IT leaders must recognise business realities in re-setting their plans.

Since the credit crunch took hold, few UK firms have sustained a growth-led agenda. Shrivelling demand, evaporating credit, and overall negative sentiment took care of that. But lately the mood has begun to shift. Management teams start to move emphasis from cost control and stabilisation to exploiting growth. In turn, IT leaders must weigh up the implications for their own plans. And sourcing strategy will need a thorough review as part of the larger picture.

Your firm’s business status will dictate your strategy.

Crucially, not all companies are equal when it comes to planning for growth. Just consider the contrast between Vauxhall and Tesco. Vauxhall only narrowly survived recent turmoil at GM, and now faces grave uncertainty as its new owners establish control. Tesco, by contrast, has maintained both revenue and profitability growth through the recession, and its leaders continue bullish geographical expansion.

Does your company - like Tesco - combine strong financial status with sound leadership strategy? If so, then you will likely face a period of confident new investment and an ambitious drive for growth. But if your business has a weakness either on the financial or strategy dimension, this will inhibit confidence and hinder growth plans. And if - as with Vauxhall - both financials and strategy look shaky, then staying alive may be ambition enough – at least until economic clouds lift further.

Linking IT sourcing strategy to business reality

So what does this view of business context mean for your plans for IT sourcing? Here are some tips to consider, based on four possible scenarios that may fit your business.

Strong financials and sound leadership strategy. Like Tesco, your firm has a strong basis to capitalise on the upturn to come. For IT sourcing strategy, you need to consider the steps required to prepare for growth. Can your suppliers scale as you grow – for example by extending services into new geographies? Can they fund expansion in the wake of two years of disruption? What new products, skills or resources will you need from suppliers to support business growth? By asking such questions, you can establish the basis of a growth-oriented plan.

Strong financials but muddy or weak leadership. In this situation your first priority is personal: reinforcing your alliances with the business stakeholders who influence IT funding and strategy decisions. Your firm will likely face wrenching political battles and shifts in priorities – so you need all the support you can get to stabilise the position of IT. In terms of sourcing, look for opportunities coming out of the crisis – like using continuing economic challenges as a lever to gain better compliance with preferred supplier policies. After all the CFO and CEO will be your allies like never before – and you can call on their help to crack down on islands of non-compliance across the firm.

Weak financials combined with clear and consistent leadership. Firms facing this scenario often experience a period of consolidation that can involve steps like business divestments and market retrenchment. Your business stakeholders will have highly differentiated expectations of IT, as some drive for growth while others continue to headline cost control. Plan with suppliers to differentiate their support to these different elements of the business. And you will likely need to review the metrics and incentives for your sourcing staff as some work mostly on cost reduction while others become more directly involved in areas of expansion.

Financial and strategy weakness combined. Survival is the watchword for firms in this boat. You will need all the help you can get from your suppliers on an ongoing basis – like lower rates, and help with restructuring. Focus your planning on the creative ways you can encourage this support from – for example – your outsourcing partners, like offering them access to new business in future in return for favourable short term treatment.

For a deeper discussion of these and a wide range of other IT sourcing issues, look no further than IT leaders must recognise business realities in re-setting their plans.

Since the credit crunch took hold, few UK firms have sustained a growth-led agenda. Shrivelling demand, evaporating credit, and overall negative sentiment took care of that. But lately the mood has begun to shift. Management teams start to move emphasis from cost control and stabilisation to exploiting growth. In turn, IT leaders must weigh up the implications for their own plans. And sourcing strategy will need a thorough review as part of the larger picture.

Your firm’s business status will dictate your strategy.

Crucially, not all companies are equal when it comes to planning for growth. Just consider the contrast between Vauxhall and Tesco. Vauxhall only narrowly survived recent turmoil at GM, and now faces grave uncertainty as its new owners establish control. Tesco, by contrast, has maintained both revenue and profitability growth through the recession, and its leaders continue bullish geographical expansion.

Does your company - like Tesco - combine strong financial status with sound leadership strategy? If so, then you will likely face a period of confident new investment and an ambitious drive for growth. But if your business has a weakness either on the financial or strategy dimension, this will inhibit confidence and hinder growth plans. And if - as with Vauxhall - both financials and strategy look shaky, then staying alive may be ambition enough – at least until economic clouds lift further.

Linking IT sourcing strategy to business reality

So what does this view of business context mean for your plans for IT sourcing? Here are some tips to consider, based on four possible scenarios that may fit your business.

Strong financials and sound leadership strategy. Like Tesco, your firm has a strong basis to capitalise on the upturn to come. For IT sourcing strategy, you need to consider the steps required to prepare for growth. Can your suppliers scale as you grow – for example by extending services into new geographies? Can they fund expansion in the wake of two years of disruption? What new products, skills or resources will you need from suppliers to support business growth? By asking such questions, you can establish the basis of a growth-oriented plan.

Strong financials but muddy or weak leadership. In this situation your first priority is personal: reinforcing your alliances with the business stakeholders who influence IT funding and strategy decisions. Your firm will likely face wrenching political battles and shifts in priorities – so you need all the support you can get to stabilise the position of IT. In terms of sourcing, look for opportunities coming out of the crisis – like using continuing economic challenges as a lever to gain better compliance with preferred supplier policies. After all the CFO and CEO will be your allies like never before – and you can call on their help to crack down on islands of non-compliance across the firm.

Weak financials combined with clear and consistent leadership. Firms facing this scenario often experience a period of consolidation that can involve steps like business divestments and market retrenchment. Your business stakeholders will have highly differentiated expectations of IT, as some drive for growth while others continue to headline cost control. Plan with suppliers to differentiate their support to these different elements of the business. And you will likely need to review the metrics and incentives for your sourcing staff as some work mostly on cost reduction while others become more directly involved in areas of expansion.

Financial and strategy weakness combined. Survival is the watchword for firms in this boat. You will need all the help you can get from your suppliers on an ongoing basis – like lower rates, and help with restructuring. Focus your planning on the creative ways you can encourage this support from – for example – your outsourcing partners, like offering them access to new business in future in return for favourable short term treatment.

For a deeper discussion of these and a wide range of other IT sourcing issues, look no further than Forrester’s upcoming Services & Sourcing Forum, to be held 22-23 October, in London.

Andrew Parker is a vice president and principal analyst at Forrester Research, where he serves Sourcing & Vendor Management professionals.

Recently, Forrester Research has been picking up signals of a shift in mindset among IT executives. For weeks after the credit crunch hit, most IT leaders welcomed “survive the recession” advice. But, after months of firefighting, downturn fatigue has set in. No one thinks our troubles are over, but apparently many IT leaders feel they have taken ­ or at least defined ­ the steps needed to support business stability in the short term. Now they want to refocus on more thoughtful topics.

Most senior IT leaders recognise that enterprise IT is in a period of sweeping change that does not simply reflect the economic crisis. As computing becomes ever more embedded in all aspects of business, the control of IT has moved out of the datacentre and into the hands of business leaders.

Meanwhile, commodity IT has become more stable, for example through the adoption of infrastructure virtualisation, application rationalisation and the uptake of standardisation tools, such as service-oriented architecture. As IT leaders drive these ongoing shifts, they must focus on business issues and business architecture as well as maintain operational management of the rationalised systems they control.

For a typical chief executive or chief financial officer, cost containment may have been the dominant issue for managing IT in 2008, but longer term it is the business-value impact of IT that matters. IT leaders know that in future they will be judged on value impact, based on business performance metrics, such as time to market with new products, or improved customer retention.

Forrester believes this value-oriented agenda for IT will increasingly reassert itself over the course of 2009. To stay ahead of this, IT leaders must focus on three agenda items:

Linking what IT does to business value. All IT staff need to understand that their success will be judged in business terms in future. More business and IT leaders will jointly agree objectives, metrics, and governance structures that couple IT activity and outputs to overall business goals.

US financial firm USAA has used technology to support its drive for improved customer relationships. As a result, it consistently scores best among leading US finance firms in Forrester’s annual consumer survey on customer-centric finance providers. It is this kind of IT value outcome that leaders will expect IT to facilitate.

IT leaders must drive value individually. The CIO and direct reports must engage with business leaders to identify and execute on areas of value delivery. Inside the IT group this means leading by example ­ for instance, by devoting time to business issues and prominently featuring business impact in internal communications. Outside IT, building personal networks across the wider business, and marketing IT activities to business leaders.

Focusing IT’s collaboration with others on value outcomes ­ for example, building a business-value focus into relationships with external suppliers. For example, coaching the vendor management team to focus on value-generating supplier contributions. Linking supplier governance and performance criteria to value outcomes will support external partners that contribute to overall business objectives.

These three lines of attack represent a vital aspect of the renewal and rebuilt momentum that IT leaders need to achieve with their teams during the coming six to 12 months.

Forrester’s thinking about Redefining IT’s Value For The Enterprise is the overarching theme of its European IT Forum in Berlin, 3-5 June 2009. For more information on this event please visit www.forrester.com/ITForumEMEA2009.

For complimentary research from Forrester, visit http://forrester.com/computing.uk.

Andrew Parker is vice president for sourcing and vendor management at analyst Forrester Research

Making sourcing decisions against a background of economic crisis should be easier ­ during a recession companies focus on cost and cost alone. Right now, the ability of vendors to respond rapidly to business needs will be thoroughly tested by recession, and Forrester expects most firms to renegotiate their sourcing contracts or reduce the number of service providers with which they engage.

That has many ramifications for IT leaders.

First, you should cut costs wherever you can. Focus on what you can do to rationalise your infrastructure and applications environments to cut costs ­ this will mean working across the business to identify any redundancies.

Accelerate those sourcing projects that will avoid near-term expenses ­ for example, rapidly migrating remaining applications from a “burning” database engine could avoid software licence maintenance fees for the coming year.

Solicit proposals from your vendors to get a better understanding of what they can offer in terms of service automation or application rationalisation frameworks.

Identify labour-intensive areas as candidates for sourcing. The largest efficiency improvements should be possible in the areas that consume the most labour resources. For example, look at your internal application-testing processes ­ testing occurs on every project, and test data generation, test setup, and test execution can be extremely resource intensive. Vendors that we track continue to strengthen service offerings in these areas, helping firms reduce the cost of this key activity.

Meanwhile, it is important to scrutinise all the IT sourcing proposals available, and to take a jaded view of them all. Make sure all the evidence from a vendor is convincing to all the decision makers involved before you reach any conclusions. Send the statement of work to a dedicated team to analyse proposed project plans and make the necessary adjustments to ensure any initial investments from your side are kept to a bare minimum.

Vendors are great at painting a picture of a happy ending but they lack the clarity to undertake the transitioning, and it often costs more than you realise. Go back to the RFP and include targeted questions concerning what investments they have made to accelerate project delivery. For example, do they use fast deployment methods or testing automation?

Encourage your internal stakeholders to voice their views and take on board what they have to say. Reach out to those business managers who are not already knocking on your door so that the entire organisation has an opportunity to benefit from your expertise and experience. Be ready to offer advice on consolidating vendors, proactive suggestions on changes to upcoming renegotiations, and information on how to get more value through better vendor management ­ what Forrester terms “activist sourcing”.

Most importantly, market yourself. IT leaders must explain to key stakeholders what they can do. In addition to offering advice based on your stakeholders’ stated needs, use this as an opportunity to offer consultative help that they might not realise you can provide.

For example, many users do not realise that sourcing teams can be brought in even before the decision is made to bid a piece of work or hire a vendor. Use your research skills to help colleagues understand some of the emerging contracting mechanisms, such as shared risk and reward or managed outcomes, which can de-risk projects from a cost perspective. This makes the sourcing role more consultative and proactive.

Please visit www.forrester.com/computinguk for several complimentary reports made available to Computing readers by Forrester Research.

Euan Davis is a principal analyst at Forrester Research.