The Next Big Thing
Posts about next generation technologies and their effect on business.

Is multi-sourcing increasing costs for organizations?

Technical Reach To BusinessOver the years I have worked on relationships with a number of very large organizations. Some had service providers “cubby holed” into specific disciplines. Vendor X is the hosting provider or vendor Y does the mainframe development. Some consumers had well defined criteria to move vendors into a new category of services, while others were more of a free-for-all, where they had RFPs for everything and let the chips fall where they may.

 

One thing was clear, the more vendors involved the more “policemen” were generally required to keep order and the more build-up of administrative overhead. I’ve seen it happen over and over that a large outsourcing deal will go into effect. All but 10 or 20 people will move over to the outsourcer during the transition phase. After a few years, the organization’s administrative organization will grow until they start taking back in-house or bidding out work again, eventually having as many dedicated workers as the suppliers that supposed to be doing the work. Watchers watching the watchers. To me this is a symptom of poor relationship management skills both for the supplier and the consuming organization.

 

The HP Technical Services (TS) organization recently put out a post titled: A single service provider – do the math – much more than just administrative efficiencies, where they discuss HP’s ability to perform third party management. This 3rd party management function is becoming essential for businesses in the future (especially in this cloudy age), as a wider range of services (not just in IT) need to be coordinated and incorporated to deliver value in a predictable fashion. The industry cure today seems to be having more deals with more vendors that are shorter in duration, essentially surrendering the strategic relationship and hoping that if the deals are small enough they will do less harm.

 

Lock-in is a problem, and it could be viewed as a relationship problem as well. Express the concerns early.

 

The TS post focuses on coordination of efforts within a particular domain. Cross-domain coordination can be just as important too – for example: we see organizations traditionally thought of as manufacturers (for example) starting to outsource manufacturing.

 

This 3rd party management skill is something where consultants can help and the function can be outsourced as well, and probably should be if the internal team has not yet developed the skills. It is also a core skill for service providers, since it is an additional area impacting outsourcing and services.

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