Multisourcing the new global trend

Multisourcing: The New Global Trend

Eric Harris

Ram Garg

Changing the Outsourcing Game

The New Global Trend:

Multisourcing

Multisourcing is 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.Gartner

Getting Work

Done

Strategic

Sourcing

Outsourcing In-sourcing- Local

- Nearshore

- Offshore

Multisourcing

Smart

Sourcing

In-house vs. Outsource

• Is it a core, revenue-generating function of

the business?

• What does it cost? Fixed vs. Variable cost.

• Do I currently have the capability/expertise to

do it effectively and efficiently in-house?

• Availability of resources ?

• How long to build capability?

• Right-sizing, scalability, flexibility important?

• Does Your Company Leverage outsource

partners?

– Yes

– No

• Has it worked well consistently?

– Yes

– No

Why Outsource?

• Cut Costs

• Cost Restructuring, Operating Leverage

• Staffing and/or Capacity Issues

• Operational Expertise

• Desire to focus on core Revenue-generating functions

• Flexibility (Flex and Contract)

• Reduce time to market

• Etc.

The Business Context of Outsourcing

• ‘The issue is that if you don’t do it, you won’t survive’ – Daniel Marovitz, COO for

Technology, Deutsche Bank

• ‘Some financial institutions realized that they were becoming technology entities

as well as banks, which is not always desirable.’

• ‘IT can consume 10% to 15% of the revenues across large firms. That's a big

chunk.’

• HSBC decided to outsource mainly because the need to constantly improve

technology was becoming difficult for the bank.

• "We wanted better service quality than what we had, and more agility to respond

quickly to changes in the market," Lars Gustavsson, Group Chief Information

Officer, ABN Amro

• Outsourcing its tech and back-office functions has proved such a successful move

for IndyMac Bancorp that its ranking among the largest U.S. mortgage lenders has

soared from No. 22 to No. 9 in just three years.

What was your company’s major

reason for outsourcing?

Outsourcing Growth Continues

Unabated

Despite a maturing outsource industry

and constant improvements in

infrastructure, every year countless

software projects either outright fail or

experience massive cost and schedule

overruns, costing companies millions

if not billions of dollars.

Why is this happening?

Why is this happening?

• Sloppy, ad-hoc, ―Compulsive Outsourcing‖

– Only about ―cutting cost‖. Vendor selection primarily based on low-cost provider

– Bad processes with a ―take our mess for less attitude‖

– Do it because competitors are doing it

– Random mandate with no vendor mgmt strategy

– No ―partnering‖ strategy

– No outsource project management capabilities

Challenges in Current

Environments

• Generalists are not good enough …

• Building in-house teams is expensive

• Building infrastructure and process

capability is expensive and time

consuming

• Frequent surprises are common

The New Global Trend:

Multisourcing

Multisourcing is 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.Gartner

Multisourcing …

• Leverages multiple best-of-breed specialist teams

• Uses a combination of internal teams and outsource partners

• Leverages specialized teams that are expert in and focus on a single function

• Focus on delivering real value by improving business processes and/or functions

• Is Partner-centric as opposed to vendor-centric

A multisourcing strategy should deliver enhanced

value and an overall competitive advantage through

improved return-on-investment, product quality, and

time-to-market.

―The mega-outsourcing deals of the

past rarely delivered innovation and

significant service improvements.

Smart CIOs today are selecting

world-leading specialist suppliers to

derive the most from their

outsourcing relationships.‖- Someone

Outsourcing vs. Multisourcing

Outsourcing Actions

Ad hoc/reactionary

Tactical event

Problem-focused

Reactive, compulsive

Situational reaction

Separated

Managed metrics

"Supplier" relationship

Command and control

Multisourcing Disciplines

Strategic and repeatable

Studied, operating model

Outcome-focused

Predictive, monitored, measured

Comprehensive and disciplined

Integrated

Governed outcome

"Partner" relationship

Trust and control

Advantages of Multisourcing

• Ability to leverage industry best practices

• Significant improvements to both quality and cost

• Better diagnosis of problems and more comprehensive solutions

• Higher quality, better trained, more stable teams. Specialists

• Better visibility into real project status information

• No conflict of interests between functions and better visibility into real project status

A strategy for Innovation and Continuous Process Improvement, as opposed to

focusing strictly on cost and maintaining a status quo

Transformation

Enhancement

Base

Customer Outsource Provider

• Efficiency and Predictability • Optimum value at acompetitive price

• Preferential partner status

• Competitive advantage

• Enhanced revenue

• Premier or exclusive

partner status

• Continuous optimization

• Competitive parity

or advantage

• Preferred

partner status

• Predictable, recurring

revenue

• Predictable profitable

engagements

• Extend relationship

• Brand enhancement

• Business expansion

and revenue growth

• Profits commensurate

with value delivered

• Revenue and profitenhancement

• Referenceable engagement• Repeatable knowledge• Extend relationship

Transition from Vendor to Partner

Contractual

Management

Dominates

Relationship

Management

Dominates

Utility

Relationship Impact

Business

Value

Key:

= Relationship Management

= Contractual Management

= The Partnership

TheContract

Enhancement

TheContract

Transformation

TheContract

Contract vs. Relationship

Making It Work …

Multisourcing Challenges …

• A new mind-set and frameworks for– Communicating

– Coordinating

– Integrating

• Managing multiple partner relationships– both inside and outside the organization.

• Existing Outsourcing framework does not necessarily support multisourcing requirements– Contract focused?

• Availability of specialist partners

Multisourcing – Critical Success Factors

You must have a strategy.

Multisourcing governance is the single most important

factor in determining success.

Multisourcing is built on a network of relationships — not

transactions.

Multisourcing requires creating measurements that matter.

Complexity increases. If you can’t measure it you can’t manage it

End-to-End process management for communication and

coordination

Making Multisourcing Work ..

• A well-defined engagement model that clearly delineates responsibilities, expectations, and measures of success.

• Near real-time end-to-end process visibility with dependencies between upstream and downstream partners well understood

• A well-defined measurement system that defines Key Performance Indicators (KPIs) and considers both output and in-process measures.

• A well-defined management review and feedback mechanism to assure effective governance

Business

Requirements

Members, as Required

Leadership, Senior Managers

CommunicationCoordinationIntegration

Results

Value

Service Providers

IS TechnicalBusiness

CFOISBusiness

Multisourcing requires a new mind-set and frameworks for

Communicating with, coordinating, and integrating

deliverables from multiple partner relationships both

inside and outside the organization

Value Stream Mapping as a Foundation

Efficiency Metrics Current Target Efficiency Metrics Current Target

Margin ## ## Metric 1

Metric 2 Metric 2

Metric 3 Metric 3

Metric 4 Metric 4

Effectiveness Metrics Current Target Effectiveness Metrics Current Target

Metric 1 Metric 1

Metric 2 Metric 2

Metric 3 Metric 3

Metric 4 Metric 4

Business (VOB) Customer (VOC)

Peak Demand =Annual Sales =

Efficiency Current Efficiency Current Efficiency Current Efficiency Current Efficiency Current Efficiency Current Efficiency Current

Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ##

Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2

Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3

Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current

Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ###

Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2

Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3

DiscoveryProcess Owner: Smith

Description: High Level

(V

OP

)

Post LaunchProcess Owner: Smith

Description: Post Launch

Review

Stage 3Process Owner: Smith

Description: Development

Stage 4Process Owner: Smith

Description: Testing and

Validation

Stage 5Process Owner: Smith

Description: Full Production and

Launch

Stage 1Process Owner: Smith

Description: Preliminary

Investigation / Scoping

Stage 2Process Owner: Smith

Description: Build business case

/ detailed investigation

Coordination, Communication, Integration

Communication

Coordination

Integration

Copyright © 2002

Non-negotiable …

• Clearly defined roles and responsibilities

• Clearly defined interfaces between the parties

• Clearly defined overall and per service provider objectives

• Clear definition of service providers stake in the process

• Clearly defined metrics and scorecards that objectively gauge progress and success

What does the future hold?

CIO

Governance and Process Management

Core Functions and Activities

Integrator / Prime Contractor

Specialist Service Providers

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Incentives/g

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Sco

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Man

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Process Infrastructure, metrics, measurement systems, etc

An Example Where a Multisourcing Strategy

Pays Dividends

Software Performance Assurance

(SPA)

Software Projects are Challenging …• Software product development is complex and

entails many Risks

• Has not caught up with other processes with respect

to process capability and management

– Variation

– Waste and complexity

• Defects are painful and can be very expensive

– Direct Cost

– Revenue Risk

– Market risk

• Quality resources are expensive and in short supply

• Projects routinely suffer from significant schedule and

budget slippage

More than half of software projects fail to

meet objectives and suffer significant

schedule and budget slippage because of

defects, the most significant being those

defects discovered late and/or post-

production!

Studies have shown that it can cost 50 times

more to correct a defect discovered post-

release than it does if that defect is

discovered during earlier stages.

Clearly, effective software testing and verification

should be a priority.

Why do companies continue to miss delivery

schedules, overrun budgets, and release defect

ridden software that requires countless rework

loops to get even close to acceptable performance?

In-house

• Testing and verification function not viewed as strategic or core. Design/development focused

• High cost of onshore resources constrains ability to build QA team

• Lack of specialized personnel, processes, infrastructure, tools, etc

• Takes too long to build team and infrastructure

Outsource

• Lack of reliable status info from single outsource partner

• Generalist partners that do not have sufficient expertise in all aspects

• Status Quo, little or no process improvement or innovation

Some Reasons …

How SPA fills the void ..Focus on testing only with aligned

personnel, processes, infrastructure, and experience in place

• Allows clients to keep core design/development inhouse or leverage other specialist providers

• 100+ certified testing experts. They are specialists in software testing and verifications

• Complete inventory of best practices

• Infrastructure in place to execute a multitude of project types

• Proven, repeatable processes

• Patented technology enablers

• Experience in multisourcing environment

SPA’s Value Proposition

• Access to highly trained team of specialists

• Can build team very quickly

• Leverage an existing infrastructure and best practices

• Flexibility in team size/composition

• Flexibility in services

• Focus on communication plans

• 30+% savings over traditional outsourcing?

• Focus on long-term partnerships. Build business value

• Focus on innovation and continuous process improvement

Conclusion• Multisourcing is an innovative discipline that takes

organizations beyond "quick-fix" cost cutting to enable capability building, global expansion, increased agility and profitability, and competitive advantage. – Innovation and real business value

– Reduced Risk

– Reduced overall cost

• Multisourcing requires a new mind-set and frameworks for communicating, interacting with, and overseeing multiple partner relationships, both inside and outside the organization– End-to-End Process and Status visibility

– Partner vs. Vendor

– Strategic vs. Tactical

Eric Harris

Software Performance Assurance

Ph: 972-533-4605

Email: eric.harris@softwareperformanceassurance.com