Recently posted a question on the various “offshoring/Sourcing” groups at LinkedIn.
1) With multi suppliers how should the non-core areas/blocks be divided? Should for e.g. 2 suppliers get application development and support while infrastructure/operations be given to 2 different suppliers? OR 2-3 suppliers get application/infra/operations? How should the multi-sourcing set-up be defined & divided?
2) What are the pros- and cons with the different set-ups?
Replies from The BPO and Offshoring Best Practices Forum
Comment 1: 1. Yes your are right the services should be outsourced to different vendors.
i.e. Application Development/Support. – This is to maintain healthy competition between the parties and also that they will try to perform well because of competition in terms of Cost, Quality Deliverables and SLAs.
Also one should have the signed contract between both the parties including Service Definition Document, Third Part Service Contract (Contract should also contain clauses for non-performance of the service by the provider with respective penalties.)
Also One thing should be made clear i.e. work areas for the providers other wise they will start blaming each other to save their shoe/SLA target time.
Comment 2: A multi vendor approach can have several drivers – healthy competetion keeping the vendors on their toes, evaluation of performance in absence of benchmarks, business continuity, best practices from several sources etc. Actual implementation could be decisioned by several factors again – opportunity scale, linkages between the different areas to be sourced, vendor competency in specific areas, amount of time and effort that could be made available for vendor management, past experience and capability for doing this, existing relationships etc. Circumstances permitting and with the above in mind it would be ideal to reduce dependency on one vendor and get the best from several worlds. For this to happen one would tend to split one service across two different vendors and the second one among the same set of vendors or different ones.
Comment 3: While multi-sourcing has obvious potential benefits, the critical success factor is not the specific demarcation of service partitions, nor is it the number of service providers involved, because there are many ‘right’ answers to both questions. The number one indicator for success is what I define as the service integration challenge: how well will your organization perform in assembling, collating and managing a portfolio of service providers over an extended period of time, as operating conditions, business requirements and environmental factors combine to stress these service relationships.
For some more thoughts on this topic, please see the deck that I presented at the recently HCL Global Conference: http://slidesha.re/cxMgkN .
Comment 4: On the pros, cost reduction through competitive jockeying (negotiation, benchmarking); availability of skills with a single provider; concentration risk management;
Not a panacea though. Think of governance costs; hand-offs that create inefficiencies; and the loss of process adjacency. The buyer, the vendor community, the IT side over time lose sight of the overall process and look for local optimization of their fragment. The ability to quickly change, transform, scale are dramatically reduced through fragmentation.
Use a holistic framework to determine what the objective is (it has to be cost, plus what?). Map the process against a some key dimensions – competitive advantage vis a vis value addition; rate of change vis a vis criticality to business; importance of linkages vis a vis bargaining power at the process and application level to determine the advantages of cost vs the cost of fragmented processes.
Comment 5: I agree with Mark that governance is critical for multisourcing success in the long run, and with Shammik that you need a holistic framework.
That holistic context, that single integrated view of the enterprise – owned by the business and in the language of the business – provides the essential framework for sustainable success in multisourcing, and for continuous performance improvement.
All of the stakeholders – process owners as well as folks in organisational change, sourcing strategy, risk management, IT, knowledge management, relationship management, etc – are then working from a common reference point and within a single enterprise-wide governance framework.
More on this here if you are interested http://bit.ly/bxMaUg
Comment 6: Mike, saw your blog, and am glad we share the same views. Here’s what I am grappling with. Folks, your views are very welcome. Rita, no intention of hijacking the question.
What do we do about the existing deals that are already outsourced to multi vendor relationships (some “vendors” being owned captives) from a process, application, hosting perspective. No vendor in this case has the holistic picture, and arguably, neither does the service buyer, any more. Now that the cost savings are passe, how does one start to create the integrated information and framework necessary for “transformation”? I know the definition of the term also varies between the vendors (”IT led”, “Process led”, “Quality led”) and the buyers. Does this mean transformation is stillborn because of the earlier chase on cost as the sole driver?
Comment 7: Shammik – I can’t see how any organization can manage the outsourced environment without visibility and ownership of its end-to-end business processes. Any buyer that loses intellectual control of outsourced activities will pay a very high price – that’s my experience.
Feedback from Outsourcing & Offshoring
Comment 8: A multi vendor strategy is a good way to go to get the best performance from your vendors. Divide your RFP into different blocks and get all your proposed vendors to provide separate pricing for each block. Based on capabilites of each vendor, strategic business objectives and pricing, select the top 2 or 3 vendors to be your service provider for each area. If processes and delivery has dependencies, it should stay with one vendor to ensure effecient delivery and accountability.
Comment 9: To begin with, you would have to clearly scope out the areas that you are planning to outsource. Once you do this, tag the areas being critical and non-critical (from a business standpoint). From here-on, you can take a two-forked approach.
1. For those areas that you deem critical, go for only one vendor. Perform a complete due diligence, asking for case studies from vendors and if possible (strongly advised) talk to the companies that the vendors quote in their case studies to understand how exactly the vendor worked with them. Choose the best vendor that matches your skill set requirement, budget and response times.
Bottom-line: You do not want a setup in which vendors are blaming each other for things going wrong. Only one vendor who owns up is the best choice for critical areas.
2. For non-critical areas, you can opt for more than one vendor in the same area. Vendor relationships are seldom a one-time affair and evolve with time. Non-critical areas are the best for you to try options and identify vendors that suit your company’s business in the medium and long run. This is also the place where you could negotiate rates without being bothered too much about quality directly impacting the business (and also observe which vendor gives the best value for your money e.g. acceptable quality at an affordable rate (vs) ‘more than needed’ quality at a high rate). A best practice here is to club areas across business units and use the volume business to negotiate rates rather than using a piece-meal approach (vendors equally love visibility of business as much as they love big money).
Thank you!
