“Should we select a single provider or use multiple providers?”
As experts in sourcing advisory and supplier governance, we frequently hear this question from IT leaders as they establish or re-establish their sourcing strategy for IT operations. While every company’s circumstance is unique, there is a “right” answer for most enterprises.
IT service providers have interest in securing single-sourced operations and often tout benefits of “integrated synergies,” a “single throat to choke” and price discounts if scope is sole-sourced to them. While there is some validity to these benefits, our experience shows sole-sourced operations often create a sense of security that can lead to the erosion of promised benefits and initial savings over time, often through costly change orders that allow providers to recoup margin.
Most enterprises seek partners to not only deliver a certain scope of work, but also to proactively introduce innovative solutions. Many times, innovative solutions in the form of improved processes or automation cannibalize the work being carried out by the provider, which disincentivizes new ideas and incentivizes the status quo. Thus, a sense of security on the part of a sole incumbent often stifles proactive innovation.
Alternatively, in a multi-supplier environment, looming competition compels providers to stay on top of their game and bring forth innovative solutions regardless of the potential for self-cannibalization because, if they don’t, their competing incumbent will. Simply put, competition breeds stronger innovation. Partnering with multiple suppliers also gives enterprises access to a larger variety of resources and skillsets.
This is not to say a multi-provider landscape does not introduce increased complexities. Harmonizing IT service management (ITSM) processes across providers and governing multiple suppliers certainly introduces additional complexity; however, provider management, performance measurement and third-party contract compliance can be easily tracked with automated tools built for multi-provider environments such as ISG GovernX. It’s important to provide client (not provider) driven dashboards to maintain equal assessment of services among multiple providers.
Rebadging, when it’s relevant, can be a greater challenge when negotiating with multiple supplier proposals. Enterprises should aim for rebadge packages to be considered equal among incoming providers to avoid division and a sense of inequality among your re-badged employees. Trust me, they’ll talk to each other! In a multi-provider sourcing environment, it’s best to bring your proposed package to each provider and ask it to meet the requirements. Since some differences in compensation packages are likely to exist when re-badging to multiple suppliers, ensure you involve HR and change management experts to properly and proactively address any potential inequities.
Overall, while multi-provider landscapes come with some challenges, the increased competition among multiple incumbents results most often in more competitive pricing, access to a larger pool of resources and skillsets, and better partnerships that proactively produce innovative solutions. While some exceptions apply – when enterprises need to source a small scope of work, for example – the advantages of a multi-supplier environment are well worth the risk mitigation required.
About the author
Megan Walling is a Director in ISG Business Development.