A number of services have emerged to aid executives with complex markets and there is an attempt to place these services under the umbrella title of IT sourcing. 

But what is IT sourcing? It promises everything from relationship management to cloud service investment hedging. Is it just better supply chain management? Is it procurement management? Is it brokerage? Is it arbitrage?

Firstly, a history lesson
In the mid to late 1990s a breed of company emerged in the world of b2b procurement. Known as b2b internet firms, these companies planned to develop internet technology for procurement services and to use ‘said’ technology to break the inefficiencies of traditional supply chains. The promised deliverable was to allow firms to do things such as drive down costs and optimize buying cycles. Companies could use internet platforms to form online marketplaces, collaborate to squeeze suppliers and get the best price by aggregating their unit orders into bigger chunks. These marketplaces would be where suppliers and buyers would be matched, could negotiate and could cut deals. 

Great idea. Investors got very excited and valuations for b2b internet firms skyrocketed to tens of billions of dollars.

After what seemed like ten minutes, the noise and excitement died down. Firms that soared in the dot-com boom swiftly crashed in the bust when businesses refused to bite, having decided instead to stick with buying from trusted suppliers safe in the knowledge that they would receive a reliable service from companies extracting a reasonable profit margin.

It was not a disaster for everyone. Some of the companies in b2b internet procurement found success. For example, after 15 years of hard slog Ariba found a buyer when SAP paid US$4.3bn for it in 2012. But talk of software leading to the wholesale disruption of traditional business methods was way wide of the mark. 

End of the history lesson
Fast forward to the present day and the idea of IT sourcing is gaining some traction.

Advocates of IT sourcing point to benefits such as money savings and solving procurement problems around lack of control. We hear things such as: Using tools and cloud technology to address complexity of choice is providing opportunities for smart companies to reduce costs. The talk is of spend management solutions which help companies “analyze, understand, and manage their corporate spending to achieve cost savings and business process efficiency”.

The context for all of this is that current landscape of choice. Whether big or small, for the inexperienced with any type of IT workload requirement, the market can appear bewildering.

Emerging marketplaces such as cloud services provide plenty of traps for the unwary. Look at these categories: public, private, hybrid cloud – each has many sub definitions. IaaS (Infrastructure-as-a-Service), PaaS (Platform), SaaS (Software), XaaS (Everything/Anything) also offers myriad choices. Even down to the bare metal level of wholesale or retail colo, managed hosting, managed services, owner occupied, technology is changing so fast and services changing so rapidly that you could end up buying something you don’t need for more than you needed to. Or worse still you could find yourself getting locked into contracts.

Buying components or complete data centers should be subject to greater rigour and experience, but here too there are challenges as the product mix changes – think modular – and the products themselves develop rapidly.  That’s the sell. But does this so called discipline of ‘IT Sourcing’ hold the answers?

Hard sell
Graham Russell runs a UK outfit called Wavex. He says complexity is driving change. His company does many of the activities one could find in an IT Sourcing handbook such as pricing aggregation, relationship management and brokerage.

Having been in business since 1998, Russell has been forced to ring the changes at his own company.

“The IT industry used to be product based. A client would say: “I need two of those, one of those and so much of that. Today it is services led. Now the customer says: ‘I have no idea what I need. I’m getting lots of conflicting messages about the Cloud. My industry is heavily regulated so I have to be compliant and I need to understand the solutions available.’ There is lot of confusion around.”

According to Russell, the large suppliers have not done a decent job of addressing this complexity nor explaining their propositions.

“On the surface large suppliers look attractive. But often what starts out as a premium service is moved onto a commodity platform in order for these suppliers to make a profit. This presents another problem. The more commodity type it is, the less competitive it becomes,” he says.

For the customers, the latent risk in purchasing cloud services is big data.

“Every byte of storage placed in the Cloud becomes a cost. We have developed solutions to let companies plan for that one, three or five years out and to avoid the shocks that will hit many companies in the next few years,” says Russell.

A working example
A US company called Ramprate is a familiar name in the data center space. Its proposition is that it will address inventory management, procurement practices, internal processes, internal policies and procedures and operational practices to deliver improved operational efficiency, create partnerships with suppliers, improve value to price relationship and understand category buying.

The firm believes it has established a software tool and metrics for many different types of engagement through which the customer can see a projected measurable saving on its contracts.

Ramprate claims it can produce insight into every aspect of IT sourcing both for internal service chargeback and for external services from telco to server provision to IaaS saying it can inventory an entire IT services footprint.

Brent Eubanks, chief architect at Ramprate, says: “Today some companies are looking to identify whether they should run their workloads in colo or cloud or insource. We implement strategic what-if models using the ‘SPY Index’ platform. Using benchmarks we can manage colo spend, managed hosting and now we have moved the friction from the IaaS layer.

“One of the things we’re doing is helping customers become aware of ‘as-a-service’ costs. What is the price per load per month? We give them actionable contracts so they can choose to move those workloads to the right providers.”  Ramprate claims it identify best vendor fit for individual customers and will help them hedge investments in cloud services.

Business discipline
Strategic sourcing has always been a key business discipline. Big services companies such as Deloitte, IBM or Accenture have well established sourcing expertise. Applications and platforms have been developed. Some are niche and focus on the IT or telco sectors and others are broader.

What is obvious is that greater emphasis is being put on time to value.

The salesman’s old line of “Why buy one when you can buy two at twice the price” holds no water. Today firms will only pay for what they can use.

This article first appeared in FOCUS issue 34. To read the full digital edition, click here. Or download a copy for the iPad from DCDFocus.