SG KE Multisourcing: using the world’s talents

Source: http://www.computing.co.uk/computing/analysis/2205509/multisourcing-world-talents-3701368

Outsourcing is giving way to multisourcing and many countries are keen to become involved, writes Glenn Warren

Glenn Warren, Computing, 13 Dec 2007

Outsourcing has become such a part of everyday business vocabulary that it is easy to overlook the extent of its development. From its beginnings in big, typically broadly-scoped contracts that were often awarded to a few key providers, users now face more choice than ever before.

Therefore it is vital from the outset to grasp not only what multisourcing can achieve, but also what skills and resources will be required to ensure that the benefits are realised.

Right skills, right scope

The resources involved in procuring and managing multisourcing are significant, and one result of an increasing multisourcing trend is that requisite skills are in much higher demand.

All suppliers assess potential deals against broadly similar qualification criteria, including:

• Business development ­ in terms of market sector, service type and geography, is your deal right for the particular provider?
• Revenue opportunity ­ it would be an unusual provider that did not assess the overall revenue opportunity of any prospective transaction.
• Length of deal ­ the security of a longer deal is generally attractive to suppliers.
• Level of risk ­ typically weighed against the deal’s expected profit.
• Geographies ­ suppliers will consider their existing infrastructure and resources in the area.
• Technology platforms involved ­ providers will consider not only their own familiarity with platforms, but also the nature of any commercial relations they may have with suppliers of technologies.

Managing a multisourcing contract

Multisourcing contracts can be managed in-house, through a prime contractor or outsourced entirely to a separate contract manager.

Thorough planning, adequate resources and deployment of trained talent are the vital components to making multisourcing a multi-win.

The move towards multisourcing

• Developments in the outsourcing market, increased buyer expectations and the forces of globalisation are leading many more firms to adopt a multisourcing approach.
• Multisourcing involves one buyer using several suppliers simultaneously. The benefits of such a strategy include increased access to specialist skills, diversification of business risk and healthy and sustained inter-supplier competition.
• If procured centrally, companies also benefit from economies of scale through greater aggregation.
• Such economies are important as procurement and negotiation costs for multisourcing arrangements are typically seven to eight per cent of the first year’s outsourcing costs, compared with just five per cent with a single supplier.
• Essentially, firms are committing to greater expenditure before they have seen the benefit of a higher-quality service.
• Consequently, it is vital to get it right from the outset. Multisourced deals multiply the complexity for buyer firms and can leave even experienced businesses in difficulty.
• The deals require a much greater level of skill, knowledge and resources. Firms wishing to multisource need to ensure they fully understand the implications of additional complexity and should invest in developing well-trained staff, attaining greater market knowledge and excellent governance practice, whether in-house or externally contracted.
• Buyers must recognise that ongoing contract management is of critical importance, as is excellent communication between the various providers servicing the contract.

Checklist: 10 tips for multisourcing

Do not rush into multisourcing just because it is a growing trend
Think carefully about how the strategy would fit in with the overall objectives of your business. It is just one of a number of sourcing options available.

Go into the strategy with your eyes wide open
Unrealistic expectations at the outset, and poor contract management throughout, are the two main reasons for dissatisfaction with outsourcing. The complexity of multisourcing deals means problems can be further magnified.

Conduct a thorough cost-benefit analysis
Multisourcing is more expensive in both procurement and management terms than using a single supplier. Understand and articulate how your business would benefit from multisourcing, and evaluate the benefits against the cost of a single source approach and a multisource strategy.

Make sure the work is of benefit to all parties
To enjoy the full benefits of supplier competition, you need to have a reasonable number of potential providers and offer an attractive proposition. Research the market and find out what suppliers can – and are willing to – do. Look beyond their sales messages.

Make sure you and potential suppliers can compare like with like
Communicate your requirements and data in the standard terms used by the market. If you do not, effective benchmarking and comparison will be impossible.

Promote inter-supplier co-operation
Avoiding gaps between services is key. Plugging gaps at a later stage will cost your organisation time and resources and weakens your return on the investment.

Never underestimate the importance of ongoing governance
Governance is as important as contract negotiation. Ensure the senior members of staff who initially negotiated the deal remain involved in its management for at least the first six months.

Make sure you have skilled contract managers
Provide plenty of training for everyone involved and make sure you have the right skills. Even those who already have experience in managing outsourcing deals will be challenged by the step up to involvement in a multisourcing arrangement.

Do not overlook the power of competition between providers
Give each supplier a clear incentive to outperform by making it known that you are willing to shift the work balance between your providers.

Make sure your providers are able to make a profit from their contracts
Suppliers, like buyers, are primarily concerned with making a reasonable profit. Unless there is a win-win scenario the contract will fail.

Making the most of your options

You know the US credit crunch has started to grind into western European confidence when experts
such as Duncan Aitchison, partner at outsourcing advisory specialist TPI, says next year will be sticky and uninspiring.

Aitchison advises users and vendors on a range of external service provision deals.

And he says that after many years of growth – particularly in the offshoring market – outsourcing is set for a year or two of tough deals and consolidation. IT directors, therefore, need to be prepared for the change in market conditions.

Despite the ongoing transformation, Aitchison says multisourcing will continue to grow in popularity, with users choosing a broad selection of sourcing strategies – including offshoring – for particular IT and business process needs.

He says that a desire to take advantage of multiple geographies with a range of IT skills and technical advantages will become endemic through Western business.

Across the globe, the percentage of contracts with an element of offshore delivery continues to increase, according to the latest figures from TPI.

As much as 59 per cent of outsourcing deals involve an element of offshoring, up from an average of 43 per cent during the previous four years.

Some firms have been quicker to join the movement than others and public sector organisations in the UK and the US have been reluctant to sign up with offshoring providers.

Financial services companies and users requiring a large amount of back-office data processing have also shied away from overseas contracts.

Such reluctance is often associated with issues of regulation and compliance, says Aitchison, with certain organisations hesitant – or even unable – to look beyond the confines of domestic providers.

Organisations are often concerned about the potential for intellectual property leakage, and are apprehensive about data leaving the perceived safe confines of the UK.

“There tends to be a greater degree of comfort if it is inside the tent,” says Aitchison.

But he issues a word of warning to technology leaders who are too trusting of domestic employees.

“Companies can put in place as much security as they want, but in the end your weakest point is your people,” says Aitchison.

He expects hesitancy surrounding offshoring to subside because of an increasing requirement to source specialist workers.

The ability to tap into a broad skills pool at a financially attractive price means more UK firms will look overseas for external service provision.

“Cost is clearly significant,” says Aitchison. “But do not underestimate the skills issue. We generally do not have enough skilled talent in the West any more.”

Demand for traditional, bulk IT skills is depressed locally. And Aitchison advises IT professionals to migrate towards process-oriented specialities, rather than heavy-lifting skills.

“These days you have to be able to drive and manage projects – and these are skills that firms are much less likely to outsource,” he says.

The requirement for cheap, high-quality technology staff means that demand for external service provision remains high, with more countries eager to join an increasingly globalised market.

“I receive calls from all over the world,” says Aitchison. “Everyone across the world is looking at offshoring.”

And from his recent dealings, Aitchison lists a collection of countries keen to join the offshoring bandwagon: Argentina, Uruguay, the Philippines, Russia, Ghana, South Africa and Mauritius.

Despite such interest, he says India stills wins in every offshoring dimension – probably because of the high level of English skills.

So far this year, Indian-based service providers have won more than 24 per cent of all the deals on which TPI has advised, up from an average of 13 per cent during the previous four years.

Asia-Pacific, meanwhile, has represented 16 per cent of all major contracts in 2007, up from an average of about nine per cent across the previous two years.

The region has also seen a 72 per cent rise in its share of the value of new contracts, compared with the first nine months of 2006.

However, Aitchison issues a word of warning and suggests that current market growth is probably
unsustainable.

Recent findings from TPI show that in terms of total contract value – including new deals and the re-
tendering of existing contracts – the global outsourcing market has experienced a slowdown in growth since this time last year.

The total value of outsourcing contracts awarded in 2007 is down 17 per cent year on year, representing the smallest total for the first three quarters since 2001.

With an aggregate value of contracts of $38.2bn (£18.8bn), compared with $46bn (£22.6bn) during the same period last year, Aitchison says larger providers will look for a bigger slice through acquisitive growth.

Signs of consolidation in the outsourcing industry are already appearing, with venture capital firms looking to invest cash in the Western market and Indian providers such as TCS, Infosys and Wipro becoming serious global players.

“By 2010, the outsourcing market will look very different to how it is today,” he says.

Glenn Warren is project director at outsourcing advisory specialist TPI