Multi-sourcing hampers efficiency, study warns

Multi-sourcing can stall efficiency, according to PA Consulting

New research by PA Consulting warns that the growing trend for corporates to outsource work to multiple service providers can have a number of pitfalls.

The survey – which polled more than 100 respondents including end-users, service providers and lawyers of large firms in the UK, US, Sweden, Norway, the Netherlands, Denmark and Germany – suggests that attempts to spread risk and cut costs by awarding work to various suppliers can lead to integration problems and hinder innovation.

According to PA, there is a strong trend towards multi-source outsourcing contracts, with almost three-quarters of businesses polled intending to move in that direction. However, PA warns that many of these businesses lack the necessary in-house resources to manage multiple outsourcing relationships, with only 16 per cent of the respondents saying they have a mature governance model for outsourced agreements.

“If organisations cannot effectively manage a single supplier, there are very real questions to be asked about their ability to define multiple distinct contracts and manage integration between suppliers,” said the report.

Increasing pressure to keep spending down is also taking its toll on innovation. PA said that “unfeasibly tight” procurement and implementation deadlines meant that only a third of the outsourcing deals covered by its survey were delivering some kind of IT innovation.

“Service providers are increasingly pushing innovation as a differentiator in this market, but these organisations are not explicit in how that innovation will translate into the customer’s business situation,” said the PA report.

“However, the lack of innovation realisation is not entirely the fault of the provider – there is a clear disconnect between customer and supplier objectives that is causing problems. Many organisations are very unclear about what is meant by innovation,” it said.

The collapse of Indian IT services company Satyam earlier this year provided greater impetus for firms to explore multi-sourcing. In the wake of the scandal, Deloitte consultant Neville Howard advised IT decision-makers to take an extra careful and measured approach to outsourcing and reassess the extent to which their companies put all their eggs in one basket.

The ideal approach, he said, was to take a multivendor approach and spread risk across more than two suppliers, as well as demanding very strict framework contracts.

“Because of the latest developments in the market, restructuring contracts will be on CIOs’ minds, which is not a bad thing after all – it is more like a wake-up call to risks involved in that sort of relationship,” he told Computing in January.