Chief Digital Technology Officer & SVP
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10 Tips for Multisourcing Success
You can't argue the fact that multisourcing--using several internal and external (outsourced or contract-based) resources to tackle an IT initiative(s)--is a strong strategy for tapping into outstanding outside expertise and resources. It's also a proven way to increase operational performance. While the multisourcing approach has been around for quite some time, it has increased in relevancy in the last 18 months. Why? For several reasons: political stability can change quickly if you have an exclusive relationship with an offshore vendor, making what seemed like a solid choice suddenly questionable; multisourcing lends to greater flexibility and the opportunity to take advantage of fast-moving technology developments; it gives you the ability to take advantage of specialized expertise with multiple vendors; and frankly, it creates a level of healthy competition that ultimately benefits the client.
Multisourcing has also become a bit of an industry flashpoint with some arguing it's the best approach for these difficult times and others arguing it's the worst way to go because multiple vendors just can't get along. My regular blog followers know me to be more optimistic than anything and I won't disappoint here. I agree that multisourcing can be a highly effective strategy for improving IT operations, performance and results. But here's the constant catch: you have to implement and manage it correctly.
Last week, I had the opportunity to host a Webinar titled, "Multisourcing & the March to Innovation: How to Successfully Manage Multiple Outsourcing Vendors." Through the presentation and our discussion afterwards, I think the audience and I came up with an excellent set of rules for any business to consider as they take on the important challenges of managing numerous vendors. In addition, you might find interest in the Q&A section that follows this blog, referencing the useful discussion from the Webinar participants. Here they are for your benefit:
Secrets to Multisourcing Success
1. Access Your Outsourcing Savvy. Before starting any outsourcing partnership--whether multisourcing or not--it's critical that you have a strong support team in place. Companies that are novices and believe that you outsource a project and then circle back when it's finished, fail more often than not. It's important to dip your toes in the outsourcing waters and get your systems in place, before going the multisourcing route.
2. Know What You Can Handle. We've seen pressure based on the economy in last 12-18 months to offshore work. Senior management automatically says--OFFSHORE--thinking it will be the answer for financial relief. The reality is that sometimes that's not the best strategy, especially if there's a gap in the process or skills needed to make it successful. I suggest companies take a step back and do some internal analysis to determine whether outsourcing is a good fit. Even though vendors often provide their own level of expertise, there absolutely needs to be skin in the game from the client. Ask these questions: Is there someone from the management side who can manage the offshore/outsourcing effort? Is there a specific process in place to measure success and identify gaps within your organization?
3. Embrace Strategy and Standards. When you multisource, you want to make sure there is some standardization in contracts so that if you make a change between vendors, it's somewhat fluid. This might sound basic, but I have witnessed many companies spending a ridiculous amount of time managing contracts and all of their differences. There's also the complexity component that warrants standardization; it becomes complicated when you try to terminate any aspect of the multivendor solution if they are not all working from the same or similar contracts. One strategy for vendors to gain some flexibility is to couple the contract with an engagement schedule or SOW in order to include specific SLAs for a particular function.
4. Ready Your IT Organization. Make sure the entire dedicated IT team and business partners are well-educated about what's going to take place, the objectives and goals and how it will impact their work.
5. Smart Vendor Selection. Due diligence is required here. Take time to create selection standards for your business and look for vendors with long experience and highly customizable services. The concept of scalability is very important. Ask your vendor how scalable they can be--and remember, most can scale when they need to. Also, in this day and age if there's a vendor who doesn't "work well" with others, they shouldn't even be considered as an option. I know that sounds like a strong statement, but the reality is that we're all moving in the direction of having multiple players participate in providing the support necessary to successfully complete IT projects. Therefore, being able to work with other vendors is a critical component.
6. Vary the Size and Location of the Firms With Which You Work. Make sure you have the right mix in terms of the size of vendor, but also their geography. It pays to take a look at other countries that offer services as well. Doing so creates a happy balance, but also offsets an issue that has plagued offshoring: turnover.
7. Transition. One of my favorite topics. Establishing a vendor/offshoring guru, such as a "Chief Multisourcing Manager" or "Chief Outsourcing Officer," is one answer. But you're probably thinking, "Great--what we need is yet another C-level entity within an organization!" What we're really saying here is that there needs to be an executive sponsor who is going to manage and coordinate all the key stakeholders as necessary.
8. Governance and Risk Mitigation. This is very important--manage overall accounts and performance. There are many different components to that: account performance, the financials, the contracts, resource management, and both standard and customized metrics. Make sure all of this is discussed pre-contract signature―no surprises from one phase to next phase.
9. Maintain Visibility in the Relationships. Ensure that all parties involved in the multisourced relationship are in communication, creating a win-win model. The more visibility the client and vendors have with one another, the easier it is to engage in dialogue and encourage cooperation for the commonly shared goal.
10. Measure Success. This is extremely important, but also extremely difficult. How do you develop metrics that are qualitative and quantitative? What makes measurement difficult is that most organizations don't go down to that granular level to look at their own performance. This is an important process and one you must get your vendors involved in. I challenge the vendors we work with to help provide those levels of metrics and make recommendations on how to measure efficiency and productivity from the outsourced relationship. You'd be surprised how much valuable measurement your vendors are ready to deliver.
Multisourcing, like any sourcing engagement, is still a lot of work. However, managed well, it's the kind of hard work that will expand innovation, performance and results. So don't shy away. Rather, dig in and embrace the due diligence and management required.
On Tuesday, February 23, 2010, Harvey Nash's VP of Technology Solutions, Anna Frazzetto--an IT industry veteran and frequent presenter at SIMposium and HDI--hosted a Webinar for CIOs, CTOs and senior leaders of IT. During her presentation she shared how to successfully implement and manage multiple outsourcing vendors. The presentation concluded with a Q&A session, and following is a transcript of the questions and answers.
It seems multisourcing involves a lot of relationship building. Should we try to involve the multiple vendors and have them build relationships with each other?
The short answer is, yes. I think there is a certain level that you want vendors to know about each other. Relationship building does create a friendly atmosphere, yet a competitive atmosphere. There's an organization in Washington state that hosts Vendor Summits where they bring vendors together to look at how they all work together to make sure they are providing the client with the best solution. Let's face it--from a vendor perspective, everyone wants to keep their own piece of the pie in providing the service. On the flip side―as much as I'm saying relationships are important―at the end of the day, the client is king. It really does depend on how much the client wants to engage the vendors in different aspects of their business and participate at that level. So I think there's a happy medium, but it's really driven by the client.
You mentioned that if you haven't yet outsourced, you should first "dip your toe in the water" before multisourcing. Is it possible to move right into multisourcing if you haven't yet outsourced?
The decision to go directly to multisourcing if you haven't outsourced before is somewhat influenced by the size and scope of the project. Clearly, if we're talking about a 20-person operation or a 50-person operation, then I think that's a little bit of a challenge to try to bring in three vendors to manage a particular function. I think a healthier way of approaching it is to look at outsourcing as a way to provide particular services. Test a niche provider for a specific service that you need first. Then if your development needs are big enough and ongoing, you could gradually move to working with multiple companies to provide solutions.
Does geographic location matter when choosing multisourcing vendors or would you say it's better if they're all in the same country?
I do think you should look at geography when choosing vendors for a few reasons. Political stability, geographical stability in terms of natural disasters, intellectual property laws―all of these components can affect your work with these countries and consequently the work they are providing you. So, my recommendation: yes, always look at geography as a key factor in determining your mix of vendors.
What's the number one differentiator a company should consider when choosing a multisourcing vendor; and is there one characteristic all vendors should have in common for things to flow better among them?
In selecting any vendor, multisourcing or not, one of the first things you should look at is the financial stability of the organization. But there are several others that are important. The number of vendors you choose in the mix is important to keep in mind. Be careful not to get too carried away with multisourcing--meaning be careful not to pick too many vendors. Multisourcing is a good thing--but it can turn to a bad thing rather quickly if you have six or seven vendors. Gartner had some good research in regards to that about four years ago. They say you not only want best of breed, but you want to balance and cap the number of vendors you work with to three or four based on size and scope.
The organization's structure is also important. More and more I see successful models where certain components are onshore and others are offshore. You have some organizations out there that are purely offshore providers--that makes it challenging from a coordination perspective because you don't have someone onshore to work with. Transition is another aspect. How do they handle transition, overall governance and project management internally? I would try to find similarities in operations so you see minimal direct impact.
Does outsourcing automatically mean offshoring, and are there circumstances where you would recommend a local organization for outsourcing? Are there situations when proximity is more important than cost?
First of all, I think there needs to be a process that an organization goes through that really evaluates what should be kept internal and what makes sense to outsource. There are certain processes, for example a help desk, that no matter how specialized the expertise is offshore, it makes more sense to keep it local from an overall performance and productivity standpoint. That's not to say that it never makes sense to offshore these functions. I think there are creative ways to do it depending on the size or criticality. I do feel pretty passionate that on the infrastructure side of the house, it's harder to offshore different components, especially anything with high client interaction.
As far as the applications side, I think certain aspects like graphical design, architecture work, certain aspects of business analysis all make sense to offshore. If the requirements are very vanilla-cookie cutter, you can easily use the offshore service provider to bring people in from onsite to do the work. But if we're talking a complex requirement, I often recommend that you have a hybrid team. I find more and more--I would even say as much as 90% of the time--complex requirements need some level of a hybrid solution. So, to your point I don't think it's a cut and dry decision. I do agree with you. I think there are certain aspects that should be done domestically no matter what.
My question is about process improvement. A lot of vendors claim they are going to help you improve your process, but I struggle to see that actually happen. What is your take on that?
I think it depends on what particular aspect of a project is being outsourced and the setup from the beginning. From the client perspective, if you're looking to package something and throw it over the fence, it makes it difficult to be involved in the process from the vendor's perspective. On the flip side, what I often encourage is challenging the vendor by asking for references, to look at case studies, and the types of procedures and processes that have been developed for other clients to make sure what they say they can do while you're a prospect is what they'll do once you're a client. Sometimes you might get pushback from the vendor saying that they can't access those processes because of client confidentially. But there are ways of scrubbing the material so it doesn't indicate the source. I would also ask about their evergreen processes. How is project documentation turned over to you? Because everything that is created by the vendor from a process and procedure standpoint should be reviewed by you for input and feedback, but it's also a way of illustrating operational improvements that are put in place.
The biggest challenge we've seen with multisourcing is management overhead. Do you have any thoughts on minimizing overhead or optimizing it? Managing multisourcing can be upwards of 30% of some of my managers' time.
I've had some situations where clients have had to hire a full-time person who manages all the multisourced vendor relationships. One way to minimize overhead is to standardize as much as possible. If you can keep vendors on the same renewal cycle, that makes it a little easier. One challenge I've seen with one client right now is that literally every couple of months they're renegotiating aspects of a contract. Also standardize language so it's easier from your perspective and standardize performance metrics so more of the onus goes on the vendor.
Any books you'd recommend to further educate ourselves?
Yes. Here is a list that I would recommend:
Multisourcing: Moving Beyond Outsourcing to Achieve Growth and Agility
By Linda Cohen and Allie Young
Strategies for Optimizing Vendor Relations: Leading CTOs and CIOs on Finding a Balance Between Outsourcing and In-Housing, Leveraging Vendor Expertise, ... Positive Relationships (Inside the Minds)
By Multiple Authors including, Robert H. Owen, Vice President, Global Information Services, Microchip Technology Inc.; Jordan Kaufman, Chief Information Officer, The Princeton Review; Maribel PicÃ³ Piereschi, Chief Information Officer, Puerto Rico Electric Power Authority; Albert A. Sinisi Jr., Vice President and Chief Information Officer; St. Luke's Hospital and Health Network; Rick Moore, Chief Information Officer, TriHealth Inc.
From an incident management perspective, when multisourcing, does this shift the help desk to be less capable to resolve at first call and dispatch more to the multiple providers?
While it really depends on what you outsource, for the most part, I'd say no. From Harvey Nash's perspective the help desk should be able to provide a certain level of resolution. If there are multiple providers, the help desk should still be doing what they are normally set up to do. While it may get slightly cumbersome for them in terms of where to elevate a problem, it shouldn't minimize the support the help desk provides. I hope that helps address your question. Also, I've pasted below a few of the other questions and answers that we addressed after the call that I thought you might find useful.
Are there any best practices for integrating a multisourced environment, e.g., real-\time interaction and problem resolution, above and beyond what you would do internally?
I did a little research into this and checked with my colleague, VP of Operations Joe Kalemba. A formalized communication process is key. Where we've seen success is in those organizations that have a formal written documentation process so that you can go back and continually review and improve how to tackle similar issues down the line.
In Harvey Nash's experience, you really need a hybrid solution; that is, folks onshore and offshore. We had a client with teams in Washington State, Vietnam, Shanghai and occasionally had to coordinate with a team in the UK. There was a person on site in Washington that owned the project and the communication. Each vendor should have one onshore representative working on the client's time and facilitating information to the appropriate players on the team.
I'm sure it goes without saying but a final best practice is having a dedicated person coordinating the efforts on the client's side with what is being done between the vendors.