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Multisourcing: The New Global Trend
Eric Harris
Ram Garg
Changing the Outsourcing Game
The New Global Trend:
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.Gartner
Getting Work
Done
Strategic
Sourcing
Outsourcing In-sourcing- Local
- Nearshore
- Offshore
Multisourcing
Smart
Sourcing
In-house vs. Outsource
• Is it a core, revenue-generating function of
the business?
• What does it cost? Fixed vs. Variable cost.
• Do I currently have the capability/expertise to
do it effectively and efficiently in-house?
• Availability of resources ?
• How long to build capability?
• Right-sizing, scalability, flexibility important?
• Does Your Company Leverage outsource
partners?
– Yes
– No
• Has it worked well consistently?
– Yes
– No
Why Outsource?
• Cut Costs
• Cost Restructuring, Operating Leverage
• Staffing and/or Capacity Issues
• Operational Expertise
• Desire to focus on core Revenue-generating functions
• Flexibility (Flex and Contract)
• Reduce time to market
• Etc.
The Business Context of Outsourcing
• ‘The issue is that if you don’t do it, you won’t survive’ – Daniel Marovitz, COO for
Technology, Deutsche Bank
• ‘Some financial institutions realized that they were becoming technology entities
as well as banks, which is not always desirable.’
• ‘IT can consume 10% to 15% of the revenues across large firms. That's a big
chunk.’
• HSBC decided to outsource mainly because the need to constantly improve
technology was becoming difficult for the bank.
• "We wanted better service quality than what we had, and more agility to respond
quickly to changes in the market," Lars Gustavsson, Group Chief Information
Officer, ABN Amro
• Outsourcing its tech and back-office functions has proved such a successful move
for IndyMac Bancorp that its ranking among the largest U.S. mortgage lenders has
soared from No. 22 to No. 9 in just three years.
What was your company’s major
reason for outsourcing?
Outsourcing Growth Continues
Unabated
Despite a maturing outsource industry
and constant improvements in
infrastructure, every year countless
software projects either outright fail or
experience massive cost and schedule
overruns, costing companies millions
if not billions of dollars.
Why is this happening?
Why is this happening?
• Sloppy, ad-hoc, ―Compulsive Outsourcing‖
– Only about ―cutting cost‖. Vendor selection primarily based on low-cost provider
– Bad processes with a ―take our mess for less attitude‖
– Do it because competitors are doing it
– Random mandate with no vendor mgmt strategy
– No ―partnering‖ strategy
– No outsource project management capabilities
Challenges in Current
Environments
• Generalists are not good enough …
• Building in-house teams is expensive
• Building infrastructure and process
capability is expensive and time
consuming
• Frequent surprises are common
The New Global Trend:
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.Gartner
Multisourcing …
• Leverages multiple best-of-breed specialist teams
• Uses a combination of internal teams and outsource partners
• Leverages specialized teams that are expert in and focus on a single function
• Focus on delivering real value by improving business processes and/or functions
• Is Partner-centric as opposed to vendor-centric
A multisourcing strategy should deliver enhanced
value and an overall competitive advantage through
improved return-on-investment, product quality, and
time-to-market.
―The mega-outsourcing deals of the
past rarely delivered innovation and
significant service improvements.
Smart CIOs today are selecting
world-leading specialist suppliers to
derive the most from their
outsourcing relationships.‖- Someone
Outsourcing vs. Multisourcing
Outsourcing Actions
Ad hoc/reactionary
Tactical event
Problem-focused
Reactive, compulsive
Situational reaction
Separated
Managed metrics
"Supplier" relationship
Command and control
Multisourcing Disciplines
Strategic and repeatable
Studied, operating model
Outcome-focused
Predictive, monitored, measured
Comprehensive and disciplined
Integrated
Governed outcome
"Partner" relationship
Trust and control
Advantages of Multisourcing
• Ability to leverage industry best practices
• Significant improvements to both quality and cost
• Better diagnosis of problems and more comprehensive solutions
• Higher quality, better trained, more stable teams. Specialists
• Better visibility into real project status information
• No conflict of interests between functions and better visibility into real project status
A strategy for Innovation and Continuous Process Improvement, as opposed to
focusing strictly on cost and maintaining a status quo
Transformation
Enhancement
Base
Customer Outsource Provider
• Efficiency and Predictability • Optimum value at acompetitive price
• Preferential partner status
• Competitive advantage
• Enhanced revenue
• Premier or exclusive
partner status
• Continuous optimization
• Competitive parity
or advantage
• Preferred
partner status
• Predictable, recurring
revenue
• Predictable profitable
engagements
• Extend relationship
• Brand enhancement
• Business expansion
and revenue growth
• Profits commensurate
with value delivered
• Revenue and profitenhancement
• Referenceable engagement• Repeatable knowledge• Extend relationship
Transition from Vendor to Partner
Contractual
Management
Dominates
Relationship
Management
Dominates
Utility
Relationship Impact
Business
Value
Key:
= Relationship Management
= Contractual Management
= The Partnership
TheContract
Enhancement
TheContract
Transformation
TheContract
Contract vs. Relationship
Making It Work …
Multisourcing Challenges …
• A new mind-set and frameworks for– Communicating
– Coordinating
– Integrating
• Managing multiple partner relationships– both inside and outside the organization.
• Existing Outsourcing framework does not necessarily support multisourcing requirements– Contract focused?
• Availability of specialist partners
Multisourcing – Critical Success Factors
You must have a strategy.
Multisourcing governance is the single most important
factor in determining success.
Multisourcing is built on a network of relationships — not
transactions.
Multisourcing requires creating measurements that matter.
Complexity increases. If you can’t measure it you can’t manage it
End-to-End process management for communication and
coordination
Making Multisourcing Work ..
• A well-defined engagement model that clearly delineates responsibilities, expectations, and measures of success.
• Near real-time end-to-end process visibility with dependencies between upstream and downstream partners well understood
• A well-defined measurement system that defines Key Performance Indicators (KPIs) and considers both output and in-process measures.
• A well-defined management review and feedback mechanism to assure effective governance
Business
Requirements
Members, as Required
Leadership, Senior Managers
CommunicationCoordinationIntegration
Results
Value
Service Providers
IS TechnicalBusiness
CFOISBusiness
Multisourcing requires a new mind-set and frameworks for
Communicating with, coordinating, and integrating
deliverables from multiple partner relationships both
inside and outside the organization
Value Stream Mapping as a Foundation
Efficiency Metrics Current Target Efficiency Metrics Current Target
Margin ## ## Metric 1
Metric 2 Metric 2
Metric 3 Metric 3
Metric 4 Metric 4
Effectiveness Metrics Current Target Effectiveness Metrics Current Target
Metric 1 Metric 1
Metric 2 Metric 2
Metric 3 Metric 3
Metric 4 Metric 4
Business (VOB) Customer (VOC)
Peak Demand =Annual Sales =
Efficiency Current Efficiency Current Efficiency Current Efficiency Current Efficiency Current Efficiency Current Efficiency Current
Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ##
Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2
Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3
Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current
Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ###
Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2
Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3
DiscoveryProcess Owner: Smith
Description: High Level
(V
OP
)
Post LaunchProcess Owner: Smith
Description: Post Launch
Review
Stage 3Process Owner: Smith
Description: Development
Stage 4Process Owner: Smith
Description: Testing and
Validation
Stage 5Process Owner: Smith
Description: Full Production and
Launch
Stage 1Process Owner: Smith
Description: Preliminary
Investigation / Scoping
Stage 2Process Owner: Smith
Description: Build business case
/ detailed investigation
Coordination, Communication, Integration
Communication
Coordination
Integration
Copyright © 2002
Non-negotiable …
• Clearly defined roles and responsibilities
• Clearly defined interfaces between the parties
• Clearly defined overall and per service provider objectives
• Clear definition of service providers stake in the process
• Clearly defined metrics and scorecards that objectively gauge progress and success
What does the future hold?
CIO
Governance and Process Management
Core Functions and Activities
Integrator / Prime Contractor
Specialist Service Providers
Se
rvic
e L
eve
l Ag
ree
me
nts
Co
mm
un
ica
tio
n P
lan
sC
on
tra
cts
Incentives/g
ain
sharing
Sco
recard
s a
nd
Man
ag
em
en
t
Dash
bo
ard
Process Infrastructure, metrics, measurement systems, etc
An Example Where a Multisourcing Strategy
Pays Dividends
Software Performance Assurance
(SPA)
Software Projects are Challenging …• Software product development is complex and
entails many Risks
• Has not caught up with other processes with respect
to process capability and management
– Variation
– Waste and complexity
• Defects are painful and can be very expensive
– Direct Cost
– Revenue Risk
– Market risk
• Quality resources are expensive and in short supply
• Projects routinely suffer from significant schedule and
budget slippage
More than half of software projects fail to
meet objectives and suffer significant
schedule and budget slippage because of
defects, the most significant being those
defects discovered late and/or post-
production!
Studies have shown that it can cost 50 times
more to correct a defect discovered post-
release than it does if that defect is
discovered during earlier stages.
Clearly, effective software testing and verification
should be a priority.
Why do companies continue to miss delivery
schedules, overrun budgets, and release defect
ridden software that requires countless rework
loops to get even close to acceptable performance?
In-house
• Testing and verification function not viewed as strategic or core. Design/development focused
• High cost of onshore resources constrains ability to build QA team
• Lack of specialized personnel, processes, infrastructure, tools, etc
• Takes too long to build team and infrastructure
Outsource
• Lack of reliable status info from single outsource partner
• Generalist partners that do not have sufficient expertise in all aspects
• Status Quo, little or no process improvement or innovation
Some Reasons …
How SPA fills the void ..Focus on testing only with aligned
personnel, processes, infrastructure, and experience in place
• Allows clients to keep core design/development inhouse or leverage other specialist providers
• 100+ certified testing experts. They are specialists in software testing and verifications
• Complete inventory of best practices
• Infrastructure in place to execute a multitude of project types
• Proven, repeatable processes
• Patented technology enablers
• Experience in multisourcing environment
SPA’s Value Proposition
• Access to highly trained team of specialists
• Can build team very quickly
• Leverage an existing infrastructure and best practices
• Flexibility in team size/composition
• Flexibility in services
• Focus on communication plans
• 30+% savings over traditional outsourcing?
• Focus on long-term partnerships. Build business value
• Focus on innovation and continuous process improvement
Conclusion• Multisourcing is an innovative discipline that takes
organizations beyond "quick-fix" cost cutting to enable capability building, global expansion, increased agility and profitability, and competitive advantage. – Innovation and real business value
– Reduced Risk
– Reduced overall cost
• Multisourcing requires a new mind-set and frameworks for communicating, interacting with, and overseeing multiple partner relationships, both inside and outside the organization– End-to-End Process and Status visibility
– Partner vs. Vendor
– Strategic vs. Tactical
