Multisourcing

Multisourcing is the disciplined provisioning and blending of business and IT services from the optimal set of internal and external providers in the pursuit of business goals.^[1] The nature of engaging with multiple providers with a variety of service capabilities and delivery competencies is also known as multisourcing.^[2] It is also defined as a strategy that treats a given function, such as IT, as a portfolio of activities, some of which should be outsourced and others of which should be performed by internal staff.^[3]

Multisourcing, as a term, was first introduced by the market/technology research firm Gartner in 2005. Although it was recently defined, multisourcing has been practiced in the market since competitors started to produce alternatives to IBM’s datacenter products in the late 80’s.^[4] Today there’s strong focus on multisourcing as a concept, it has been covered widely by research firms like Forrester Research and Gartner.^[5]

Different multisourcing arrangements are characterized by the different breadth and depth of supply relationships that constitute a supply base. The supply base is a set of contracts between a supplier and their clients that are managed by the sourcing firm for a business at a given time. The breadth of the supply base indicates the number of suppliers a firm is using. The depth of a supply chain depicts the client's level of investment in the project for a given function.^[6]

Multisourcing Models

Prime Contractor Model

The prime contractor model involves many suppliers being headed by a single prime contractor who takes responsibility and carries out the client's objectives and goals.^[7] It is very important to note that in this model, the client does not give up control of the operation to the prime contractor, instead there is a shared understanding of the needs and goals of the business, so the client and contractor work on achieving them together. This model is extremely useful when a client doesn't want to limit himself to all the services being provided by one supplier and the same time, wants to delegate the work so he doesn't carry the burden all by himself. This model is also beneficial because it brings a new set of eyes when it comes to evaluating how the suppliers work and whether they are meeting the intended targets or not.

Client Model

In this model, the client selects multiple outsourcing partners based on their perceived core competencies.^[8] In this model, the client alone has complete control and oversees the work his suppliers do. His job is to find the suppliers that would work well under the company's culture and values and ensure that they all deliver the standard that is required of them. This is the more common multisourcing model because one of the main reasons companies choose to change to a multisourcing is because they can control and directly interact with suppliers and not delegate the work to others.

The Change to Multisourcing

Why pick multisourcing?

Lots of company's are currently moving away from the traditional outsourcing model and towards the multisourcing model because firstly, clients are starting to perform traditionally outsourced activities themselves, especially those that are essential to their business plan or strategy. Clients are also starting to look at suppliers that could provide them with their specific needs, something that wasn't available in the outsourcing process. Companies want services that are tailored to their needs and under the multisourcing process, this need is met. Also, clients are moving away from traditional contracts and engagement models in favour of more flexible alternatives.^[9] This setup ensures a more competitive landscape which helps the client's desire to maintain a level of competition between vendors to ensure the quality of service and a competitive price.^[10]

This environment created where everyone in the industry is striving to be the best gives the client's the chance to pick the best of the breed. They have a variety of options and with everyone operating at a high level, companies are presented with the opportunity of picking the best in the business. One final reason as to why the outsourcing process is being left behind is largely due to their inability to keep pace with the changing business environment and the evolving expectations from IT.^[11]

How to make it work

Given the nature of the multisourcing model, clients and suppliers have to create the right environment to ensure that this model works. Firstly, the sourcing strategy needs to become coequal with other parts of strategy planning, like operations strategy and IT strategy, rather than an afterthought. The proper sequence of strategy development requires that sourcing strategies be set as a direct outflow of business strategy.^[12] It is essential that companies have workshops with the goal of breaking down the agreements they have with their suppliers to the most basic level to ensure that everyone understands their role and the quality of work that is required of them. By breaking down activities at this granular level, providers can collectively agree on how each shared process will work and how they will engage with each other, clarifying their accountability. In these workshops, providers are taken through business scenarios to confirm details like method, data content and timescales for each cross-provider interaction. The outputs of these workshops are operational level agreements (OLAs)^[13] which are signed and agreed upon by all providers to maximize performances and ensure that everyone is aware of the requirements of their job.

Changes to the workplace

Once companies implement this system, employees will have some extra responsibilities they might have not have had before. Employees will have to focus on demand management competencies. This means being out there with the business, constantly looking at what they are going to need, how much they are going to need and how fast they are going to need it.^[14] In the outsourcing model, one supplier handled all aspects and needs of the clients. The company was confined and had to choose one provider to do all the different areas of the work even though they may have not been the best when it came to fulfilling these requirements. Now that company's have many suppliers, they have to make sure that the provider is doing exactly what they need and they have to keep an eye for future providers that could replace current ones or provide them with an entirely new service altogether.

Advantages

There are many advantages when it comes to using multisourcing. First of all, moving suppliers is quicker and easier, if something isn't working, and doesn't seem likely to work, you don't have to render the whole service but just a small part of it.^[15] This is extremely effective because clients are no longer tied down by the fact that one supplier deals with all their needs. This leads to another point which is that companies are keen on reducing their dependence on sole suppliers for longer periods of time driven by 10-15 year contract terms, thereby giving them the flexibility to align their products/services much faster and in-line with end-customer demands.^[16] This flexibility makes sure that companies always have the option of improving upon what they already have. It ensures that suppliers are always working to their maximum potential to fulfil their clients needs and gives the clients more options.

Another advantage for clients is that in this model they have a higher chance of dealing with experts in every field. That direct contact allows them to better understand the client's needs and goals and so helps them to better meet those goals. From the client side they have the feedback of experts.^[17] Working with the best in each field increase the quality of the product/service provided and also raises the work standard of all of those involved in the process.

When a company uses the multisourcing model for a prolonged period of time, they gain experience about different suppliers and their competitors. They extend their advantage as they compile comparisons between internal-service organisations and third-party providers - skilfully initiating competition between providers to drive the best prices and service quality.^[18] Again, through the experience a company gains of working with many service providers, they'll be able to narrow down the best of the bunch and work with them directly to produce the highest quality product/service.

Disadvantages

With this system in place, problems are bound to occur. First of all, many suppliers will be wary that their clients are in business with many companies in the same sector. These companies will have to work together due to the fact that the client has them both as suppliers and this may lead to some suppliers becoming wary of sharing their ideas and plans with companies in the same sector. Another major setback that could occur is that if a gap occurs, the customer must pick up any activities that are not clearly in-scope for the suppliers, or pay more to a supplier to do so. Oversights may not always be evident until a problem arises. Responsibilities also tend to be duplicated within one organisation and across suppliers in multi-sourcing environments, which can result in service delivery missteps and increased costs to the customer who is paying multiple suppliers to perform the same task.^[19]

Another major fear that companies have when it comes to using multisourcing is that the customer often cannot state which supplier is ultimately responsible for a given failure, or cannot prove it to a sufficient standard to enable the customer to enforce its rights and remedies under the contract. This dynamic increases the risk that suppliers will seek to excuse their non-performance (including service level failures) on the basis that another supplier's failure was the root cause.^[19] As stated, customers will deal with a wide array of suppliers so it will be difficult to tell which are at fault for particular problems. There will always be an element of risk when a company decides to expand and work with many others.

References