When it comes to outsourcing, sometimes one provider just isn't enough.
In an effort to save money, fill skills gaps and decrease durations on projects, more and more organizations are turning to multisourcing, enlisting the help of numerous service providers.
It's a strategy that paves the way for plenty of rewards—as well as risks. From change management, misunderstood goals, poor communication with a vendor's project manager, delays in delivery and cultural issues, multisourcing raises a host of concerns. Without strong governance and the ability to foster collaboration, the process can jeopardize a project's success.
The more providers an organization works with, the more complex a project becomes.
“Cross-provider governance is difficult, as some of the providers might be direct or indirect competitors,” says Ralph Schonenbach, CEO of Trestle Group, a business performance consultancy in Zurich, Switzerland.
Another complicating factor: Most service providers have their own project management methodologies and approaches. As a result, all team members—external and internal—must come to an agreement to align tools, templates and required methodology steps.
When projects are run according to specific methodologies, it can be challenging to drive each provider to work within a common framework for reporting and project management evaluation, says Cynthia Batty, West New York, New Jersey, USA-based director at ISG (Information Services Group), a technology and market intelligence advisory firm. “It's hard to do an earned value analysis if every provider calculates their project in a different way.”
—Francis Pang, Dimension Data, Hong Kong
ORGANIZATIONS THAT EXCEL IN MULTISOURCING HAVE:
Seamlessly integrated all providers
Aligned all parties behind one goal
Developed an agile sourcing environment
Achieved business impact through targeted IT spending
GET IT IN WRITING
Detailed service and operating level agreements help define boundaries, which is key for a successful multisourcing strategy. Have one for each supplier, and cover areas such as response time and penalties for late deployment dates, suggests Luis Silva Santisteban, Miami, Florida, USA-based senior manager for outsourcing services at Capgemini, an IT and outsourcing consulting company.
“Service and operating level agreements help the project manager to regularly monitor and assess the performance of the service provider and to take appropriate steps to adjust insufficient performance levels,” Mr. Schonenbach says.
Multisourcing can only thrive in a culture of mutual trust among all stakeholders. While the responsibility to foster such an environment should lie with the project manager, he says, an organization should define proper escalation procedures when expectations are not being met.
Professionals in charge of outsourcing processes must mitigate the risk of vendor in-fighting.
“It would be easy to say we just need stronger contracts and contract compliance to combat this situation, but in my view this is not sustainable,” says Laurence Lock Lee, PhD, cofounder and partner at Optimice, a business relationship consultancy in Sydney, Australia.
When it comes down to it, service providers don't really like to work together, Ms. Batty says. “Even though they say they're comfortable working in a multi-provider model, they don't cooperate as nicely as they tell the client they will, and this is where strong governance and project management help the client maintain order and control.”
[IN ACTION]
CONNECTING GLOBAL SUPPLIERS
To reduce errors from manual input, an automaker launched a project to standardize the exchange of data with its dealers in Brazil. The data included vehicle, part and accessories orders and warranty information. The existing data exchanges were not robust, causing errors and lost information, leading to poor order quality, returns, higher costs and low customer satisfaction ratings.
Complicating matters was the fact that each organization had its own system, and there were multiple system providers in each country. The new solution was to be designed to work with the existing eight data management system providers. The project also involved more than 400 dealers, multiple IT suppliers, a supplier for backend integration and a local telecommunications supplier.
Capgemini acted as the systems integrator for the project, planning work by having six weekly preparation meetings to identify key stakeholders, processes, data elements, applications, servers and integration points.
After gathering this information, the organization created a governance model in a two-day workshop in Brazil for key stakeholders. Attendees reviewed the project schedule, its dependencies and escalation plans.
Capgemini led the multisourced team to confirm business requirements and create a basis for working in a collaborative environment. Technical teams approved the IT architecture and determined tasks, documenting key agreements and developing the list of gaps to be closed. The organization coordinated meetings with personnel from the United States, Brazil, Germany and India, using different collaboration tools for sharing presentations and communicating.
The efforts encouraged teamwork across suppliers to deliver a quality project, says Luis Silva Santisteban, Capgemini, Miami, Florida, USA.
THOSE THAT LACK THE RIGHT COMPETENCIES ARE MORE LIKELY TO EXPERIENCE MULTISOURCING INEFFICIENCIES CAUSED BY:
Misalignment
Idle resources
Unnecessary processes
Overloaded operations
A heavy inventory
A lack of focus
Source: Gartner
39 percent
of CIOs expect to increase their dependence on multisourcing in the next 12 months.
Multisourcing Market Share
36 percent
of CIOs view managing strategic relationships with third-party suppliers as a key skill, up from 24 percent the year before.
Source: Harvey Nash CIO Survey 2011: A New Age of Innovation?
[IN ACTION]
NOT READY FOR CHANGE
On a project to implement a robust reporting system across its offices in Europe, North America and Asia, a financial institution found itself without support from the developer.
Executives chose to fast-track the initiative, setting its close date by the end of the year—six months' time, compared with the eight it would usually take.
A provider with locations in India was selected, and Trestle Group came in to manage the project, which involved four different organizations.
The first step was to create a governance structure that established clearly defined chains of responsibility with proper measurement and control mechanisms. Then the initiative's leaders established a project management function. All four organizations signed off on the governance structure and project plan.
The idea was to motivate all parties to implement the software jointly. But several months into the project, teams were not working well together. Resourcing issues led to a number of escalations, when it was realized that the organizations involved had outsourced activities for which they had committed internal resources.
To address the issues, a two-day offsite workshop was conducted with senior management and the team leads to evaluate areas for improvement.
“After the first day, it was clear that change management was not properly incorporated into the planning,” says Ralph Schonenbach, Trestle Group, Zurich, Switzerland. “Due to different cultures being involved both geographically and within the organizations, there were misunderstandings. Continental Europe was particularly challenging because of the local languages and sourcing maturity of the organization.”
On the second day, the agenda was adapted to incorporate relationship-building activities. By the end, the teams had a better understanding of how to communicate with each other and work together, Mr. Schonenbach says.
At the next key performance indicators (KPI) review a month later, improvements were apparent. “The teams were more enthusiastic and were able to resolve issues more efficiently,” he says.
A following phase of the project required significant input from the sponsor. As weeks passed, though, meetings were missed and necessary data was not provided to the implementation teams, including reporting requirements.
“These requests were critical to the project, as they defined all further development efforts,” Mr. Schonenbach says. “The project required more focus from internal senior management.”
He conducted a workshop, which led to the following actions:
1. The CIO sent a note to the heads of all departments affected by the implementation, emphasizing the importance of the project, and requested their involvement to distribute the communication to appropriate reports and team members, and to review KPIs going forward.
2. Internal meetings took place with key stakeholders to understand delays.
3. A monthly steering meeting was established to review KPIs and address any roadblocks.
After several months, the project was on track, and the critical phase of the initiative was complete.
Mr. Schonenbach offers these lessons learned:
■ Establish a joint governance and escalation process understood by all parties.
■ Incorporate necessary change management activities early in the project.
■ Involve senior management as soon as possible, reporting progress and any issues frequently.
HIERARCHAL TYPES
Some organizations are creating a defined and controllable hierarchy among vendors working together on a project—and making the relationships transparent.
“On the back of the complexities, travails and unforeseen costs that often come with managing multiple suppliers, many organizations are turning to a main, trusted supplier to implement and manage control over their portfolio of service providers,” says Jens Butler. He's a Sydney, Australia-based principal analyst of IT services for Asia Pacific at Ovum, a telecom and IT consulting firm.
Appointing one provider to act as a “prime” vendor points to consolidation of control, he says, as organizations demand that suppliers cooperate in a more consistent fashion.
The burden of making it all work rests with the client organization's governance team—and true collaboration ends up being as much personality-driven as it is process-and governance-driven, she says.
Once a project team is in place, sponsors should meet with the project manager to come to a clear agreement on the process designed for allocating work among providers in a fair and equitable fashion, Dr. Lee says. “They need to ensure that each vendor is clear and accepting of the process, along with any conflict-resolution processes as well.”
The next step is to create an environment where team members fully understand that for the period of their engagement, their individual priority is to the project.
“Early activities on the project should be designed to engage vendors working together to help build levels of trust within the team,” Dr. Lee says.
Those efforts will pay off when inevitable project pressures emerge down the line.
“Vendors need to be made aware of penalties for removing their staff from a project prior to completion because of the disruption to the trust networks being built up within the project team,” he says.
MULTIPLE VENDORS, MULTIPLE RISKS?
In some circles, multisourcing has a reputation for increasing risk—but that's a misconception, Mr. Silva Santisteban contends. “Multisourcing actually reduces risk,” he says.
With a single-supplier scenario, an organization can find itself with cost overruns and delays mid-project, with nowhere to turn for help, Mr. Silva Santisteban explains.
But with multisourcing, a megaproject can be divided up so that various suppliers perform in their area of expertise.
To further reduce risk, assign each supplier its own key performance indicators (KPIs) and be sure there's a KPI for teamwork and collaboration, he suggests.
Truly harness the benefits of multisourcing by holding vendors to their KPIs. “Make providers compete and reward the top performers with more work,” Mr. Silva Santisteban says. PM