Multisourcing, mantra for sourcing success

MUMBAI, INDIA: Circa 2005, Gartner vice presidents Linda Cohen and Allie Young authored their work Multisourcing- Moving Beyond Outsourcing to Achieve Growth and Agility, which received a favorable response.

The topic of multisourcing came up once again at Nasscom India Leadership Forum 2008 when the industry experts spoke on the trends in IT spends and multisourcing being the key to success in the sourcing business.

Kurt Potter, research director, Technology and Service Provider Group, Gartner Research said, “The late adopters to IT outsourcing will use one or two providers and the strategic reasons for using multiple IT outsourcing providers is to gain access to best breed of services.”

For the uninitiated, multisourcing refers to the disciplined provisioning and blending of business and IT services from the optimal set of internal and external providers in the pursuit of business excellence.

Analysts say that enterprises will spend $17 billion on managing IT outsourcing engagements in 2008 worldwide and there has been a whopping 112 per cent increase in the number of providers used for ITO since 2005.



Outsourcing versus multisourcing

Many may think that both belong to the same family and are long-lost cousins; but there are some differences which one must remember.

Kurt Potter said, “While outsourcing is an ad-hoc system and is a tactical event, multisourcing disciplines are strategic, repeatable and outcome- focused. Outsourcing is reactive and compulsive while multisourcing is predictive and monitored.”

If one talks about the key elements of successful and disciplined multisourcing—it needs to have a strong sourcing governance model and a business-aligned governance model.

It must have market intelligence, service integration, management competency and a continuous performance improvement.

Ken Brame, CIO of AutoZone gave his take on the phenomenon.

“Most packaged solution providers have development staff or outsourcing arrangements in India and other offshore locations. Many larger US retailers are into outsourcing arena and smaller US retailers are still primarily relying on in-house domestic software consultants. They also rely on packaged software solutions”, he said.

Key trends in IT spending

Ken Brame agreed that multisourcing is the key to sourcing success and while discussing the IT spends across the markets in the US, he said, “The overall IT spending has surged by 2 per cent from 2006 to 2007. This means that we are conservative about how we spend our dollars. Capital expenditures have gone down but the important thing that you have to realize is that the capitalized project resources have gone up by 38 per cent.”

He also added, “For the first time we see that the packaged software expenditure have gone up by 50 per cent.”

To cite an example on the outsourcing efforts undertaken by AutoZone, Ken stated, “AutoZone’s software development environment has about 65 per cent of work done from the corporate headquarters, with 18 per cent of our employees working from the office in Mexico and 17 per cent of the development being outsourced to India. Also, three years ago we had decided to move out our desk operations (call center environment) to places such as Mexico and India.”

While AutoZone’s over-a-decade long partnership has been blossoming with MphaSiS, Ken Frame gave credit to communication between the companies but he admitted that there are challenges to make partnerships work.

“Distance and time zone differences make communications harder and there are cultural differences”, stated Ken. P.P. (Daru) Darukhanavala, vice president and chief technology officer, British Petroleum.

“There are two types of sourcing. One is sourcing for services and the other is sourcing for innovation,” noted Darukhanawala.

As an example to put his point across, Darukhanavala mentioned British Petroleum as sourcing for services.

“In 1998 we merged with AMOCO and we also brought in HR Back Office activation with Exalt.”

With regards to sourcing through innovation, Darukanavala believes that the main avenues for innovation come from outside the energy industry.

He felt that this sort of sourcing is a different area altogether.

Sandeep Chouhan, chief information officer, Barclays Bank PLC enthused, “Almost 70 per cent of our technology is spent on others. Four vendors account for 56 per cent of the amount spent and the operations staffing is high with multiple providers involved in it.”

He agreed that everyone wants the costs to come down but in reality that is never the case as technology budgets rarely come down.

He said, “The unit costs need to be brought down. It is more for less which is the philosophy.”

Analysts agree that unit costs need to be brought down and the communication channels between countries involved have to be tightened to accrue better results for all parties involved.

Also, they advise companies against thinking of sourcing in vacuum as the cultural acceptability; the vision of the top management has to be kept in mind while thinking of sourcing as multi-sourcing would soon be the mantra for success in sourcing.