The proliferation of IT and the multi-sourcing trend continues to reach new benchmarks. The multi-faceted benefits of outsourcing, from enabling IT agility and lowering fixed costs, are the cornerstone of many progressive business strategies.
The acceleration to source-out IT has peaked, insomuch, that the government – which has historically been resilient to business trends coming from the private sector – is leading the charge. Counter to widespread belief, government spending on outsourcing outstrips that of the private sector, according to an ISG study. The study showed that the openness of the government to look to a third-party, external provider to handle part or all of a business process, was occurring at high frequencies in an attempt to offload business functions to specialists companies. So why is multisourcing the new wave, and fast becoming one of the hottest IT outsourcing trends for businesses of all sizes?
What has transpired is telling. Both government and privatized companies, who are looking to expand their functionalities and core proficiencies through multi-vendor environments, are adopting a multi-sourcing model. The old adage of “go big or go home,” is no longer the standard. Smaller and niche-based outsourced companies are becoming big winners, as mega-companies like Google, are looking to smaller providers to cannibalize revenue by helping them deliver on multiple fronts: such as leveraging economies of scale and incentivizing them to reach SLA-specified targets. Procured service levels now are intertwined with accountability and transparency and if markers are not met, a company will go elsewhere.
Another shift to “smallness” in the outsourcing IT equation is the shift to smaller-sized, short-term contracts. The study underscores the widespread adoption for companies to source-out to a multitude of third-party vendors, who are specializing in niche markets. This is what insiders have termed is a “best-of-breeds” tilt that is geared to exploit market trends and optimize performance. This methodology can better service levels and bring distinctive benefits to any-sized organization. One of the advantages in not depending on one lone organization to do the lion share of your work is so you can safeguard your ability to control your business. Handing-off a business to a third party vendor, while it can be incredibly advantageous can result in a decentralized management platform, which undermines stakeholders’ ability to stamp their authority at all points of business decision-making.
Why has multi-sourcing become one of the most viable IT outsourcing trends?
- To realize efficiencies by commoditizing vendor-procured services and products, adding that to your portfolio and buying at scale
- To optimize procured services at enterprise-grade levels and deliver them to any spectrum of your environment
- To deliver innovation-rich technologies and ideas through diverse outlets
- To fulfill customer requirements
As part of a new wave of IT outsourcing trends, multisourcing has unique characteristics and one of them is a preference for smallness. The shift toward looking to smaller managed IT service providers, over larger ones such as IBM and Cisco, to onboard clients now compromises 70% of all contracting activities. This move away from bigger firms underscores the preferred personalized and tailor-made care that clients want. When it comes to big companies, common notions that clients get “lost-in-the-shuffle” or are “just a number” are widely disseminated in SMB circles.
Besides this paradigm shift, where big companies are looking to small-to-medium-sized business for help, there are other developments that are coming to fruition. According to the study, there are different models and cultural variables that are either accelerating or slowing-down the development of outsourcing. For example, in the early 2010s, many companies were looking for offshore outsourcing, particularly eyeing the Indian market to help them navigate and support offshore operations. Companies are now realizing that they can localize their outsourcing and diversify their footprint. This will potentially close-off the cultural and communicative gap that exists when you outsource a company to foreign countries.
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While multi-sourcing has trended and taken-off with both large scale organizations and SMBs, it also has some drawbacks that need to be addressed. One of them, according to the study, is that a crisis in responsibilities emerges. With multiple general managers, in different departments, who is running the game? There is a blurred delineation of responsibilities because if there is a dip in the quality of service by an external vendor, then the issue of accountability may become a concern. Is it Vendor A’s fault? Or was Vendor B supposed to take care of that responsibility.
Another management challenge in a multi-sourcing framework is that there is usually a lack of vendor collaboration. It is often difficult for vendors to cooperate, when they have perhaps different goals, different visions and different management styles. This is why the organizations that are multi-sourcing must ensure that all parties are on the same page and that all parties are familiar with how they each of them run their show. They must integrate services, by consolidating and coordinating, to ensure that their end-to-end service meets their business goals.
When it comes to contracting issues, there may be some confusion. This often boils down to contract to legal language. The industry-best practices are always is fluid and growing. This means that incomplete service level agreements (SLAs) can become problematic in a multi-sourcing model because the game is constantly progressing and being redefined. Will the SLA be flexible and open to growth? This is one of the ways that you can address this problem. Another problematic point in the multi-sourcing structure is inconsistently managed, as the organization fails to take responsibility for the sourcing-out portfolio to multiple governance streams, this can result in daily organization issues.
Fidelity IT Solutions provides IT support and IT management to small to medium sized businesses. Information technology is always changing, and we will help companies foster innovation, enable transformation, meet time-to-market targets and automate workflow.