How does the changing digital business environment impact on Sourcing & Supplier Management?

The way that organizations manage sourcing and engage with their suppliers is becoming an increasingly important strategic driver in digital transformation activities.

Outsourcing IT functions (or elements of those functions) is growing [1] and this growth is expected to continue.  The traditional driver of cost saving has been overtaken by a desire to close skills gaps, acquire new services, or develop new capabilities.  New outsourcing models such as cloud-sourcing, micro-sourcing, and crowd-sourcing are more prevalent, adding to the more conventional on-shore, near-shore, or far-shore options.

This increased collaboration with external partners creates possible opportunities, while also amplifying the potential risks involved.  Finding and managing suppliers therefore becomes more complex and strategic, prompting the organization to rethink its strategy and even its business models.

Digital Impacts on Sourcing & Supplier Management

There are five key impacts on Sourcing & Supplier Management in the digital business environment, which present both challenges and opportunities to organizations:

1. Value-oriented mind-set or culture

Organizations face new risks and requirements for collaboration, negotiation, and governance, as traditional supply chains give way to supply ecosystems.  Sourcing contracts must address additional factors, making them more complex.  New sourcing models mean that organizations need a shift in their culture and managerial perspectives.  For example, organizations may need to reassess their attitude towards sharing critical knowledge.

2. Sourcing is more strategic

Organizations’ sourcing requirements and opportunities are changing as a result of the increasing complexity and diversity of technologies.  The role of sourcing is becoming more strategic in response to disruptive technologies and the need for new skills.  This may even prompt a rethinking of the CEO’s role in sourcing decisions and management.  The range of new sourcing models have led to more complexity around sourcing decision-making, contracting, and evaluation.  These sourcing models have also generated an opportunity for organizations to partner externally for greater innovation, to leverage business opportunities, and gain access to external expertise for cross-fertilization of skills and knowledge.

3. Focus on talent and innovation

In the past, cost savings were the main reason for outsourcing.  In the digital era, searching for talent to close digital skills gaps, to acquire new digital services, or development capabilities increasingly drives outsourcing decisions.  The increased demand for – and expectation of – innovation and transformation is often achieved through strategic outsourcing arrangements.

4. Relationships matter

Despite the greater reliance on technology, the quality of the relationship between the organization and the supplier is the single best performance improver in outsourcing.  Research indicates that these strong relationships are developed through joint leadership, building trust, supporting collaboration, and promoting innovation [2].  Adaptive working, versatility, multi-functional teams, strong leadership, multiple stakeholder involvement, and learning (both individual and organizational) will help to make this a reality for organizations and their suppliers [3].

5. Flexibility is key

The outsourcing landscape is constantly changing, so retaining the flexibility to change direction rapidly is key.  As a result, organizations need to build a strategic supplier management and governance capability to ensure control without limiting their flexibility, or ability to respond and engage with innovation opportunities.

How IT-CMF can address these impacts

The new Supplier & Sourcing Management (SSM) critical capability, released to IVI’s IT-Capability Maturity Framework in Spring 2018, helps organizations to address sourcing-related business challenges in the rapidly evolving digital context.

SSM provides guidance on

  • establishing the organization’s strategic approach to IT sourcing decisions;
  • integrating IT suppliers into the organization; and
  • fostering strategic partnerships.

It further covers selecting suppliers; establishing contract criteria; and classifying qualified and preferred suppliers.  SSM also incorporates procurement activities to manage orders and contracts; and co-developing capabilities related to talent and innovation.


[1] 72% of respondents outsourced elements of their IT function, according to Deloitte’s 2016 Global Outsourcing Survey, an increase of 31% on 2014.

[2] Lacity & Willcocks (2014) Nine Practices for Best-in-Class BPO Performance. MISQ Executive, 13 (3): 131-146

[3] Willcocks & Lacity (2012) The new IT outsourcing landscape: from innovation to cloud services. Palgrave Macmillan: New York

You can hear and see more about SSM by watching this video of the Sourcing and Supplier Management webinar, led by IVI Researcher Catherine Crowley.

Read the Sourcing and Supplier Management White Paper for a more in-depth description of this critical capability.