In his book, “The Big Switch”, the American IT lateral thinker Nicholas Carr challenges CIOs and heralds the end of IT departments. He compares the trend towards cloud computing and away from business computing in the company’s own data centres with the transition from self-generated to centralised power supplies by service providers at the start of the 20th century. According to Carr IT could be controlled by external specialists and without hordes of technical experts within the company. 

The crux of the matter is essentially outsourcing versus in-house: should companies focus on their core business and outsource those IT tasks that others can do better? Take the example of purchasing: so far in this sector, many CIOs have been somewhat sceptical of external, web-based SAP e-procurement solutions. These models are regarded by many decision makers as all too unsecure and inflexible. That said on-demand models fare well in a precise analysis of the individual factors. 

The CIO is pulled in two directions: should he rather assume the role of technology provider, or that of a strategic business designer? Should he provide all the IT in-house, or act as the head of a network of specialists who each play their part in the added value chain by controlling the outsourced IT? In his role as CIO, he decides on which IT activities are to be outsourced to external service providers.

According to a study by Ernst & Young on outsourcing in Europe in 2008, 70 percent of all companies’ surveyed – 600 decision makers in European companies – stated that outsourcing was an integral part of their business model. Many years outsourcing has been seen as the overall cure for a company’s problems. In times of a weakening economy the issue is gaining again in appeal. The following are particularly appropriate for outsourcing: 1. The supporting IT roles where the decision to outsource is merely an issue of cost; 2. Specialist IT functions that are not part of the core business. These roles require specialist expertise that is generally not available in-house.

Purchasing as a central competitive factor

On the backdrop of the global financial downturn and the looming recession, cost-cutting measures are moving to the fore in the corporate world - and with it, inevitably, the subject of purchasing. After all, the potential for cutting costs is high in this area: depending on the sector of business in question, the entire purchasing volume can account for between 40 and 60 per cent of the company's total turnover. As a benchmark figure, a logical procurement strategy and the use of the right IT solution can save from four to eight per cent of the total purchasing volume.

If the CPO and the CIO are looking for a suitable IT solution, then the decision quickly comes down to a question of faith. For the CIO, the primary factor is whether the SAP EBP (Enterprise Buyer Professional) solution can be integrated into the company's own IT systems and whether it complements the SAP strategy. The strategic question for the CPO is which operator model is the most suitable one for his organisation, and which will bring the greatest possible efficiency in terms of procurement activities. He can choose between a licensed SAP EBP in-house solution and an equivalent on-demand supplier model. The solution is then provided and managed by an external service provider.

OnDemand versus installed software: can both models coexist?

Many CIOs regard on-demand supplier models as a threat to their existence, when in fact there is plenty of room for both models - on-demand and in-house. On-demand represents an attractive alternative for the CIO, especially in times where IT budgets are tight. It is not without reason, that SAP recently launched its own on-demand solution – SAP Business-by-Design – onto the market.

But is an on-demand supplier model the best possible solution for every company and every organisation? The following factors are crucial for or against an on-demand service: cost-benefits analysis, speed and risks.

The on-demand supplier model will not threaten to oust the licensing model. The world of procurement has enough space for both. They can even complement each other perfectly.

The on-demand model drives the focus away from the technology and towards strategic usage, as well as towards the use of ‘purchasing-assisting’ solutions such as e-sourcing and e-procurement. Buyers can therefore focus more effectively on their core tasks, on reducing complexity and on the relationships within their company, and not lose valuable time sorting out technical queries.