In the areas where CIOs are looking to use technology to build value for the business, aligning technology to the business needs and outcomes, speed becomes the new currency. The old way of managing IT doesn’t work. So talking to the procurement department about digital and IT as a Service is like talking to a chicken farmer about cordon bleu.
Previously I blogged about speed being the new currency. The means we use technology to go faster to move us into a software-defined world and a consumption-based world. The combination of consumption-based model (where we only pay for what we need when we need it) along with reducing interaction costs between the functional layers, results in dramatic cost savings.
In the traditional IT construct based on functions instead of services, each functional leader focuses on building high-quality capability at a low cost. The procurement/purchasing department plays an instrumental role in helping those functional leaders drive cost out in their departments or areas of responsibility.
This makes perfect sense where the objective is lowering costs for IT, whether we’re buying servers, offshore talent or software. Typically a procurement organization focuses on building robust specifications, taking that to market, generating as much competitive tension as they can around that proposed work and then using that competitive tension to drive down unit costs. This has certainly contributed substantially to lowering the unit costs of IT, whether it’s hardware, software or services. We’ve extended this capability from hardware into software and now into services, and it has become an essential element of the IT shared services capability.
Inconveniently, this procurement mechanism doesn’t align well with today’s business agenda where the currency is speed and the objective is business value and the method of getting there is some kind of technology-driven transformation. The procurement construct breaks down with this agenda.
The procurement department’s tools and methodology are aimed at the wrong objectives for today’s IT needs. It aims to lower the price per unit, not to increase the velocity of speed. IT can increase speed by a variety of vehicles such as through design, integrated services, agile methodologies, platform-as-a-service (PaaS) or the integration of DevOps, to name a few. None of these lend themselves to the procurement structure. Hence, when enterprise IT tries to use the time-tested procurement tools against the new business agenda for speed, the tools fail in most dimensions and IT slows down.
Speed satisfies the business requirement and allows IT to better build technology that meets business objectives; but it’s important to recognize that it also reduces cost. However, it is antithetical to procurement methodologies and procurement departments. So CIOs need to reconceive procurement in this new world. Hence, the analogy that I started this blog with. Think of procurement as the chicken farmer whose business is growing chickens. The difference between the unit price affecting the cost of chicks and the facilities they reside in are very interesting, but it is in no way relevant if you’re a master chef looking to cook a meal of cordon bleu.
In a situation where an organization aims to go after agile, business-oriented transformations, it must reconsider the use of the procurement function altogether and potentially look at completely different ways to provision resources for these agendas. Quite simply, a procurement department can’t react fast enough and focuses on the wrong issues when they are deployed against transformational, fast-moving projects.