An increasing number of organisations and institutions are exploring the benefits of moving from their large single-supplier outsourcing relationships to the multi-supplier variety. Gavin Hall has outlined that in his experience, which reflects our own, the enhanced value and specialist expertise, such as Cloud services, have strong evidence for such a move, but you need to have clear business reasons and understand the implications for all parties of such a move at either the end or mid-term in a contract to ensure it will achieve the business outcomes you expect.
In the public sector a few giants such as G4S, Capita, BT and Serco dominate the major contract outsourcing landscape, but due to what seems like a constant stream of poor publicity relating to overcharging, underachievement and problematic relationships, many clients are considering whether the alternative of multiple contracts with smaller dynamic outsourcers may be more beneficial.
Even the government, a client that has had more than its fair share of costly large contract problematic relationships in recent years, has announced their keenness to see more projects broken up into their constituent parts to be offered to a greater number of smaller businesses to service.
Setting the scene
The BBC have previosuly announced that they had plans to move their £2bn relationship with Atos, formerly Siemens Business Services (SBS) before it was acquired in 2011, to a multi-supplier agreement. A spokesperson stated that this “allows [the BBC] to get better value, greater flexibility and access to new technology as it emerges”. The latest update to the BBC’s transition to multi-sourcing shows how difficult a task this can be although they are much closer to achieving their objectives.
The disadvantages of single-supplier outsourcing
The BBC’s objectives implied three of the most important factors to consider when deciding between single or multi-supplier relationships:
1. The expense involved.
Large ITO businesses have large overheads and this is the first consideration an organisation must make when choosing between single and multi-supplier agreements. The dominance of these few outsourcers over the last couple of decades can be seen to have resulted in inflexibility when it comes to risk and fees. Smaller outsourcing competitors are likely to be hungrier for the work, far more willing to negotiate and to find a way of using their agility and flexibility to develop more cost-effective solutions for clients.
2. The flexibility offered.
Smaller outsourced suppliers have until now struggled to make headway in a large outsourced-supplier dominated environment. However, they are now finding their feet and with their new place in the service and project pitching environment comes an opportunity for clients to leverage the adaptability of these businesses, to focus their hunger to prove themselves, and to achieve better business outcomes as a result. These young, dynamic outsourcing businesses have invested in the technology ‘upfront’ and have changed the supply risk profile. As they attempt to surpass client expectations, they can prioritise innovation around the demands of the market far more effectively than their larger counterparts and charge on a ‘pay as you use’ basis.
3. The innovation delivered.
One of the complaints most commonly laid at the door of large contract relationships is that all too often they simply do not deliver the innovation that is promised at the outset. Trusting your supplier to use their technical expertise to suggest improvements, recognise issues and drive innovation – all of which adds value – are primary benefits that, it seems, smaller outsourcers are better placed to live up to.
I would add one more rather important factor – complacency. When a renowned supplier with decades of experience working for some of the best known names in your sector takes on your project it can be all-too easy to cede the mantle of overseeing responsibility to them.
They are the professionals after all, so surely they are best placed to manage themselves aren’t they? Well, no. While it is true that for legal and working relationship reasons, not to mention morale, ‘how’ your supplier goes about achieving your business, service and project goals must be left largely to them, you should still maintain the in-house skills to appreciate what needs to be done, by who and whether agreed outcomes are being achieved.
I’m talking, of course, about your Intelligent Client Function (ICF) team. Never get complacent, or allow yourself to be convinced into relinquishing total control over a project to a single outsourcer. This is never a good substitute for a well-resourced ICF team that are able to scan the market and place work where best value can be achieved.
How to transition from a single to multi-supplier relationship
Timing is everything in life and when you decide to make a transition can be very important. It is most usual to conclude that change is needed as you are nearing the end of a contract and you start assessing whether it meets your needs to extend or find an alternative supplier or suppliers.
A business case which analyses all sourcing options will determine realisable benefits and timings. However, as has been evidenced by many news reports in recent years, there are situations where a costly contract can be found wanting long before its conclusion. What you are faced with then is the choice of whether to stick with it, look at the cost of exiting a poor-performing relationship or start to migrate, over time, from your single supplier to numerous smaller providers, stripping away sections of responsibility while retaining your existing supplier for an ever-dwindling service offering.
The transition is likely to be traumatic for one or more parties but if the change is necessary and the business case ‘stacks-up’, it’s simply a choice of discovering the best options for the future of the existing services and projects.
Here are our 9 steps to achieving this transition:
1. Understand the ‘As-Is’ architectures.
It may seem simple enough, but a full and complete analysis of what you need from your supplier against your business outcomes is the starting point. This must include how the existing services are commercially packaged (service, risk and cost), what benefits have yet to be realised and how it does or does not meet your business needs. There are the practical issues of what technology, systems and processes you, or your supplier, have in place. Then there is how these resources are organised: can they be coalesced into discrete ‘commercial packages’ aligned with the needs of the business and what the market can supply? And if so, what arrangements do you have in place with your current supplier to utilise or enhance them to achieve your objectives? Failure to put enough time and effort into researching, gathering and analysing what you have to determine what you need, can set you off on the wrong path, a mistake that could be very costly in the long run.
2. Understand the current contracting arrangements for each ‘commercial package’.
What might the benefits and disbenefits (integration, data, technology) of disaggregating a package away from your Outsourcing partner be? Who is responsible for what, and how should you deal with issues when they arise? What do these exiting commercial packages cost you as supplied by the existing Outsourcing partner and how much of the service or project’s responsibilities can you reallocate without financial recourse being sought by your current supplier? It is essential to understand your rights and responsibilities under your current contract completely so you can establish the most cost-effective way to make the changes you need to implement.
3. Group responsibilities for supplier sourcing.
The importance of how you split a service or project into its individual components and allocate them to potential suppliers cannot be underestimated. For each component or package, consider the desired outcomes, the business case for change, what suppliers are available, their realistic ability to meet your expectations, and how, with multiple suppliers, you can coordinate and manage the new delivery arrangements as a whole most effectively.
4. Develop an appropriate governance strategy.
When you move from a single to a multi-supplier arrangement, one of the most important things to consider is who is responsible for what. Managing multiple services and projects with more than one supplier rapidly becomes a complicated affair, and one that as the client you must ultimately take responsibility for. An effective governance strategy can be established through a Service Integration and Application Management (SIAM) function so everyone appreciates what needs to be done, when, and by whom.
5. Document expected supplier standards and procedures.
To ensure that all of your suppliers are singing from the same hymn sheet, you need to produce and maintain various technology, security, inter-supplier collaboration and procedural (vis-à-vis ITIL) standards documents. These can be dynamic and aligned to changes in the market and the needs of the business, changing as new standards are recognised and new technologies introduced. This suite of documents will become common to all suppliers, ensuring they work in the same way. Periodic meetings should take place to adapt these documents and ensure that all who are responsible to uphold its standards are doing so. Contractual change control can be used to keep all suppliers aligned.
6. Develop a programme of change.
Where opportunities for change are discovered, a full Business Case is normally required to confirm the benefits and instigate change. When migrating responsibilities to new suppliers it is important to identify the most opportune moments for such a change and the connections between those responsibilities and others in the contract. The order and timing of such a move(s) can be fundamental to its chances of success. Dependencies of each of the disaggregated components of a contract need to be established and priorities set based on technical expedience, underlying technology, and operational requirements. Advice may be sought from industry experts to determine the best arrangement and order of your move towards change.
7. Design a robust multi-supplier ecosystem.
A contractual, expectations, behaviours and standards systems symbiosis between all parties – ideally built into each contract with as many suppliers as your strategy dictates – is required. This will ensure that all suppliers appreciate what is required of them, the integration and goals they have to achieve individually and the big picture expected outcomes required of them collectively. It is this which is known as the ‘ecosystem’. Such an ecosystem requires close management, regular updating and measurement, and excellent communication.
8. Acknowledge the complexity of strategic change.
A move from single to multiple suppliers is not a simple process: it will take time, a robust business case, dedication and a strong focus on communication and collaboration from all parties involved. While objectives may be set at the outset, suppliers competing with the Outsourcing partner will develop their own cost-effective solutions, integrated into the whole, based on their expertise in their specialist fields, therefore, relationships and the contracts that bind them to need to be flexible enough to accommodate this.
9. Adequate and accurate objective monitoring.
Never forget the outcomes the service or project was fashioned for and the reasons why it was decided that several smaller suppliers would be better placed to achieve them. Regular monitoring of progress, appropriate rewards for being ahead of schedule and motivational tools for those behind, and of course the establishment of ways to determine and measure whether individual objectives and benefits have been met and ultimate outcomes align with business expectations.
Moving from a contract overseen by one large outsourcer to involving several smaller ones is a delicate operation. It will take time and significant internal resources from an experienced ICF team. There will be plenty of complications along the way. And the separation and detachment of the components of a contract and the reallocation of responsibilities to additional suppliers needs to be done carefully and with much consideration. But, however complex such a move might be, it may well be the catalyst for positive change that your business, services and projects need to secure their ultimate success.
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