Purchasing has driven substantial costs out of enterprise IT spend, so it has been an important part of IT for the last 15-20 years. That makes it rather like the monster under the bed that figures prominently in American stories because employees tend to look for ways to avoid or fight this monster that imposes disciplines on acquiring goods and services. Purchasing has succeeded in its mission for years, but today it’s in the wrong position for understanding Digital Age integrated service models now emerging in IT.
The marriage of IT and purchasing
Purchasing has been a perfect “marriage” partner for IT organizations structured with a focus on functional leadership. Each function (such as data center servers or application development and maintenance) sets up nicely to interact with purchasing in that purchasing can say “Let’s find cheaper servers,” or “Let’s find cheaper labor for programmers,” or “Let’s find cheaper program managers.” The purchasing/IT marriage started with the simple premise that discipline focused in competition can extract substantial business value by reducing the price we pay for goods and services.
The inconvenient problem today is that business models are moving away from functional-led IT. CIOs seek ways to increase IT’s responsiveness to the business demand for more value from IT. Despite purchasing’s role in IT providing cheap or cost-effective capacity, business lines are increasingly impatient with a traditional, functional-based IT service model because it’s too slow and unresponsive or too cumbersome to engage.
The big hole in purchasing’s boat
Business value is the objective in the Digital Age, and speed is the new currency. Cost reduction today is achieved by migrating to the new elastic, consumption-based pricing models where the business pays for only what it uses. In addition, IT is beginning to operate in integrated service models, which collapse the old barriers between middleware, infrastructure, application maintenance, and DevOps. Moreover, speed kills cost. It turns out that the biggest driver of costs on a digital project is the amount of time the project takes. So IT completes it quickly – even by using expensive labor and expensive tech components, it costs a fraction of the cost to do it with lower-cost IT components and low-cost labor.
So purchasing’s boat just got a hole punched in the bottom of it, and it’s a big hole.
Purchasing is very adept at unit-pricing discussions. But it’s completely wrongly positioned to understand the business users’ strategic intent or to understand integrated service models that are coming in around DevOps, Platform as a Service (PaaS) and consumption-based models. These are business decisions, not purchasing decisions. There is no convenient RFP structure that allows an organization to complete these models well. The RFP structure drives narrowly to functional-led IT model, which destroys what the modern business and CIO are trying to achieve with technology.
Beware the purchasing monster’s teeth
Even so, purchasing still has teeth, as it has built a very strong position in most companies. I see CIOs inadvertently making a strategic mistake because of this. CIOs understand the business leaders’ need for speed and focus on value, and they understand that they need third-party assistance and components to achieve these objectives. So they engage purchasing to help acquire the third-party components. The result? The process moves from a fast, agile, gateless process to slow RFPs that effectively force the discussion in the wrong direction and end up forcing the IT organization back to a functional structure, instead of an integrated service model.
It’s very clear that purchasing is not positioned for understanding and does not have tools to participate in the new models. It’s unclear whether or not they can evolve to these approaches and perspectives. However, it’s important to remember that not everything in IT will move into integrated service models. Organizations have a lot of technical debt and legacy environments that will continue to operate in the traditional, well-run, shared services, functional-led structure. But as a CIO, it’s very clear that you need to be very careful about how you engage purchasing. Don’t let them grab the steering wheel, or you’ll end up frustrating the business with a slow process and potentially creating much higher costs than you can achieve in an integrated service model.