over the next couple of quarters, include:

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IBM Delivers Replicable Business Innovation Services Across Clients

Fred Giron

I concluded my March 2013 report on the role of software assets in business innovation by proposing that “The combination of software assets, strong domain expertise, analytics, and as-a-service delivery models will increasingly allow traditional service providers to reinvent the way they deliver business value to their clients.” I was glad to hear that IBM recently announced a deal with L’Oréal that directly supports this position. The announced engagement actually includes all these components:

  • The procurement domain expertise of IBM Global Business Services addresses business pain points. L’Oréal USA grew rapidly over the past few years via an aggressive acquisition strategy that caused indirect procurement processes to remain highly disparate. The company knew that there was a significant gap between negotiated savings and realized savings in its indirect procurement operations. IBM GBS consultants brought strong procurement expertise to work with L’Oréal’s existing sourcing team to transform existing processes. IBM Global Process Services (GPS) category experts are working with L’Oréal to develop and implement category sourcing strategies.
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A New Service Architecture For Business Innovation

Fred Giron

The IT services industry is being challenged on two opposite fronts. At one end, IT organizations need efficient, reliable operations; at the other, business stakeholders increasingly demand new, innovative systems of engagement that enable better customer and partner interactions.

My colleagues Andy Bartels and Craig Le Clair recently published thought provoking reports on an emerging class of software — smart process apps — that enable systems of engagement. In his report, Craig explains that “Smart process apps will package enterprise social platforms, mobility, and dynamic case management (DCM) to serve goals of innovation, collaboration, and workforce productivity.” In other words, smart process apps play a critical role in filling gaping process holes between traditional systems of records and systems of engagement.

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Sourcing Professionals Need A New Approach For Dealing With The Software Giants

Duncan Jones

Many clients ask me for help in dealing with very large software companies who, in their opinion, always seem to have the upper hand in negotiations. "How can I make myself less dependent on X?" they ask, or "how can I cut the amount I have to pay Y each year?" They're CIOs or sourcing professionals who are used to being able to push suppliers around, threatening to kick them out if they misbehave, and they struggle to accept the reality that their normal tactics won't work with the likes of IBM, Microsoft, Oracle, SAP. My advice is, get used to it. These companies have grown so big and profitable that they will dominate the business technology market for years to come. Yes, they will face competition from younger companies, but they generate so much cash and have such strong embedded positions in so many enterprises that they can always acquire the upstart, or develop a product that beats it in most deals. 

However, the software giants' huge power isn't necessarily a bad thing. Their scale enables them to spend far more money on development than their smaller rivals, and this usally results in excellent  innovative products. Yes, they can also be inflexible, siloed, frustrating, bureaucratic - but when it comes to software development, size matters. So there really isn't much point in questioning whether the world would be a better place if these companies were much smaller than they currently are. Instead, we should accept reality and learn how to survive and thrive under their rule.

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