Outsourcing: Breaking up is hard to do

A few months back, I blogged about getting more value from your outsourcing strategy: Rather than sign a single $1 billion-plus deal, break your services up. Smaller deals, focused on smaller projects or services, may be the new way to go, I conjectured. After all, outsourcing everything to a single vendor and making a long-term commitment -- often as long as 10 years -- can lead to problems down the road, espec

A few months back, I blogged about getting more value from your outsourcing strategy: Rather than sign a single $1 billion-plus deal, break your services up.

Smaller deals, focused on smaller projects or services, may be the new way to go, I conjectured. After all, outsourcing everything to a single vendor and making a long-term commitment -- often as long as 10 years -- can lead to problems down the road, especially when it comes to business process innovation.

I concluded, with the help of Peter Lowes, principal at Deloitte Consulting and leader of Deloitte's Outsourcing Advisory, that breaking a project into smaller pieces increases your chances of finding providers who take a specific focus, and thus your ability to maximize the value of your contracts.

However, something has been nagging at my conscience since then -- mainly that any multisourcing strategy comes with its own set of challenges. Here are the four main issues you need to be aware of before diving in:

More players, more complexity

Obviously more vendors means greater complexity, especially if you are dividing up a single project. Coordination and communication are key. In other words, just like you tell your children, everyone has to play nice and get along together. But as the IT coordinator and project lead that's your function.

Large providers seek large slices

The moment you make the pie smaller for each potential provider, the less interested they became in doing the job. They heard the cash registers ring, and now that the ring isn't so loud, they may opt out -- especially if they are a larger company. After all, the bigger the company, the bigger the overhead they have to deal with; at some point, the deal may not be worth it to them.

Project management begins in-house

You will need highly competent project managers who know how to juggle multiple projects, keep to a schedule, and have the technical expertise to separate the technical BS from serious issues that threaten to derail a project. The blame game has to stop at your desk.

Savings often give rise to new costs

That time commitment of more managers spending more time on multiple project will also increase the cost of your initiative. So, if you thought you were getting a good deal by hiring service providers who fit nicely into your smaller budget, don't be surprised when the cost you thought you saved pops up somewhere else.

Although there is less likely to be a single point of failure when you break up your outsourcing strategy, internal management costs can be significant, Lowes says.

Innovative outsourcing in action

The proof, as they say, is in the pudding. And here are a few examples of companies that have opted out of the "one company does it all" approach to outsourcing to notable success.

When General Motors' $5 billion contract with EDS came up for renewal, GM decided to instead divide the pie of about $7.5 billion among six vendors, including EDS.

Each provider, however, was awarded a worldwide contract in order to facilitate a "globally standardized work process," according to Lowes.

Moreover, the package features five-year contracts, instead of the typical 10-year contract, to spread risk while maintaining standards across global operations.

An even more unique approach to multisourcing comes from Xchange. This one will really keep the lawyers busy as well.

Xchange has what it calls an Enterprise Partnership model that involves the creation of a third entity, co-owned by the customer and the service provider.

The partnership is structured "though the use of a shareholders' agreement to govern the relationship between the customer and the service provider at a strategic level. "

The customer transfers relevant personnel to the new entity and becomes the new entity's first customer. In the future, the entity, which includes the original customer, has the option of providing service to new third-party customers.

If you thought outsourcing was just a way to reduce the costs and stress of completing a project, guess again. Ensuring a satisfactory outsourcing experience takes work before, during, and, when necessary, after separation to ensure that your company is getting the most value for its dollar.

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