Friday, August 28, 2009

Three Pitfalls of Multisourcing

Gartner, Inc. has identified three major pitfalls that organizations can experience when they strive to achieve an efficient and effective multisourcing environment. To overcome these challenges, CIOs and sourcing managers need to develop specific competencies to master multisourcing. In addition, Gartner predicts that through 2012, inflexibility caused by an excessive cost reduction focus will result in business disruption in 30 per cent of outsourcing deals, including the inability of the buyer to compete effectively.

The three key challenges that organisations face in multisourcing include:

--Outsourcing Deals Are Difficult to Build and Manage
Outsourcing deals are difficult to manage for four main reasons. First, many organizations lack the experience to properly oversee and estimate the end-to-end effort that outsourcing requires. Second, a project team often centrally plans and executes sourcing projects amid emotionally charged political agendas. Third, new options, such as alternative delivery and acquisition models, change the way the sourcing life cycle drives activities, and increases the complexity of the sourcing environment and the decision-making process. Finally, the service provider landscape is dynamic, which makes it frequently challenging to find the right one with which to build a long-lasting relationship.

--Outsourcing Deals Often Fail to Deliver Expected Outcomes
Once an organisation has established an outsourcing relationship, it often faces further difficulties because an outsourcing relationship frequently promises more than it delivers. Some challenges can arise such as, low end-user satisfaction, poorly defined business benefits and immeasurable deal benefits, complex governance and strained relationships.

--Outsourcing Deals Often Fail to Evolve
Organisations are frequently disappointed because their outsourcing contracts failed to deliver the innovation they had anticipated. In addition, outsourcing deals often aren't structured to provide the flexibility needed to enable the deal to adapt quickly to changes in the market and organisation. They don’t always evolve due to factors on the client side - organisations often fail to describe what evolution and innovation mean to them, and the service provider side – changes may disrupt their businesses and jeopardise their margins.

Organizations can manage these challenges by building a successful, outcome-oriented sourcing environment. Gartner has identified ten key competencies to help organisations move toward efficient and effective multisourcing.

--Strategy management: It aligns sourcing actions with the business goals, strategy, frameworks and governance to ensure optimal ongoing business support.

--Risk management: It prevents, detects and mitigates sourcing risks to substantially reduce the levels of risk across all deals.

--Financial management: It formulates financial targets with the business (for example, reduce total cost of sourcing (TCS) by 15 per cent in two years) to establish a clear guideline for all sourcing activities.

--Demand management: It oversees and prioritises IT services based on demand to optimise resources and skills across all sourcing activities.

--Service management: It aligns the services across internal and external service providers (ESPs) to achieve seamless, end-to-end service delivery.

--Program management: It aligns portfolio and sourcing strategies so that projects achieve desired outcomes.

--Relationship management: It maintains the relationships with all internal and external service providers (SPs). It sets performance expectations with SPs, collects performance metrics for each and provides feedback.

--HR management: It helps to forecast and fulfill staffing needs relative to sourcing needs to ensure an optimal level of skills and resources.

--Performance management: It helps to optimize ESP’s costs and ensure that new or revised business goals are always attained.

--Contract management: It manages the contracting process to meet the organization’s needs. It includes keeping internal contracts and industry best-practice contract templates for future use.

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