Multiple Choice Answers

By Susannah Patton
Tue, January 16, 2007

CIO

Managing multiple outsourcing vendors is costly and complex, and in order to control contracts and providers, smart CIOs are using vendor dashboards and training their staff in finance.

READER ROI

  • How multiple outsourcing vendors can save money and bring in specialized services
  • Ways that CIOs can mitigate the risks of overseeing multiple vendors
  • Why it's key to train IT staff in vendor management skills

For Filippo Passerini, Procter & Gamble's CIO and global services officer, managing outsourcing deals is a tall order. Literally. In December 2002, Passerini received proposals from three IT companies to take over much of P&G's IT services. Binders filled with documents from IBM , EDS and Hewlett-Packard weighed a total of 67 kilograms and stood 183 centimetres tall when piled on his office floor. Within five months, Passerini would sign a contract with HP that was so voluminous (10,000 pages) he had to sign it standing up. The $US3 billion, 10-year deal with HP, it turns out, was just the beginning. Over the next four months, Passerini would sign three more large outsourcing deals, covering HR systems, payroll, facilities management and CRM - all with different vendors.

The rows of proposals that still line the shelves of Passerini's Cincinnati office reflect the complexity of what Procter & Gamble took on when it made a major shift toward outsourcing with multiple vendors. When P&G started planning to outsource IT and shared services functions, top executives considered a "big bang" approach with one provider. But a year into the project they decided to award the jobs to a select group of vendors in order to take advantage of technical specialization. "We were looking for the best suppliers in different areas, so we decided that the big bang outsourcing deal wasn't for us," says Passerini.

By choosing to work with multiple outsourcers, CIOs can cut costs and foster competition between vendors, while taking advantage of vendor specialization and technical expertise. They can also reduce the risk associated with depending on a single vendor. But as Passerini will attest, managing a stable of outsourcing partners can also be time-consuming, complex and expensive. "I would call it extremely demanding," he says. In P&G's case, Passerini has spent the past two years shaping a new governance structure to oversee the outsourcing vendors, an area in which the company had little previous experience.

Others with similar experiences would no doubt agree that managing multiple outsourcing vendors can be a strain. Through 2007, according to research group Gartner, multisourcing will remain the dominant sourcing model, but fewer than 30 percent of enterprises will have formal sourcing strategies and appropriate governance in place. In a 2004 survey of 130 CIOs, 42 percent said they were dissatisfied with their outsourcing relationships, according to outsourcing advisory company EquaTerra. And the primary reason cited, according to EquaTerra, was a poorly developed, underbudgeted, under-resourced governance model.

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