Corporates struggle with multi-sourcing management

Research suggests companies could do better in the planning and control of outsourcing

Many UK firms are ill equipped to manage multiple IT outsourcing relationships, despite analysts’ recent claims that such multi-sourcing can deliver significant business benefits.

That is the conclusion from survey results released yesterday (15 August) by sourcing advisory firm Orbys Consulting. Its research found 41 percent of large companies had no formal multi-sourcing framework in place to define the interfaces between different suppliers.

The survey was confined to organisations with sales of over £100m in mature sectors such as financial services, manufacturing and retail. Most of the 82 firms surveyed had four or more outsourcing relationships, suggesting that a multi-sourcing strategy would be beneficial.

Simon Lindley, principal consultant at Orbys, said the findings showed many firms are still lax at planning their outsourcing relationships - a problem he argued would cause more problems as the trend for using multiple outsourcing partners grows.

"The main finding of the research was that firms are getting better at implementing outsourcing contracts, but they are still not dedicating enough time and resources to the planning and management stage of an outsourcing relationship," Lindley said. "If services are provided by three or four suppliers, planning becomes even more important as you need to manage how these different parties work together and where the operational risks fall."

Lindley added that firms need to package outsourcing deals carefully to ensure there is no overlap between different suppliers and they should include terms in outsourcing contracts to govern how suppliers interact and where responsibilities are demarcated. Failure to do so can lead to tension between different outsourcing partners and increase the risk of project failure, Lindley said.

However, Orbys maintained that firms could still gain significant benefits from selecting a number of best-of-breed service providers. "Some of the suppliers of single mega-deals have proved to be quite inflexible," said Lindley. "And there is also a procurement angle whereby multi-sourcing introduces some competitive tension into outsourcing relationships that can improve [service providers’] performance."