by Bill Martorelli, Forrester Research

Achieving benefits from the multisourcing challenge

Oct 18, 2010
IT Strategy

There are several key reasons why CIOs should embrace multisourcing:

  • Exerting competitive pressure over suppliers
  • Gaining access to specialized skills
  • Compelling better performance from providers

Using multiple providers is nothing new, but taking a systematic approach to multisourcing governance is. There are several factors sourcing professionals need to consider present challenges in achieving multisourcing success:

  • Suppliers prefer a direct line to the customer and resist subcontracting roles.Unlike prime-sub engagements, today’s infrastructure and application services providers prefer a direct line to the customer to be able to sell more services. As a result, prime-sub relationships are now less frequent in outsourcing deals. Organizations are often left with the challenge of managing a broad range of supplier relationships themselves.
  • Contractual mechanisms and Operating Level Agreements (OLAs) remain in their infancy.Techniques such as the use of OLAs promise to assist customers in managing multiple providers. But in reality, relatively few customers use OLAs to govern multisourcing transactions, particularly in the applications arena, so their effective for multisourcing remains a challenge. Additionally, standards like ITIL v3, although equipped with new capabilities intended to facilitate sourcing, are only now beginning to make an impact.
  • Patterns of multisourcing vary, presenting additional complexity. Several high profile outsourcing engagements like General Motors have successfully moved from single-source models to multisourced models on contract renewal. But there are many ways for companies to move to the multisourcing model, making no single path the right approach. Those who are new to outsourcing may be starting essentially from scratch, or adding new suppliers over time as outsourcing activities expand.

Despite these challenges, Forrester has heard from many sourcing professionals who are making progress in their multisourcing efforts.

Firms believe they are making progress Many of Forrester’s clients report that their multisourcing efforts are resulting in improved access to specialized skills and reduced costs through increased supplier competition. For example, 31 per cent of recent survey respondents said that their efforts to gain access to specialized skills through multisourcing were highly successful, and 27 per cent said they were successful in reducing costs through encouraging competition between suppliers.

These results likely correlate with the use of staffing-based resources for applications and infrastructure tasks where billing rates and skill sets are the most obvious elements of service delivery. See the table below.

The role for the service integrator is gaining increased importance Faced with the complexity of managing multiple providers, many organizations are beginning to understand the clear need for an external service integrator. This role essentially consists of an outsourced program manager, who is responsible for integrating services from multiple providers but does not provide any outsourced services. Many service providers are in fact eager to embrace this role, even through some customers struggle to justify the overhead cost of engaging with an additional provider.

Multisourcing success is ultimately all about improving governance Despite the inroads some sourcing professionals have made, multisourcing remains a challenging and potentially costly undertaking. Five of Forrester’s 10 key steps to multisourcing success deal explicitly with supplier governance, highlighting the importance of strong governance programs.

To improve multisourcing efforts, sourcing professionals must remember that the choice of outsourcing models will influence the governance approach. For example, firms should be aware that governance in the managed outcome approach requires a different approach, including setting a well-defined interface between supplier and customer and additional oversight responsibilities.

Additionally, clients should focus on comprehensive governance efforts that involve the suppliers whenever possible. In multisourcing, organizations should strive to encourage meaningful cooperation between suppliers even if the use of OLAs and other mechanisms are beyond their reach.

Bill Martorelli will be one of speakers at the upcoming Forrester Sourcing & Vendor Management Forum EMEA 2010 taking place in London on November 16 and 17.