Introduction

As the sourcing programs of large firms mature, issues are emerging related to the proliferation of suppliers within these firms’ application development and maintenance (ADM) portfolios. Many firms are responding with portfolio rationalization initiatives intended to capture substantial improvements in cost effectiveness. Commencing these improvement efforts often forces executives to think about the profile of their target portfolio from a risk and cost basis.

Scope

• Perspectives on enterprise ADM sourcing portfolio management
• The underlying concepts and objectives of the actionable approach to risk/benefit analysis of the sourcing portfolio
• A simulated example to highlight how the analytical framework and the methodology can be applied practically

Contents

This report talks about the growing need for sourcing portfolio rationalization and how to grasp some of the complexities around it. It outlines how some of the factors affecting the ADM market today are forcing buyers to think about portfolio rationalization. The report provides details on the complexity of the task involved and goes on to expand on methodology to perform the optimization, along with a transition roadmap.

For example, the complexity of the sourcing portfolio decisions section discusses the following:

• A skill portfolio is an analytical framework that enables understanding of key characteristics of the enterprise sourcing model and informs decision-making around an optimal mix of skill sources
• The key objective of the skill portfolio optimization is to define the buyer’s demand profile and suppliers’ supply pools and match them in the most optimal way, following the set of constraints
• The demand pool characterizes business-driven requirements for IT skills and capabilities
• The supply pool associates available skills with the their sources, costs, and risks
• The key challenge in mapping is following a client-specific set of constraints, e.g., work concentration with a supplier, acceptable risk profile
• Defining portfolio risk is a multidimensional and client-specific task
• Portfolio risk is a factor of several components that can interact in different ways depending on the delivery choices
• The approach for assessing trade-offs among these risks should be tailored to the situation, including the organization’s decision processes
• An ongoing optimization cycle for the enterprise skill portfolio should be completed as a regular task and include at a minimum a set of four considerations:
• What is the optimal number of suppliers?
• Should additional skill sets be considered for rationalization?
• What is the optimal location mix?
• What is the natural equilibrium for “owned” vs. “rented” activities?