Out With Outsourcing, In With Collaborative Sourcing

Since the early 1990s, companies have moved applications development and maintenance work to lower labor-cost countries, to varying degrees. Often referred to as “offshoring” or “outsourcing,” this labor arbitrage has had an important effect on businesses’ ability to reduce costs of ADM.

Although cost take-out continues to be a primary CIO focus — and oftentimes is the principal yardstick by which ADM service providers are measured — the market has matured to the point that such cost-savings initiatives, while important, are no longer strategic and offer little, if any, competitive advantage.

So, where are CIOs turning for the next wave of value creation from IT? A time-based competition strategy, supported by a quantitative outcomes-measurement process, has quickly become the foundation for an enterprise’s “next generation” sourcing strategy.

What Is Collaborative Sourcing?

Application collaborative sourcing is a delivery framework that provides ongoing development and maintenance of an enterprise’s full application portfolio. The framework model provides a platform to drive innovation and focuses on time-to-value while introducing working collaborative practices to get critical business functionality into production at a fast rate.

A core theme of collaborative sourcing is improving the business’s capability to compete on time. The collaborative sourcing argument is that if we wish to accelerate time-to-value, we need to measure — quantitatively, systematically and persistently — factors of time at the lowest levels of granularity possible.

Collaborative sourcing accelerates time-to-value. Through a set of Web 2.0 technologies and an integrated set of processes, collaborative sourcing focuses on cycle time (elapsed time) and speed (hours versus estimate) as the principal metrics for measuring performance.

Staff behaviors are directed toward competitive, time-based outcomes when not only development methods, but also the talent model and recognition systems, are calibrated on time-based measures.

Collaborative Development

A core principle of collaborative sourcing is the notion that true collaboration among knowledge workers accelerates delivery while fostering innovation and reducing risk. Collaboration between IT (employees, contractors, partners, etc.) and the business (employees, contractors, partners, etc.) yields acceleration of time, improvements in quality and reductions in risk. While most executives — IT or business — will agree in principle with that assertion, such collaboration in a real and consistent manner has been largely an elusive goal.

Real collaboration requires both a mechanism to enable seamless, transparent communications and, perhaps more importantly, trust between the parties. These two ideas are inexorably linked. True collaboration will occur when parties share information and have a trust relationship that engenders that sharing. Trust will survive only when information is shared willingly and consistently in a truly transparent fashion.

Collaborative sourcing addresses this issue through delivery communities and an environment of pervasive transparency. Delivery communities are the basic governance construct of collaborative sourcing. The delivery community is organized around a business process and incorporates all the professionals — business and IT — who deliver value to the business in that business process area.

Business and IT professionals collaborate using the Web 2.0 technologies of the integrated platform in an environment of pervasive transparency — where all work and all project artifacts, business and IT, are visible to all members.

The delivery community becomes the point of execution for work in the collaborative sourcing model, as well as for work in the IT governance model within the enterprise. Delivery communities are virtual organizations with membership spanning any number of operational and organizational boundaries to bring together professionals with work to do (creation of components), which creates value to the enterprise through application development and maintenance. While the constituency of the community is a virtual construct, the physical instantiation of the community is very much actual.

Software collaboration tools provide the infrastructure to enable real-time global collaboration, as well as component level transparency, to work. Members are assigned to the community, work items are managed and visible to all members across the community, and such performance metrics as component scores, reuse statistics and other time-based calibrations are aggregated to the community level.

Within these business-process-focused delivery communities, practices are optimized for the acceleration of time-to-value: These practices include component-based development project methods, digital reputation scoring systems, and systematic asset reuse and component catalogs.

Outcomes-Based Performance Evaluation

The collaborative sourcing model supplements the traditional methods of performance evaluation that rely heavily on consumption-based measures with a quantitative outcomes-measurement process. Outcomes have typically been thought of as high-level outcomes of a project or major project phase. Often, these outcomes are translated to service level agreements and serve as a mechanism for defining a project outcome or set of outcomes.

A professional’s percentage of utilization — the percentage of a theoretical maximum available number of hours — acts as a surrogate measure of performance. This measure, combined with annual or semi-annual performance reviews that attempt to take into account other less-quantitative measures of performance, form the basis of most talent-management models.

These measurement systems and performance review processes do little to support a time-based competition strategy. The reward mechanism favors high utilization — not necessarily being the most productive and certainly not being the fastest.

Collaborative sourcing defines outcomes at the component level. A fundamental principle of collaborative sourcing is the discipline of component-based development: Any project artifact that can be time-boxed and defined as a discrete deliverable is a component.

Components become the building blocks of ADM, and by emphasizing the quantitative evaluation of these components — based primarily on time — the enterprise creates not only an effective scoring and incentive system for talent management, but also a core asset in the component catalog for ongoing development and maintenance.

The Big Picture

Collaborative sourcing is a true transformational approach to an enterprise’s applications development and maintenance strategy. In addition to providing the mechanism to realize the benefits of global delivery and continue significant cost reductions, collaborative sourcing creates the engine to accelerate time-to-value.

Rather than focusing almost exclusively on cost takeout, collaborative sourcing refocuses a CIO’s capabilities and resources toward adding value to the business through accelerated time-to-value and outcomes-based measurement processes.

While continuous improvement in cost management will always be important in IT, significant returns on IT investment can be realized when tied more directly to business benefits. First-mover advantage in a market, premium price leverage, rapid response capability — all enabled by accelerated IT delivery in collaboration with the business — have significant revenue- and profit-enhancement potential.

The next-generation sourcing strategy is here, and enterprises are already beginning to realize its transformational potential.

Cameron Art is general manager of IBM Global Business Services’ Application Management Services business for North America. Contact him at [email protected].Alex Kramer is a partner with IBM Global Business Services and teams with large enterprise clients on collaborative sourcing strategies and solutions. Contact him at [email protected].

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