Even Lawyers Agree: Put Procurement "Firmly at the Core" of Outsourcing Strategy

I read the summary of a new report from down under earlier today that was not remarkable for its findings, but for its authors -- a group of lawyers (at Norton Rose) who came to the same conclusion as any reasonable group of procurement or operations executives would. And that's the importance, when it comes to outsourcing, of putting procurement first -- lest the entire process "cost you time and money". Specifically, "The take-away message from the survey for customers is that procurement should be placed firmly at the core of corporate strategy and have proper resources allocated to it for maximum benefit from IT expenditure to materialize." Based on a relative small but global sample of CIOs, general counsels, CPOs and other executives, the study provides strong fuel to the outsourcing management fire when it comes to supporting procurement's involvement more deeply in the sourcing and contracting process.

One of the findings suggests that despite the often high profile nature of outsourcing agreements, that a good many organizations still do not dedicate designated resources to ensuring the overall quality of the outsourcing buying and relationship management process. To this end, "38 per cent of respondents said sourcing team members were often expected to progress the procurement alongside their 'day job' ... It is crucial that the selected sourcing team members have enough time and resources to fully commit to the project." My own experience in the world of outsourcing contracting suggests that when it comes to procurement outsourcing, the opposite problem usually exists -- there are too many stakeholders involved in the process (which is why most deals never materialize). But for other non-PO outsourcing contracts, I think the study's observation here makes intuitive sense given that outsourcing agreements often fall between IT, procurement and specific spend owners -- and that whereas a single vendor management office function might exist for managing relationships once they're established, a single point of contact and ownership is not a given in the sourcing process itself.

Another finding from the study worth noting is how many organizations fail to put in place the proper systems and controls when it comes to outsourcing contracting "fully aligned with the business case and success criteria for the project". According to the study, "only 43 per cent [of respondents] had a formal procedure in place to ensure the contract was aligned with the underlying business case ... [and] very few respondents had a process whereby the original business sponsor reviewed the entire contract before its execution." To overcome this lack of ownership and contracting visibility, the authors suggest, "the entire project team, not just lawyers, must be involved in contract preparation, and enough time must be built into the process to allow a full contract review before execution to avoid operational issues further down the track." Coming from a bunch of lawyers, this is an even more powerful observation indeed!

Jason Busch

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