Multi-sourcing problems are potential time bomb

Jonathan Cooper-Bagnall: Multi-sourcing may not be the answer

We believe more firms are moving to multiple service providers for key outsourced requirements.

The mega, single-source outsourcing deals have often failed to deliver against expectations. By breaking up these contracts and allocating key elements to different suppliers, organisations hope to improve competition, maximise supplier skills and expertise and drive down costs by achieving better contract pricing.

Far from saving money and reducing risk, this is exposing organisations to unprecedented risk and costs that will become all too apparent in the next 12-18 months.

In the single source model, the vendor typically works to cover the gaps between defined areas. Much of this work is unseen and unpaid, but key to ensuring service consistency and continuity.

Break up the contract into its component parts and no single vendor will be doing that integration, making the organisation suddenly responsible for holding everything together.

The organisation may not be able to do this – and this is the second primary problem with multi-sourcing. Organisations rarely have the skills, expertise or knowledge to manage these multiple vendor relationships.

Few even recognise the problem. They fail to accept that moving from single to multi-sourcing entails a sustained programme of change. And this is at a time when cost reduction is high on the agenda.

Contracts have been awarded and no one wants to lose a job as a result of the mess created by an ill-conceived outsourcing strategy.

The market is awash with organisations lauding multi-sourcing, and encouraging more companies to follow suit. Increasing numbers of companies are being locked into lengthy multi-sourcing contracts, which are already failing to deliver the stability and performance expected with a single source approach.

These will cause problems some 12-18 months down the line.

Many are throwing hundreds of thousands of pounds at the problem, building teams of experts to manage the gaps in service delivery and trying to integrate diverse service provider relationships.

These failures will be laid firmly at the door of the outsourcing suppliers although the fault lies elsewhere.

Given the endemic poor management of single source outsourcing contracts, it is extraordinary that so many organisations want to embrace multi-sourcing without even considering the operational impact.

Two years ago, we performed a survey that found 50 per cent of organisations had no idea of the cost of managing their outsourced relationships. We believe at least 40 per cent still cannot put a figure on this cost.

From this rather shaky foundation, organisations are planning to move into an environment that requires absolute discipline in the co-ordination of suppliers and a new set of competencies for staff engaged in managing the new arrangements.

The business risk associated with a poorly designed, implemented and managed multi-source strategy is significant. Contracts rarely address the critical issue of managing integration across different suppliers.

The change control and definition of the bridging role between services will be carried out by suppliers. Suppliers are unlikely to commit to legally binding management processes – and even if they collaborate with the best of intentions the results are by no means guaranteed.

Unless organisations plan to appoint a lead service integrator, they will have to take on end-to-end accountability internally. Yet many ‘tier one’ organisations have already spent money on large teams of people to fulfil this requirement.

Making multi-sourcing work is proving expensive – from the intangible cost associated with failing to improve business agility and service levels to the quantifiable need for additional staff to support and manage this complex operational strategy.

Without changing their strategy, appointing a service integrator to oversee the process or investing in the required skills, unexpected costs may soar over the next few years.

Unless an organisation is good at managing complexity, has the right skills and is prepared to invest and take on end-to-end responsibility, multi-sourcing simply adds too much management complexity to deliver the required risk and cost rewards.

There are enough businesses losing money by not thinking through the consequences of their actions. This is not the time to join them by failing to consider the true implications of multi-sourcing.

Jonathan Cooper-Bagnall is global head of sourcing at PA Consulting