Wednesday, June 8, 2011

Strategic Sourcing - a new era of sourcing!


In modern world it has become a necessity that business processes become sharper and faster to be able to deliver in ever-tighter competitive environments. It is historical to equate sourcing to instant cost gratification, but today it is defined as a strategic component used to drive maximum competitive advantage.
Strategic sourcing relates to getting the best products and services at the best value. What sets strategic sourcing apart is its continuous attention to improving and re-evaluating the purchasing activities of a company, thus enabling organisations to adapt to changing market forces. The example of Allstate Corporation’s collaboration with Infosys Technologies Limited will help us realize the impact of strategic sourcing on their growth.
Allstate Corporation is second-largest personal lines insurer in the United States. With the growing competition with GEICO and StateFarm, Allstate organization felt it necessary that they should use advanced technology more in order to be ahead of their competitors. Thus, a strategic decision of spending on IT was made. However, this situation gave rise to the question – should we develop the application on our own or should we source it to an external vendor? Both the options had its pros and cons. Allstate Corporation had a dedicated resource pool for performing IT work. But, after lots of deliberation it was decided that they will be outsourcing this work to external vendor who has expertise in the field of providing IT services to Insurance organizations. Infosys Technologies Limited won the bid for this work and developed a web application perfectly suited to Allstate’s needs. What was crucial for the success of this project was the willingness shown by Allstate to reveal its internal business details (like rating calculations, premium calculations, etc) to external Vendor. What’s even more important is that they never gave up their control over the critical business functions.
Allstate used this customized application in order to sustain the growth. This application enabled Allstate to improve its market position since it was extremely quick and convenient for agents to create a quote and issue policies to customer. Thus, as it turned out, the introduction of the application was very instrumental in Allstate’s market growth and it continues to be one of the major contributing factors in Allstate’s Insurance revenues.
What would have happened had they opted for developing the software without sourcing the work to external vendor? There is no certain answer to this, but I feel this outsourcing enabled them to focus on their key functional areas instead of investing huge efforts in IT development work. Secondly, this sourcing resulted in availability of a better application developed by the field expert i.e. skilled IT professionals. I firmly believe that the decision to source the work to Infosys worked in Allstate’s favour.
The strategic sourcing is rapidly gaining a strong ground in twenty first century economics. The advent of technology offers enormous opportunities and possibilities for successful utilization of strategic sourcing for gaining competitive edge. Gone are the days when keeping strategic capabilities within your walls was a must!

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