Navigating through the complex world of multisourcing
To multisource or sole source is a critical decision companies need to take before initiating a vendor selection process. Simply put, multisourcing is the approach of sourcing services from multiple providers that are best suited to deliver those services. In multisourcing, sourcing avenues can be both insourced and outsourced. Often cost, risk, location and compliance factors drive firms towards leveraging multisourcing. The decision to multisource can add significant complexity especially when programs and projects are required to be supported from global locations.
Conduct a due diligence to define the multisourcing strategy
It is important to plan and conduct detailed due diligence. Due diligence can help determine the success criteria and internal readiness required to support multiple vendors.
- Clearly articulate the vision, governance and execution roadmaps.
- Map the scope of work to sourcing channels (contingent, offshore, consulting etc) and models (T&M, fixed cost, managed services etc…)
- Determine how technology and process gaps will be addressed.
- Document expectations from vendors on span of control and accountability.
- Implement a multisourcing strategy that includes the guiding principles, change management strategy and integration strategy between different vendor tracks.
Multisourcing channels and approach should be aligned with sourcing strategy
ITIL v3 standard provides some guidelines for multisourcing although there is not much research information today available on the subject. Strategic sourcing departments should guide the multisourcing approach in alignment with overall company sourcing strategy. Some commonly used multisourcing approaches used in the industry are described below…
- Build critical mass with a vendor for similar nature of work: segment requirements into several executable tracks which can then each be awarded to a sole supplier who is selected as an expert to execute that work. Examples include, same supplier does all testing, or application maintenance etc… This approach keeps things simple but requires strong governance, expectations management and discipline to implement.
- Using multi-bidding to multisource: segment requirements into several executable tracks and have multiple suppliers bid on the work. The supplier that meets the best selection criteria is awarded the contract. The downside of this approach is that it would add complexity as it can be time-consuming and may require more contracts to be managed. However, on the positive side, companies may be able to get a high quality of service in a highly competitive environment.
- Segregate strategy and execution: use one vendor (or internal shared service) to address strategic visioning, architecture and design and another company for execution or implementation.
- Service integration can be outsourced: recent survey and research reports suggest that service integration between vendors is also being outsourced. This may require the integrator to manage all strategic (including relationship and contractual) and operational (SLA, OLA, processes, reporting etc…) aspects with multiple vendors. Some companies may choose to limit integration scope to operational processes and delivery integration only while keeping strategic aspects insourced. Companies should carefully select the integrator to be a neutral party to prevent any conflict of interest.
Strong governance and processes are essential to succeed with multisourcing
A robust management model is required to realise the expected benefits from multisourcing. Often projects fail because each partner in the multisourcing environment is so focused on their own objectives that they fail to see the overall common goals and objectives. Another reason for project failures in multisourcing is when the quality of deliverables is dependent on the performance of several partners. Typically, analysts estimate that the cost of managing a single-service provider which is in the range of three to ten per cent can go to 15 to 40 per cent in a multisource deal due to higher complexity and demands on implementing processes and management time.
What are some of the best practices to keep in mind?
Implement strong program management to manage multiple vendors and standardise technologies, processes, and communication protocols wherever feasible. Ensure that any variations in processes, hand-offs and dependencies are well defined and communicated.
Clearly articulate the definition and measurement criteria for “success” so that ownership and accountability is well understood across the partner spectrum:
- Keep focus on performance management while letting providers manage the delivery.
- Control service interfaces between providers to ensure standard delivery in all tracks.
- Implement metrics and KPI (Key Performance Indicators) where feasible. This can be a good strategy to measure success and multisourcing effectiveness.
- Implement vendor scorecards and dashboards to track performance and align vendors on common expectations.
Implement strong vendor governance:
- Engage a minimum number of providers to keep the complexity low while keeping a balance of risk diversification and healthy competition. Having too many providers will dilute spending and reduce their investments into the account if they do not see the volume of business as significant. Vendor-addition decisions should be thoughtful decisions and well aligned with the overall sourcing strategy.
- Manage Intellectual Property sharing risks using appropriate multi-party contracts and non-disclosure agreements.
Conduct multisourcing forums at a regular frequency to discuss a vendor’s role and delivery expectations. These forums can be used to discuss service interfaces, establish shared delivery responsibility, and clarify collaboration considerations. If required draw RACI charts on the complete value chain to provide clarifications and reduce risks and complexity.
For midsize and large companies that are considering “Total Outsourcing” (where more than 75 per cent of the IT budget is outsourced), multisourcing could be a good risk diversification strategy. For companies doing selective sourcing (where 20-50 per cent of IT budget is outsourced), a cautious review of alternative options (at company, program and project level) is vital to determine the value from multisourcing. Is your company ready for multisourcing?