Multisourcing

INTRODUCTION

Moving Beyond Outsourcing

Multisourcing: the disciplined provisioning and blending of business and IT services from the optimal set of internal and external providers in the pursuit of business goals.

utsourcing worked. using external service providers to cut costs and improve performance has become truly commonplace. As much as the popular press has focused on the debateover the benefits of outsourcing, no executive leadership team, board of directors, or government agency of any size would deny that outsourcing is a vital, even integral, part of successful operations today. Wall Street and other international capital markets certainly agree. Surveys show that companies that announce plans for outsourcing routinely see share price growth; CEOs who outsource seetheir compensation increase.1 Economists will tell you that the cost savings and efficiencies associated with outsourcing have been a major factor in corporations’ ability to control costs and maintain profitability

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Multisourcing

despite extreme cost pressures since the 2000 downturn. There is no question, outsourcing has worked. But precisely due to this success, new challengesare emerging. The high expectations associated with outsourcing are increasingly hard to meet. As more and more functions are outsourced, integrating and managing a portfolio of service providers is becoming more difficult— and is causing significant service disruptions in many organizations. Large outsourcing services companies are coming under pressure from capital markets to grow revenues andgenerate predictable margins. And, of course, outsourcing to cut costs no longer provides significant competitive advantage—all your competitors are using outsourcing as well and are reaping the same cost advantages. As a result of all these pressures, our research shows that fully 50 percent of outsourcing contracts signed between 2000 and 2004 will fail to meet expectations. Before continuing, weshould take a moment to clarify terms. In this book, we are discussing services outsourcing, not manufacturing outsourcing. These two are very different animals, and they require very different management approaches. Even within the world of services outsourcing, however, there is significant misunderstanding of what outsourcing actually is. Outsourcing is contracting with an external firm for theongoing management and delivery of a defined set of services to a prescribed level of performance. Key to this definition is the concept of the ongoing management of services by the external firm. Outsourcing is not simply hiring contract workers or short-term, projectbased work provided by third parties—what is often referred to as staff augmentation or body shopping. Outsourced services may be provideddomestically, that is, on-site (in the enterprise’s own buildings) or offsite (at the outsourced service provider’s site). Alternatively, outsourced services may be provided nondomestically, that is, offshore or nearshore (at the outsourced provider’s site in another country or a country adjacent to where services will be delivered). Therefore, outsourcing does not always mean sourcing servicesfrom other countries, although this is how the term is often used in the popular press.

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The Way Forward
i v e n t h a t achieving strategic advantage via outsourcing is becoming increasingly difficult while expectations for success continue to be very high, how can we move forward? What can you do to ensure the success of your outsourcing initiatives—to use outsourcing tocreate competitive advantage, to improve your growth prospects, and to increase your agility in responding to changing circumstances? The way forward requires, somewhat paradoxically, that you abandon thinking about outsourcing in and of itself and adopt a more holistic and strategic approach to sourcing as a whole. “This is not a supply chain opportunity to delegate or dump costs. It is a chance...