Can You Trust One Outsourcing Provider to Manage the Rest?

Big IT service providers are offering up their skills as service integrators, promising to help CIOs reign in their multi-sourcing messes. But can this "fox watching the henhouse" model really work?

By Stephanie Overby
Fri, November 04, 2011

CIO — Even as CIOs continue to pursue the multi-provider model for outsourcing IT, the question remains as to how to do it successfully: amassing the necessary vendor management skills needed, avoiding vendor finger pointing, and achieving intended results.

There are a few options for managing a portfolio of providers. You can build your own provider consortium à la GM's Ralph Szygenda—an effort that's not for the faint of heart. Or you can go the traditional prime contractor with subcontractors route, but those margins on top of margins add up. Or you can hire someone—a service integrator—to manage it for you.

In the past such multi-sourcing management was the purview of full-service outsourcing consultancies. But today, many major IT service providers are nominating themselves for that job. HP made the biggest splash with the launch of its service integration business earlier this year. But they're not alone in going after the role of top outsourcer on campus. Capgemini, Accenture, CGI, Unisys, CSC, and Indian providers such as Infosys, Wipro and HCL all offer similar propositions, even if they don't exist as a separate commercial business or service offering.

"It is a matter of competitive necessity and advantage," says Forrester Research principal analyst Bill Martorelli. "Outsourcing suppliers have learned that it is good to have the capability to serve as a coordinator for multi-sourcing engagements."

Outsourcing management work provides the vendors with a more stable revenue stream than project work or consulting gigs, says Gartner vice president and distinguished analyst Claudio Da Rold. And they can use the extra face time to win more work from the customer.

The biggest benefit to customers of anointing one of their outsourcers to manage the others is access to the qualified personnel and repeatable processes required to guarantee end-to-end service delivery. "If [customers] haven't developed the proper skills, governance, or discipline around managing outsourced providers from an internal perspective, then an existing IT service provider may seem like a better option," says Steve Martin, partner with outsourcing consultancy Pace Harmon.

Anointing an experienced vendor top cop can also help companies transition to a multi-sourced environment for the first time or consolidate their existing portfolio of IT providers. Indeed, many customers end up backing into a service integrator deal with an outsourcer once they realize how tricky managing multiple outsourcers is, says Tony Filippone, executive vice president of research for outsourcing analyst firm HfS Research.

But the prospect that an IT outsourcer, put in charge of managing and reporting on direct competitors, might abuse or misuse that position puts many customers off. While HP, for example, is touting service integration as a separate offering from its IT outsourcing business, it's hard to know if such Chinese walls provide much protection.

"Part of the selling proposition for suppliers like HP that have established multi-sourcing as a separate service line is that they are facilitators of customer relationships with other suppliers, not inhibitors in the sense that they will actively undermine other participating suppliers," says Martorelli. "But I am not sure there is a real barrier between them or not. This remains a concern to some customers who wonder how it is possible that a service integrator would not think of themselves first."

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