Multi-Sourcing: 7 Steps to Reduced Costs and Improved Services
Byon January 29, 2013
Multi-sourcing offers a huge opportunity to both the public and private sectors in terms of achieving (and even surpassing) desired outcomes. The reasoning behind this is rather simple — it is, in principle, a far more streamlined and efficient version of outsourcing. Whilst “traditional” outsourcing hands the entire service to a main contractor, multi-sourcing utilises multiple “best of breed” providers, each with specific skill sets, all managed by the client.
However, the theoretical benefits should be weighed against the unique challenges inherent in multi-sourcing. Whilst outsourcing is very “clean” with regard to provider responsibility (such as their duty to warn), the client takes on a great deal more responsibility when multi-sourcing. The prospect of effectively governing and managing what is inevitably a complex contractual and commercial environment can be daunting.
In this post I will outline a step-by-step guide to successful multi-sourcing in which I address and tackle some of the most common stumbling blocks that one is likely to face.
Step 1: Equip Your Intelligent Client Function (ICF)
As you might expect, the first step to effective multi-sourcing is to create an well-equipped ICF. You need employees who are skilled in integration, delivery management and contract management.
What you don’t need are vanilla project managers (even good ones), who are by their very nature ill-suited to the task at hand. The best project managers naturally wish to control the totality of the environment so they can ensure that everything happens to plan with the least risk. They are rarely happy with multi-sourcing due to its multi-faceted nature.
Your team must understand their responsibilities as managers of the vendors, not the services. Their job is to ensure that all vendors are well-integrated, meeting their targets, and their focus is always on the “what” (outcome), not the “how” (input).
Step 2: Ensure Effective Relationship Management
As part of a multi-sourced service, you must employ a relationship management team — often called the Strategy Relationship Management Team (SRMT).
Their role is in some ways a reverse of the various supplier account executives. They take responsibility for managing the interface with the vendors, ensuring everything is working, and that the opportunities presented by the vendor “community” are harvested to the benefit of the enterprise.
It is a pivotal role and best performed by individuals who have a thorough knowledge of both the client enterprise and the supply industry. They also need to understand the direction of travel in the service, and what this means for the organisation as a whole. Finally, it is important that this individual or team is committed to and disciplined in abiding by the intended nature and spirit of the outsourcing relationship.
Step 3: Ensure Effective Contract Management
You will also need a contract management team — a guardian of the “true faith” and integrity of the multi-sourcing contracts.
This team takes responsibility for the various contractual and commercial arrangements, contract changes, financial matters, and the relationships between the various contractors from a commercial and governance point of view. It also acts as the prime negotiator with the suppliers and has to be involved in all formal or semi-formal dialogue with the supplier community as a whole, as well as the various individual vendors.
Together, the SRMT and the contract management team should take responsibility both for the governance structure with individual suppliers and the supplier community as a whole.
It is important to engage with the ICF in these processes, but careful thought should be given to extensive engagement with the enterprise. Whilst high-level commitment is pivotal, executives may not understand the nuances of the relationships and may react in a manner that is not conducive to the wellbeing of the multi-source.
Step 4: Keep Your Vendors in Check
There is a strong tendency in outsourcing for suppliers to circumvent the ICF in search of a more forgiving dialogue — often directly with the heads of service themselves.
This is particularly dangerous in a multi-source ICF environment as the business rarely understands the particular responsibilities of each supplier, nor the commercial underpinning of the whole set of transactions. Such strategic manoeuvring must be avoided at all costs. For more information see our white paper on Strategic Vendor Responsibilities.
Step 5: Promote Positive Dialogue
A successful multi-source is in part defined by effective human interaction. As such, those participating in governance (on all sides) need to be encouraged to have shared “ownership” in the relationship and to have common goals towards success. Whilst governance ultimately must address issues effectively, the aim should be to deal with matters in a constructive and effective manner rather than with an accusatory style.
In a multi-source, the client has to lead by fostering a culture of collaboration. It is therefore advisable to ensure that one has access to those individuals experienced in behavioural issues — both in establishing the governance arrangements and in guiding all parties to properly take advantage of what has been established.
Step 6: Enforce Long Term Involvement
In a typical multi-source there almost certainly needs to be several layers of governance — both with individual suppliers and on a cross-supplier basis.
At very least, one usually finds governance divided between strategic and operational levels. It is particularly important that the appropriate level of executive or senior management is involved at the relevant forum and that, once committed to attend, such individuals do actually take part. A lack of client engagement shows little respect to any of the parties involved and indicates a dearth of interest from the organisation as a whole (which will be quickly picked up on by the vendors). It is far better not to commit senior executives to be engaged than for them to be nominated but not participate.
Additionally, there is an increasing tendency for the level of client engagement to drift downwards as a contract ages, often because the multi-source is not so pivotal in career terms. If that is conscious and justified, so be it; but let it be agreed, planned and understood by all. However, the assumption that matters become easier and less strategic as time goes on is by no means reflected in reality. Indeed, one could argue that if relationships work well, they will transition into even more strategic partnerships, thus justifying greater senior engagement.
Step 7: Avoid “Man Marking”
Both governance and management of the contract and relationship can often degenerate into “man marking”, where each side feels that it ought to have equally skilled individuals shadowing their “counterparts”.
This approach is fundamentally flawed. Man marking assumes that the roles of client and suppliers are essentially the same when they clearly are not. The suppliers are there to deliver and/or develop; the client is there to commission. Blurring the lines between these roles causes distrust and engenders a breakdown in relationships. Man marking promotes distrust between client and provider and can single-handedly bring multi-sourcing contracts to their knees.
One thing should become clear from reading through the above steps — successfully implementing an effective multi-sourcing contract is no mean feat. However, the potential benefits are as clear as they are considerable.
In a climate where outsourcing contracts are characterised by the need to both reduce costs and improve service delivery, multi-sourcing represents a very promising environment in which such business outcomes can be met. If you feel that multi-sourcing is a step too far in terms of complexity than you might consider engaging the services of an organisation experienced in multi-sourcing who can undertake much of the management and governance role on the client’s behalf.
Ultimately, multi-sourcing is another option for which you should carry out an extensive risk/reward analysis. Whilst it can be a complicated environment in which to operate, if you ensure that your enterprise is set up to fulfil the recommendations within the seven steps above, you should reap the rewards.
For more information on the risks of multi-sourcing and the measures required in order to promote a positive outcome, download our free multi-sourcing white paper.