Multisourcing Is Here To Stay

Today outsourcing is considered to be a critical strategy employed by many companies with varying degrees of success. The concept of single vendor outsourcing is migrating into multi vendor outsourcing or multi source outsourcing. This has resulted in improved cost saving, transparency, accountability, enhanced service expertise and the ability to focus on internal resources on the business elements and functions that drive further competitive advantage. The customers are now increasingly relying on multisourcing, joint ventures and open business models. The key to business success is outsourcing the right functions to the right vendors using the right contract structure.

In India in the past 3-4 years, large enterprises’ IT outsourcing budgets have started to grow vastly in size mostly on account of their aggressive expansion plans and reach. These enterprises are now moving towards multi vendors instead of depending on a single vendor.

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In its recent report on outsourcing titled, “Outsourcing Comes of Age: The Rise of Collaborative Partnering”, PricewaterhouseCoopers has represented a combined view of both the service providers and customers opting for outsourcing. The report further elaborates that while outsourcing remains a critical element of the corporate strategic mix, success in today’s complex outsourcing marketplace is contingent on new dynamics, specifically the customer and service provider relationship. The survey also confirms the growing complexity of outsourcing from changes in the customer and supplier relationship to the emergence of new stakeholders and new governance models. It provides evidence that leading outsourcing customers and service providers are shifting from traditional to collaborative business models.

According to Prakash Kamath, principal consultant, PricewaterhouseCoopers, “Offshore outsourcing is increasingly being accomplished as global sourcing or global delivery. The growth of the captives, organisations owned and operated in a foreign country by a parent firm. Here the offshore workforces are employees of the parent company, not an outsourcing supplier. Outsourced e-commerce is an increasingly popular choice for businesses.”

Multisourcing more prevalent in large enterprises

With multisourcing growing at a brisk pace, enterprises are now able to hire the best vendor to help them integrate the best solution. In any outsourcing contract, SLAs are probably the most important and hence enterprises need to ensure that these parts are well-crafted and clearly understood by both the provider and the customer. Multi source outsourcing is typically prevalent in large enterprises where the volume and scope of outsourcing is large and complex.

Informs Ajay Kela, chief operating officer and managing director, Symphony Services, “It is not uncommon to find multiple service providers within such organisations, each managing different aspects of IT like custom applications, hardware and networks and enterprise product installations. But the trend is still to align with a strategic outsourcing partner rather than split it between multiple ones as the overhead of managing/coordinating the resulting complexity is not worth the return."

Many companies are moving to multi-sourcing for call centre agents, largely in pursuit of the cost savings that can come from the flexibly of tapping into a variety of labour pools. The trend is also growing because multi-sourcing enables call centre resources to be rapidly scaled in either direction to align with business growth, call volumes and seasonality.

Says Alagu Balaraman, vice president, Process Architect, Britannia Industries Limited, “Multisource outsourcing is highly relevant for India for two different reasons. The first is that domestic outsourcing is still maturing. Hence, there will be challenges in getting all requirements from a single vendor. Willy nilly, there will be different players involved and adopting a structured approach to multisource outsourcing will make life easier for everyone. The second reason for looking at multisource outsourcing is that I expect the Indian market will undergo very rapid evolution in outsourcing. We have seen that in several areas of technology, where we transition fast because someone else has been at the bleeding edge. The rest of the world is looking at multisource outsourcing because of benefits of specialisation and risk mitigation.”

Managing and maintaining relationship with vendors

Numerous challenges plague an organisation planning on multisourcing. As the number of vendors goes up, the burden of managing multiple vendors increases. There is more co-ordination between teams (client teams and different vendor teams); hence if one team does not perform as per the schedule the compounded effect might result in severe product delays. Dependencies between vendors increase, causing more opportunities for finger-pointing and for deadlines to slip.

“No single vendor achieves enough scale to increase efficiency, meaning that more training is required to bring new teams and team members up to speed. Economies of scale are not achieved if there are too many vendors as work gets compartmentalised. The multi sourcing approach would also have a higher management overhead as both the vendor and the management will require manpower to monitor each of the process that has been outsourced”, states Kela.

“Second sourcing or multi sourcing is especially difficult with services outsourcing. Multisource models increase the level of complexity, requiring additional resources from the organisation. Dependency on a vendor cannot be fully mitigated because the organisation no longer owns the functions, knowledge, people, and systems. Organisations then find themselves trapped in deals with higher rates and low quality delivery," observes Kamath.

The Indian scenario

Large enterprises in India are now outsourcing the management of data centre, contact centre, installation and maintenance and management of network and security. Within 2-5 years globally, delivered application, testing and quality assurance application and custom application outsourcing will rule the market. The Indian service providers and financial markets are growing at a tremendous rate.

Informs Scott Petty, group executive, Dimension Data Group, “The market for multisourcing is catching the trend and we are targeting the market to expand our reach through our products and services. Now the Indian enterprises are recognising the benefits out of multisourcing which we have noticed in the past couple of months with the announcements of some large contracts.”

Multisource outsourcing is highly relevant to India and in the long term, with talent getting scarce customers will continue increasing the multisourcing initiatives to de-risk their business. This will also result in a reduction in India’s overall market share of the BPO pie.