In the new era of digital transformation, the role of IT sourcing is becoming more strategic. A recent global outsourcing survey showed 53% of respondents outsource elements of their IT function and that continued growth in outsourcing is expected for the foreseeable future. Due to dependency on external partners, there is an increase in both the potential opportunities and the risks involved. Organizations can benefit from integrating third party capabilities, and accommodating ‘outside in’ innovation that leverages the considerable knowledge base of supply partners and creates synergies among other business ecosystem participants. Despite these opportunities, sourcing organizations have many challenges to contend with, such as sustainable supply chain governance, end-to-end traceability, legal and regulatory global compliance, data privacy, and tolerance for risk in service level agreements and contracts. New outsourcing models such as cloudsourcing, microsourcing, crowdsourcing, impact sourcing and rural sourcing have evolved, and many of these new models require behavioural and managerial type shifts. In order to address these challenges, organizations and their suppliers need strong complementary capabilities to build successful relationships. Both contractual and relational governance are important, and organizations additionally need to maintain a strategy of agility and adaptability in order to mitigate the lock-in and dependency risks associated with outsourcing. This paper presents a review of pertinent literature, and discusses core learnings in relation to impacts on sourcing and supplier management in a digital business landscape. Based on an analysis of the literature and insights gained from engaging with industry and academic experts, the paper proposes a model that can be used to develop a capability to support effective sourcing and supplier management. This model provides a basis for further development in an industry/academia collaborative research project and aims to provide practical guidance to organizations in facing key challenges and optimizing the opportunities of IT sourcing and supplier management in the era of digital transformation.