Multisourcing

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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.

O

utsourcing worked. using external service
providers to cut costs and improve performance has
become trulycommonplace. As much as the popular press has focused
on the debate over 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 foroutsourcing routinely see share price growth; CEOs who outsource see their
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 the2000 downturn. There is no
question, outsourcing has worked.
But precisely due to this success, new challenges are 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 manyorganizations.
Large outsourcing services companies are coming under pressure
from capital markets to grow revenues and generate 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 50percent of outsourcing contracts signed between 2000 and 2004 will fail to meet
expectations.
Before continuing, we should 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 the ongoing 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, projectbasedwork provided by third parties—what is often referred to as staff
augmentation or body shopping. Outsourced services may be provided
domestically, 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 inanother country or a country adjacent to where services will be delivered). Therefore, outsourcing does
not always mean sourcing services from other countries, although this
is how the term is often used in the popular press.

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Introduction

The Way Forward

G

i v e n t h a t achieving strategic advantage via outsourcing is
becomingincreasingly 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 to create 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...