Procurement should be central to corporate strategy, says Norton Rose report

12 November 2008

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  • 83% of customers said they wanted to build strategic partnerships with their key technology vendors
  • 68% of customers responding believed their spend on outsourced services and technology will increase in the next year
  • 69% of customers responding said the main commercial driver behind their procurement decisions was cost reduction
  • 66% of those interviewed had no systems in place enabling them to identify their intellectual property rights
  • 48% of customers had ethical and best practice procurement policies

Procurement should be placed firmly at the core of corporate strategy and have proper resources allocated to it, according to a report by international legal practice Norton Rose Group.

The 100 page report, “A Smart Approach to Sourcing” is based on 40 in-depth interviews conducted by Norton Rose Group lawyers with chief information officers, general counsel, heads of procurement and other senior executives at technology vendors, as well as customers between March and July 2008.

The customer respondents spend in aggregate in excess of £8 billion annually on information technology and outsourcing, and of these more than one third spend more than £100 million annually. The report outlines best practice for a range of aspects of the sourcing process such as tendering, risk management and exit planning.

83 per cent of customers said they wanted to build strategic partnerships with their key technology vendors. However, both vendors and customers said in reality their relationships often did not live up to expectations.

With 68 per cent of customers responding believing that their spend on outsourced services and technology will increase in the next year, it is critical that customers achieve the maximum benefit from this expenditure. The survey shows that customers need to improve three areas of their procurement processes if these benefits are to materialise: management buy-in, good vendor/customer relationships and a more sophisticated approach to risk.

69 per cent of customers responding said the main commercial driver behind their procurement decisions was cost reduction. Next most popular, with 53 per cent, was achieving business efficiencies. Surprisingly a substantial minority of interviewees felt they were not “close enough to the business” to give a definitive view as to what were the real drivers for the sourcing strategy. Procurement teams should be more closely integrated into the business and be made fully aware of business strategy.

54 per cent of customers expected to own the intellectual property rights in bespoke technology. However, 66 per cent of those interviewed had no systems in place enabling them to identify such rights.

Mike Rebeiro, Partner and Head of Sourcing, Norton Rose LLP commented:

“All businesses have an interest in maximising the benefits derived from their technology and outsourced services. However, these benefits can only be achieved if the underlying procurement process for that technology and those services is a success. Our experience is that procurement practices may not always meet industry best practice with some sourcing procurement teams either left struggling with poor systems and methodologies or without the right level of bond support. ”

48 per cent of customers had ethical and best practice procurement policies. Such policies were becoming increasingly common with vendors being asked to demonstrate that they complied with them.

Mike Rebeiro continued:
“If vendors are to deliver technology and services which meet the needs of business, both customers and vendors need to be far more open with each other about their objectives. Good relationships cannot be built on ignorance and misunderstanding. Customers and vendors need to take a more considered approach to identifying the risks associated with projects and a more realistic approach to the allocation of risk between themselves.”

Report available on request. More information can be found on our .

About the survey:

Norton Rose LLP conducted 40 in-depth interviews with chief information officers, general counsel, heads of procurement and other senior executives at technology vendors and customers between March and July 2008. The interviews were carried out face to face and by telephone by Norton Rose LLP partners and senior lawyers, each interview lasting more than an hour.

The respondents were located in the UK, Europe, the Middle East and South East Asia. The customers came from a variety of sectors including banking; insurance; transport; communications, media and technology (CMT); professional services; and industrials. The vendors interviewed comprised a mixture of both on and off shore providers in the technology, IT outsourcing (ITO) and business process outsourcing (BPO) markets.

The customer respondents spend in aggregate in excess of £8 billion annually on information technology and outsourcing, and of these more than one third spend more than £100 million annually.

For further information please contact:

Sean Twomey

Nicole Sharp