Outsource Magazine Issue 29 - (Page 20)

Optimising yOur supplier pOrtfOliO Multisourcing might be the best option for your organisation – but the attendant risks need to be considered very carefully. Getting the right strategy in place is absolutely crucial… Natalia Levina, NYU Natalia Levina is Associate Professor at the Stern School of Business, New York University. She teaches courses on Global Sourcing and Open Innovation as well as Information Systems and Organizations Doctoral Seminar. Ning Su, University of Western Ontario Ning Su is an Assistant Professor at the Richard Ivey School of Business at the University of Western Ontario. His research investigates global sourcing of knowledge-intensive services. I n today’s global services outsourcing arena, increasing numbers of companies adopt “multisourcing”; that is, they select and combine information technology (IT) and business services from multiple providers. The decrease in deal size, well-documented by the Global TPI Index, is one indicator that buyers are dividing their business among multiple providers. Gartner – which has promoted this term since the publication of the 2006 book Multisourcing: Moving Beyond Outsourcing to Achieve Growth and Agility by its consultants Cohen and Young – has been continuously emphasising multisourcing as one of the top trends in the sourcing of IT and BPO services. There are, however, well-known risks involved in increasing the number of providers. Every sourcing manager knows that more vendors mean more headaches: more coordination issues, more searches and innovation, and more contracting costs. Yet these are only surface costs; a much more serious problem with increasing the number of suppliers within a single function – a practice commonly engaged by today’s buyers – is that the buyer may lose economies of scale within this function, thereby increasing production costs. These increased costs can be reflected immediately in higher bidding rates or creep in over time as vendors are unable to optimise the function they were charged with. For example, a large global bank outsourced its account reconciliation business to three different vendors getting what seemed to be a low charge rate from each due to competitive pressures. None of the vendors, however, had the right incentives to invest in a new information system necessary to optimise the function. Had the three contracts been combined, the investment in the system would’ve paid off within the lifetime of the contract. Single sourcing, however, may not be the answer either as the trend to multisource has arisen in response to problems associated with lock-in, an inability to tap into best-of-breed capabilities, and increased operational risks. A common wisdom for resolving the tension between too few and too many providers is to focus on a handful of strategic partners so as to address these risks while avoiding full lockin. This rule of thumb may not be sufficient for generating the greatest benefits from today’s complex sourcing opportunities. In some situations a single vendor may be the “You have to be fast on your feet and adaptive or else a strategy is useless.” – Charles de Gaulle 20 www.outsourcemagazine.co.uk ● ● http://www.outsourcemagazine.co.uk

Table of Contents for the Digital Edition of Outsource Magazine Issue 29

Call Me Maybe?
Optimising Your supplier Portfolio
Application Development Outsourcing
Are You Fat?
The Future of BPO
Digital by Default
The Face of Finance
Procuring Excellence
The Importance of Being Secure
NOA Round-Up
Steering the Flow
Changing Shape
Legal Transformation
Getting to the Real-Life Win-Win
What’s the Point of Outsourcing?
outsourceXplores
Head-to-Head
The Legal View
Top Ten
NelsonHall Round-Up
The Oral Review
Online Round-Up
Inside Source
The Last Word

Outsource Magazine Issue 29