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Multi-sourcing and the Balance of Power

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by Rob Chapman

Client-supplier relationships are, by their very nature, complex. Outsourcing necessitates an exchange of power and yet the priorities of the two parties are not always aligned: suppliers want to extract maximum value from tightly negotiated contracts, while clients have business objectives to achieve.

The rapid pace of technological developments in recent years has transformed the sourcing industry. In the new world order, where clients need to be able to take advantage of niche areas quickly, agility and flexibility now trump efficiency and cost and multi-vendor ecosystems proliferate.

We have reached a point where the benefits of a multi-sourced approach are clear for all to see. They provide the ability to adopt a best of breed approach, optimise costs and lower concentration risk - ultimately allowing organisations to better focus on their core business objectives.

However, we know that these ecosystems further complicate the client-supplier picture – with two or more suppliers, the exchange of power becomes a constant balancing act. It’s a balancing act that clients need to get right to garner the best results from their outsourcing strategy.

It is important for organisations to take on board the challenges faced by early adopters of multi-sourcing and to incorporate those learnings into their future strategy. Process is crucial here. Businesses often get off to a good start, undertaking an honest appraisal of their capacity, capability and need, prior to engaging suppliers. However, once an ongoing relationship has been established, due process can be pushed to one side.

I like to use the analogy of football - the tendering and contract phase is like transfer day when clubs secure their players for the next year, but once they’ve made that commitment, they need to coach the player and periodically review their performance. The value is delivered day-to-day, not just on the day the contracts are signed. What businesses must avoid is value leakage throughout the contract, when a significant investment has already been made.

That’s why it’s important to have a professional SIAM (Service Integration and Management) function. In a sense, clients are the problem – they expect to buy a solution and not have to worry about it. But suppliers need and want to be managed.

A high level of organisational maturity is required to manage the services, together with clear demarcations and defined responsibilities between all providers involved. Of course the deal itself remains important, but the management of the contract through its entire lifecycle is essential if organisations are going to reap the rewards of multi sourcing.

A SIAM function is the strong, competent voice that can find and negotiate with the right suppliers. Once contracts are in place, it allows clients to focus on their own objectives and KPIs while the ‘marriage counsellor’ supports the relationship management day-to-day. With multiple vendors, half the challenge is getting everyone to talk to each other and deal with issues in a non-partisan way, alongside the time-consuming task of managing endlessly shifting responsibilities.

At ISG, our experience of working with clients has shown that SIAM has to be an integral part of a company’s sourcing strategy. However, given the substantial increase in multi-sourcing over the last decade, there is now a real need to review how SIAM is being utilised to effectively deliver flexibility, innovation and cost efficiency.

In successful companies, SIAM is a matrix of retained and out-tasked capabilities to integrate the evolving types of services. The matrix includes a client retaining the overall accountability for the integration of services and playing a key role within the operation. Service provider staff, services and tools are leveraged as appropriate to provide some operational integration functions while various specialised 3rd party staff, services and tools are incorporated to integrate best in class capabilities.

The key to meeting the requirement of flexibility, autorotation, visibility, service orientation and cost comes down to two things. First, companies must break down service integration into the right modular components and, second, they must identify who is best to perform each component – something that will be unique for each client’s environment.

Sadly the industry suffers from a lack of agreed best practice in this area. Misconceptions about when the SIAM function is needed are rife and no common terminology exists to share learnings between organisations. However, when used correctly and professionally, SIAM delivers long term value.

The transference of power that goes hand-in-hand with outsourcing can be a daunting process. As with most strategic decisions, it poses a conundrum of known knowns, known unknowns, and unknown unknowns to organisations.

‘Will managing multiple suppliers take up too much of our internal energy? Will it lead to service problems? Will it ultimately slow us down? Are there potential pitfalls that we haven’t even considered yet? How can we plan for the unexpected?’

A professional approach to SIAM addresses each of these, utilising experience, excellent analytics and the ability to say 'no' intelligently. It simplifies multiple lines of communication to vendors, channelling them through a third party in the middle, defusing power struggles, and cuts through the vast amount of data available to modern organisations to identify the information clients need to make decisions. Further, SIAM delivery by a third party gives that breadth of data, across markets.

Most importantly, when professionalised, SIAM is flexible. This is essential in today’s fast moving marketplace and offers reassurance to clients who are embarking on multi-sourcing for the first time or have been burned by bad experiences.

Outsourcing should never be viewed as a passive process – clients need to understand and prepare to face challenges during the journey. It represents a big organisational change that needs to be managed efficiently and effectively to yield the best results. As multi-sourcing becomes the new normal, suppliers are getting better at working together. Yet, all too often, value is still being lost.

Clients need an agile sourcing ecosystem that works in the interests of their business. That is exactly what SIAM delivers – making a virtue out of service proliferation, allowing clients to focus on and prioritise their own activity, and, ultimately, achieving the right balance of power.

This article originally appeared in Professional Outsourcing Resources

About the author

Rob Chapman works with senior executives in enterprises across the UK, Ireland and the Netherlands to deliver operational and transformational plans. This includes conducting business process and IT outsourcing supplier and vendor assessments, developing target operating models and implementing of governance and sourcing strategies that underpin the business case for change. He has led significant outsourcing transactions in Banking, Insurance, and the public sector to assess and implement sourcing strategies, design shared services and deploy Service Integration and Management (SIAM) governance programs for complex multi-towered transactions.