Making the multi vendor sourcing successful

Organizations which adopted outsourcing during their early days mostly ended up moving into fully outsourced, single vendor model. Traditionally most of the contracts that likes of IBM and Accenture signed were single sourced contracts. They still continue to hunt and close on first generation outsourcing account as these accounts typically give them more autonomy and price advantage during initial years till they embark on cost rationalization journey. However, over years the clients face a challenge around agility and investments from such long drawn contracts specially if partner incentives are not aligned to enable business growth.

Fully outsourced model often needs a true partnership model, where partner is invested and focuses on maintaining the technical landscape for the business benefit. However, in more cases than not the long standing contracts may lead to depleting cost advantage or vendors becoming complacent with their services, there by effecting the IT health and agility. Second generation outsourcing is often meant to introduce healthy competition, bring down cost and enable infusion of capability specific sourcing strategy. While this sounds easy, it is not so simple to introduce vendors into strong incumbency environment. The change in sourcing strategy often requires enabling the change through in sourcing some key capabilities like: architecture, vendor management function which assures fair and equitable play and investment and incentives for new vendors to gain knowledge and insights into existing systems.

Some of the key factors to consider to assure that your investments in multi sourcing strategy yield the desired result during the transition phase:

• Ensure fair and equitable volume business to vendors to keep them invested and help them grow
• Identify strong competency areas for vendors and introduce them into the IT landscape through small and medium sized projects in less risky areas
• Carve out business areas with mutually exclusive business interest for vendors to assure smooth support in services. Eg: Operations vendor might not be allowed to bid for new apps hence it will have incentive to grow in operations
• Create a strong project/ programme management layer which is tasked with assuring smooth running of project and resolving vendor conflicts
• Monitor the vendor portfolio growth and performance against incumbent

Transition from fully outsourced model to multi vendor model could be an easy track to failure if change is not enabled with leadership rigour, in house capability, enabled change champions and fair and equitable battle ground for the incoming vendors. In case you have been feeling the need for de risking your IT portfolio and you look forward to bring in more partners, you might want to gear up with some key get rights first to assure smooth move.
 

Vested Outsourcing - Taking IT eco system from cost centric viewpoint to business differentiation

Sourcing strategy is one of the core elements that have taken CFO's attention world wide.
Reason?
"One of the bigger and easier cost heads to target"
Number?
"Almost 2-5% of revenue goes in IT spend for for all industries world wide. Infact smaller you are, higher could be your spend and with new digital world, this could be the larger element of your cost."

Well, should this continue? That's a debate we get in today. In the new digital economy, technology is not just a support system, or a must have survival feel good factor to run business competitively, it is increasingly coming at the core of business model for some organizations or becoming one of the key differentiators. The axing of the rising tree by cost cutting might not mean so much value to your business unless there is some real thought that has gone behind its relevance. The once non core elements could have moved to the core element of your strategy with digital being at the heart of your next gen survival.

Sourcing world realizes the importance of vested partnership being at the heart of sourcing strategy in coming time. For most of the organizations technology now forms a large part of their business performance. Some of them being : time to market, customer experience lifecycle or a completely new sales channel driven by technology. Companies like dell, microsoft, apple have increasingly proven that an effective and real time digital eco system can help organizations bring on efficiency and scale which becomes central to their differentiation strategy. Organizations who realize the relevance of this paradigm shift are no more looking at cost or labour arbitrage as the only driving factor for outsourcing, instead they are looking for partners who can understand their business, jointly invest and help them exploit the benefits of digital eco system to advance their motive. To maintain the momentum and interest, the risk and reward of the two organizations entering such setup are fairly discussed and balanced that enables both organizations to grow and thrive in their business. Such outsourcing contracts create a framework for performance and outcome, giving full autonomy to the vendor fairly compensating for high performance with additional business or performance payout in short run in lieu of long term business improvement.

Five principles of Vested Outsourcing (source: University of Tennesse)

 

 

University of Tennessee came up with the concept of vested outsourcing; this has been successfully tried and adopted by some world class organizations like Mc Donalds, P&G and Microsoft to enter into a mutually beneficial relationship with their supply side partners.
The contract framework around risk and reward incentivization that equitably puts right incentives for both partners to create a joint eco system to drive mutual growth lies at the heart of the same.

Incase you are tired of:

• cost driven sourcing which does not add business value 
• being constantly nudged by business to create technical innovation capability
• inability to retain and create the best capability for core part of technical skills due to lower volume and lack of career path

You might want to stop wasting your effort in re inventing the wheel, and start looking for solution on your cost beaten partners. Help them earn through efficiency drives and eco system value addition and not through cost quality trade off.

Get IN- Vested in your partners.