There’s little doubt that multi-sourcing has become the dominant model for enterprise IT services. The average U.S. IT shop is working with 13.5 service providers overall, according to Gartner. But managing multiple providers remains a challenge for most IT organizations.
Some IT organizations, like the State of Texas Department of Information Resources, have decided to outsource the multi-sourcing management to an external master service integrator.
The idea was met with warranted fox-guarding-the-henhouse concerns by many industry watchers. But Shaun Daly, partner with outsourcing consultancy Sourcing Advisory Services, says adoption of the third-party managed sourcing model–which he calls multi-sourcing Integration-as-a-Service–is poised to accelerate. CIO.com talked to Daly about what might drive adoption of multi-sourcing integration services, the pros and cons of the model, and what it means GM is getting out of the multi-sourcing management game.
Doesn’t engaging a third party to manage the IT service portfolio just add another layer of complexity to the arrangement?
The challenge for determining scope of what should be sourced or retained internally remains the same for multi-sourcing service integration. The question remains: who is best positioned to treat it as a core competency and, therefore, should be better positioned long-term to provide this service.
Our experience has shown that a select group of the suppliers have developed a best-in-class approach to ensure the enterprise receives a more flexible and healthy service. We’ve seen that elevating service integration as a discrete service delivery function actually addresses and increases value accretion by exposing the complexity, the misalignments, the overlaps and the gaps.
Historically, in a single- or multi-sourced environment, the real complexities are papered over. But “your mess for less” is an unacceptable answer for modern competitive firms. A coordinated service integration solution is necessary to realize the full benefits of best-of-breed multisourcing. Eliminating duplication and making processes consistent and repeatable are the keys to performance management.
Are some IT organizations capable of managing a multi-sourced environment themselves? What capabilities must they possess to do so effectively?
Yes, some IT organizations have the scale, experience, and maturity to provide integration services. However, much like the component services being outsourced, service integration is not typically a core competency of the client. It is challenging for clients to access and retain the skills required to provide integration services, and service providers are generally able to better leverage process and technology to maximize the efficiency of the delivery model.
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It is more likely that, on a case-by-case basis clients are able to provide certain elements of the integration work–such as chargeback, asset management, or software license management. The interplay between the role of the multisourcing service integrator and the retained governance functions of the client will be a key planning factor in shaping the scope of services for the MSI.
How much should an IT leader expect to pay for third-party multi-sourcing integration services?
We’ve seen the multi-sourcing service integration as a self-funded component of the deal structure; some clients make self-funding a requirement.
When we started developing this approach, we assumed that it would require a client to invest more money and that the benefits would eventually offset the added costs. The multi-sourcing integration layer uncovers more than just labor arbitrage savings; it’s designed to rationalize out inefficiencies in process, revealing a second layer of savings as great or greater than the first. So the overhead and increased investment on process and tools are usually offset by delivery cost reductions.
In addition, the segmented delivery structure increases competition by expanding the service component provider market to Tier 2 providers. And the contractual flexibility built into the plug-and-play deal structure encourages a focus on competitive market rates through the contract term.
You helped the state of Texas develop its new multi-sourcing service integration model. Why did they take a chance on this unproven, emerging model?
The state was midway through a significant change initiative and needed to recover within a restricted budget. The benefits of the multi-sourcing service integration model addressed the state’s critical objectives in the short and long-term: operational visibility, contractual flexibility, and efficient pricing. The alternatives–a single provider or multiple providers without Integration-as-a-Service–did not meet these critical objectives.
When will you know the new model is working in Texas? What will be the key indicators of success there?
We get asked this a lot. Ultimately, like any sourcing initiative, the key indicator will be that the state agencies are receiving the services they have contracted for within the context of a client’s objectives. All indications are that the model is working and benefits are evident in the early stages of a recently transitioned service environment.
Are there any other high profile examples of the third-party integration model for outsourcing at work?
There are a number of organizations, such as General Motors [GM], that have successfully implemented elements of the multi-sourcing integration structure over many years. There have been recent announcements similar structures within the public sector in the U.K. and numerous examples in commercial environments, such as at Rolls-Royce. Different models and methods of implementation are being developed and tested by IT service providers.
But GM, which managed much of its multi-sourced IT itself, recently announced plans to bring much of that work back in-house. Is that a rejection of multi-sourcing and service integration?
My understanding is that GM is moving from a predominantly outsourced to a predominantly insourced environment. Whether an organization is outsourced or insourced, service integration is a critical function.
You say that the adoption of ITIL and process improvement programs is accelerating the trend toward third-party management of multi-sourced environments. But some industry watchers have argued that these process frameworks fail to take hold when implemented by outsourcing providers. How do you address that?
It is very important that the goals and the plan of adoption of the service integration model are aligned both with the maturity of the service component provider(s) and the operational dynamics of the client environment. Most implementation models focus on staged introduction and adoption, with pilot programs to confirm the value at each stage.
Process maturity is not a one-step formula; it is a method of approach to maintenance–constantly realigning and testing in a changing environment. A well-documented contemporary service management manual is critical to maintaining alignment among all the parties.
Who is best positioned to offer multi-sourcing integration services for enterprise IT? Service providers? Consultants? And is it important that the integration provider is independent and not providing an actual IT service?
It is beneficial to have an integrator that is both knowledgeable and experienced providing the component services. Sourcing advisors can help clients develop deal structures, but it’s the service providers that have experience delivering market-based enterprise IT services and are best positioned to provide Integration-as-a-Service.
The integrator can be one of the IT service providers; however, to optimize the model and benefits of the third-party ‘independent auditor,’ we recommended that the service manager only provide the integration services.
Clients may start down the path multi-sourcing service integration deal structure by restructuring existing agreements to carve out the MSI role and still have the incumbent provider provide service integration and component services. But over time, we recommend that the integrator be independent to perform oversight functions such as process compliance, service-level management, and bill reviews.
How does this work in terms of deal structure? Does this get the IT leader get back to the place of “one throat to choke” when things go wrong?
Accountability and service responsibility have moved from one entity controlling a process to a series of entities–both within a client environment and among service providers–working closely together to ensure a client’s needs are addressed. The role of a facilitator requires all parties to think through what this means in terms of performance, reporting, proactive maintenance, responsiveness, as well as who will coordinate addressing problems.
In general, the multi-sourcing integration service provider is responsible for delivery of end-to-end services to the client and thus owns the day-to-day client management interface role. The service component providers play a critical role in the provider-client relationship as they have direct touch with the end users on a daily basis and participate with the integrator as needed in management meetings. The balance of roles and responsibilities is key. Both the integration provider and component providers participate in governance and have active client relationship management responsibilities to ensure customer satisfaction.
What are the biggest mistakes you’ve seen in implementing a multi-sourcing integration service layer.
Figuring out the operational detail of the inter-party Operating Level Agreements (OLAs) after contracts have been awarded is a mistake. It’s also critical to distinguish between shared and related performance metrics across multiple contributors to service delivery. Finally, it’s key to institute the necessary levers in the deal structure to enforce alignment between the shared service management manual and the OLAs between parties.
This approach will have to be refined and updated as all the parties become more adept at managing in today’s complex environments.
When will multi-sourcing management reach a point of maturity and what will that look like? Or are we due for a swing back in the direction of single-sourced environments?
We don’t expect a swing back to single-sourced environments, but we do expect clients to demand more sophistication in addressing a multi-sourced environment. With the proliferation of new service offerings such as cloud computing and the growing need for greater plug-and-play flexibility in sourcing portfolios, the days of one particular service provider comprehensively addressing a client’s needs are behind us.
Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section.
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