Trends in IT Procurement

Digital interruptions and the technologies behind them are transforming business frameworks.  Procurement, like other business functions, has been engulfed in this wave of transformation. Unlike earlier days when procurement was recognized and rewarded solely on the basis of cost-cutting initiatives, the present day procurement function has the onus of making higher-value, strategic contributions.

Information technology (IT) procurement teams are suitably positioned to drive business value and provide strategic contributions by staying abreast of trends in a market that is among the most dynamic. Most IT procurement offices are well aware of the impact of social, mobile, analytics and cloud (SMAC) technologies today and the more progressive teams, keen to differentiate themselves, are already exploring emerging concepts like Robotics Process Automation (RPA) and Open Compute Project (OCP) to drive further business value in their respective organizations. For those who are yet to make their first move, here’s why you need to hurry up:

1. Robotics Process Automation (RPA):

RPA allows companies to configure software (robot) to capture and interpret existing applications for processing a transaction, manipulating data, triggering responses and communicating with other digital systems.

RPA as a concept isn’t quite contemporary. However, its application and relevance to the world of business process outsourcing (BPO) and companies wishing to automate shared service centers and back office processes certainly is!

RPA’s impact can be felt most in back-office centers running high-volume, repetitive, rules-based work. End-user companies are likely to evaluate the impact of RPA and implement RPA solutions across back-office tasks administered by Finance, Accounting, Customer Service and HR in specific work streams such as call centers, FAO, order processing, etc. RPA will also offer a way to retake control of outsourced activities and lower costs.

RPA has an immediate value proposition for CPOs and CFOs because it promises to significantly cut the number of full-time equivalents (FTEs) that organizations deploy for performing repeatable tasks across horizontal processes (New Product Development, Finance and Accounting, HR, CRM and Sales). IT procurement offices must take note of the tangible benefits that RPA promises:

• Cost reduction: RPA tools can be up to 60 percent less expensive than offshore-based FTEs
• Efficiency: One robotic FTE (rFTE) can typically replace between two to five traditional FTEs across work streams
• Improved Audit and Regulatory Compliance: Every transaction registers on a detailed audit log enabling the use of advanced business analytics and improved compliance with industry and government regulations

In the IT sector, one can already see the sizeable focus of suppliers on RPA resulting in shrinking workforces. Infosys acquired U.S. based automation company Panaya earlier this year. TCS also happened to launch ignio, its proprietary home grown automation platform. Accenture on the other hand, has entered into an alliance with Worksoft for automating its application development and testing processes. There are similar such initiatives from across Tier 1 and Tier 2 IT companies to build their capabilities in process automation.

RPA is truly on its way towards disrupting the traditional IT outsourcing model, and it is imperative for IT procurement offices to be well aware of the potency of RPA as they look to renew existing outsourcing contracts or sign fresh deals.

2. Open Compute Project (OCP):

The Open Compute Project (OCP) is an open, community-driven project initiated by Facebook in mid-2011. The OCP project, which still is an emerging concept, currently has a pool of nearly 200 participants from across vendor and end-user communities. The initiative is focused on driving efficiencies within data center infrastructure. It is focused on sharing specifications and designs for data center infrastructure elements within the community and collaborating with the community members to identify areas for further improvement.

The OCP initiative is a paradigm shift for the IT industry where the end-user community is driving innovation, rather than the technology vendors. The initiative is expected to deliver results across key areas that remain a concern for most infrastructure and data center operation professionals:

• Energy Efficiency: OCP-based data center hardware can result into 20-30 percent energy reduction across a company’s data centers
• Cost Savings: Original Design Manufactured (ODM) servers are gaining increased traction when compared to servers designed by Original Equipment Manufacturers (OEMs) owing to their lower costs and innovative, effective and open designs. IT procurement teams are exploring the possibility of sourcing directly from ODM companies, hence disrupting traditional sourcing channels established by OEMs. This is a huge opportunity for IT procurement to tap into – they can either procure cost-effective equipment from ODMs or drive aggressive negotiations with OEMs who are under pressure to drop prices due to the increasing relevance of ODMs. Companies like Facebook, Goldman Sachs and Fidelity Investments have been able to save significantly by putting faith in the OCP revolution.  For example, Facebook has saved $1.2 billion in three years through OCP initiatives.

IT procurement teams involved in sourcing data center equipment should take note of OCP’s innovations around scale and serviceability and their potential to introduce significant savings in data center deals. They are advised to factor in the relevance of ODMs to their business model and build business cases to selectively migrate a part of their data center environment to an OCP-led model.