Software Category Management – a key business value enabler

Software Category Management – a key business value enabler

Strategic Procurement and its related practice, Category Management, are not new, yet many companies have difficulty in understanding what the benefits of Category Management are and how they can be realised within their organisations. In this article, I endeavour to provide a flavour for Category Management, as a key component of Strategic Procurement, and particularly as it applies to the the Category Opportunity Assessment phase of the lifecycle. The article below focuses on the Software category in particular.

While Category Management can ostensibly be classified as a key capability in its own right, it is part and parcel of the overall processes and capabilities that comprise Strategic Procurement. The lifecycle/process model below shows the key phases of the lifecycle across which category specialist capabilities will combine with clear processes to deliver business value. The lifecycle model below is typical of the 6/7-phase Strategic Sourcing/Procurement methodologies used by many consulting organisations and implemented as part of the Strategic Sourcing/Procurement practice capabilities in professional procurement functions.

During the Category Opportunity Assessment phase, current spend and future demand are analysed to form a picture of spend and demand by spend type (capex and opex) across a foreseeable timeline (ideally, up to 3 years). Capex spend will largely comprise new project spend (and will be set out in the CIO/CTO budgets) and will generally be driven by strategic IT investment initiatives/projects (for example, building a new mobile commerce platform), technology infratructure refresh (server, storage, bandwidth, desktop and mobile) and so on. The Software category will be segmented by such sub-categories as licensed software (operating systems, database, applications software and middleware – and these may be further segmented – for example, by platform), support, software development and niche software-related professional services/consultancy.

When profiling the category, low-level category segmentation allows a low-level baseline analysis to be performed and reconciled against budgets and historical spend data sources (accounts payable, general ledger, cost centres etc.). This can then be rolled up to the different category levels (for example, for aggregation at a supplier level for supply portfolio analysis and supplier preferencing), to business unit level and above for cross-business spend comparisons by category/segment/supplier etc. When profiled well, this spend clarity can help focus the sourcing strategy priorities.

The market/supplier assessment helps inform views on how the market is likely to be shaped/re-shaped over time. For example, in the example of the “software stack” below, it was clear up to a  few years ago that one area in which Oracle was lacking presence was that around operating systems software. With its acquisition of Sun Microsystems in  2010, Oracle not only closed this lack of software market presence but created a strong presence for itself in the integrated IT stack – including hardware, servers, storage – thereby re-shaping its IT market presence significantly. Likewise, SAP’s acquisition of Sybase gives it a presence in the database segment and mobile platform that it did not previously have. Using such inputs as Porter’s Five Forces, specialist research from such organisations as IDC, Gartner, Forrester Research, supplier SEC Form 10-K submissions and other sources, market perspectives can be honed to help further focus the category sourcing strategy priorities.