In recent years, multi-provider operating models have become a de facto standard for outsourcing strategy. While enterprise buyers have sought to leverage best-of-breed capabilities, service providers have been busy developing increasingly specialized niche offerings to address specific business requirements. Without question, multi-sourcing has proven to offer significant benefits. But it also poses a basic challenge: how to ensure collaboration and coordination among a myriad of providers with different and often conflicting agendas. And how to deliver change at the speed the business requires.
ISG Research shows that outsourcing contracts continue to decline in total dollar value and shorten in duration, and traditional sourcing engagements are increasingly migrating to as-a-service models. This means the enterprise buyer must constantly move providers in and out of the service delivery mix and adjust scope among those providers, creating a three-dimensional puzzle that, in turn, requires resources and talent to manage.
Enterprises also are finding that traditional multi-sourcing environments, which tend to be resource-based, can create friction and obstruct the potential benefits of automation as providers are reluctant to cannibalize their revenues for the greater good. In cases in which providers have limited ability or incentive to drive automation across the enterprise, automation tools tend to be applied in isolated silos, localizing optimization and missing the opportunity for a broader positive impact on the end-to-end value chain.
Recognizing the risk of fragmentation in multi-sourcing, many businesses are rethinking their approach and gradually moving to a more well-orchestrated model. By relying on two or three strategic providers throughout the entire plan-build-test-deploy-run lifecycle and by using principles like Lean IT, DevOps and Agile, companies can more readily address the structural challenges of traditional multi-sourcing and more fully leverage the benefits of automation. Positioning a small number of providers in strategic roles provides the financial and relationship incentives and creates the appropriate ecosystem to restructure traditional resource-based agreements into outcome-oriented frameworks.
This way enterprises can apply automation to leverage existing investments in commercial and open-source platforms so they can rapidly integrate new capabilities and deliver real-time visibility into IT. In a coordinated sourcing model, providers have enhanced capability and incentive to drive end-to-end automation of the Plan-to-Run lifecycle and deliver improvements in speed to market, quality and cost.
Coordinated sourcing can take many forms, organizing itself by business area, technology or functional competency. In one instance, we helped an enterprise engage one strategic partner for Applications Development, Testing and Application Management and another for Infrastructure, Engineering and Operations. In another example, the sourcing buyer integrated SAP Maintenance and Support, SAP Testing and Test Automation and DevOps. And in a third, Application Operations and Infrastructure Operations were consolidated with one provider to ensure end-to-end oversight of business process KPIs.
What type of enterprise is suited to this approach of consolidation and integration? According to IT services firm Mindtree, mid-sized companies with $1-5 billion in revenues tend to be receptive to the idea of shifting their sourcing approach away from extensive multi-sourcing and toward a model that integrates different parts of the IT lifecycle.
But the appeal is not limited to scale. Large organizations – especially in the BFSI and retail sectors – are driving new digital initiatives by leveraging IT lifecycle integration to apply agile delivery and automated toolchains that break traditional silos and introduce a new way of working. For traditional players in BFSI and retail, lifecycle integration can be a strategic enabler to fight “digital natives” that use speed as a differentiator.
By bringing together key tenets of Agile methodology, DevOps best practices and automation, a coordinated sourcing model can deliver IT services faster and with better quality. And companies that leverage Robotic Process Automation (RPA), machine learning and test automation in addition can help enterprises “glue” the IT lifecycle together to achieve repeatability, improve productivity and reduce cycle times.
ISG helps enterprises design and execute strategies that optimize legacy IT, align sourcing models and advance digital execution. Contact me to discuss further.About the author
Bill is a sourcing industry leader and active proponent of helping to create professional standards and best practices. His areas of expertise include sourcing strategies, shared services and contract negotiations. Throughout his career he has been responsible for both business development and delivery of strategic advisory services in procurement, vendor management and operational transformation.