Meeting the challenges of supplier relations in a multisourced environment

By Search SMB Asia | May 22, 2008

The growing trend towards Multisourcing as the IT sourcing strategy of choice brings with it a unique set of challenges for both clients and Service Providers. If they hope to derive maximum benefit from their Multisourced relationships, both parties need to make a firm commitment to how they interact.

For clients, this means arming themselves with a new set of skills and management competencies, and a different mindset around how they communicate, interact with and oversee service relationships inside and outside the organisation.

For Service Providers, Multisourcing mandates a collaborative approach, flexibility, transparency and a change in the way they understand business goals and interact with the client and one another.

The popularity of relying on a single provider is waning with organisations demanding more from their outsourced Service Providers and seeking a partnership relationship where common goals and aspirations are targeted. This has resulted in organisations opting for selective sourcing or – Multisourcing – models where certain functions are outsourced and selected functions are retained in-house.

Dexter Wee, General Manager of iBOSS, Datacraft Asia, suggests several reasons driving this trend.

“Traditional outsourcing engagements, apart from not achieving expected reductions in IT spend, lack alignment to business objectives. In addition, Service Providers’ relationships with clients often contribute little in terms of innovation and thought leadership. By employing a variety of ‘best-of-breed’ Service Providers, organisations will enjoy greater agility and reap competitive advantage.”

Wee also comments that employing multiple suppliers allows companies to negotiate better deals and establish comparison points between internal service organisations and outside suppliers. However, companies must still address a range of complexities associated with this sourcing strategy. For example, how do companies deploy end-to-end delivery processes across multiple providers? What’s the best method of transferring accountability and responsibility?

Clients and suppliers must have a relationship based on trust

“In traditional client-supplier relationships, the primary focus is on cost or price. There’s often a lack of trust between organisations and their Service Provider which can jeopardise the success of the overall engagement,” explains Wee.

He adds that when implementing a Multisourcing model it’s vital for organisations to adopt the attitude that their Service Providers are strategic partners and not just vendors from whom goods and services are procured.

“Clients and suppliers must have a relationship based on trust that focuses on mutual business outcomes. Service Providers must better align their services and contracts to their clients’ unique needs,” says Wee who believes Multisourcing is ushering in a new standard of client-supplier relationship where each party is committed to greater collaboration.

One way to achieve greater collaboration is to adopt a service model that involves working closely with clients in a blended team. This involves growing the client’s staff professionally, which in turn manages any concerns around loss of knowledge and increased staff turnover.

Effective measurement techniques key to trusted partner relationship

“Effective measurement techniques are key to establishing a ‘trusted partner’ relationship between clients and Service Providers,” adds Wee, who says a common problem in traditional sourcing relationships is that Service Level Agreement metrics have no bearing on business outcomes. This means organisations cannot ascertain whether they’re obtaining value for money and are unable to reassure management that they’ve made a wise decision to outsource.

Wee believes that adopting a Multisourcing model requires a new discipline to measure and monitor the performance of sourcing relationships. Imperative to this process is commitment to full transparency by both client and supplier. For Service Providers, this means being willing to share true costs and delivery effort information with the client.

“At the same time, clients must provide Service Providers with as much information as possible on its organisation. This includes the short and long-term strategy, business goals and priorities, as well as current and future IT ventures. Both parties must find ways of linking this transparency to business value rather than only to costs,” he adds.

Wee reckons a balanced scorecard approach to measure the relationship is a viable option: linking service delivery to elements such as reducing service desk incidents, improving infrastructure utilisation, and ongoing systems enhancements.

Multisourcing models require two or more vendors with different roles and responsibilities to collaborate in order to deliver a service. While each vendor is individually accountable to the client through Service Level Agreements, they are not necessarily accountable to one another. Good management practices are therefore critical in order to keep the sourcing relationships from veering off-course.

“Clients must develop a formal Multisourcing framework which sets out the rules of interaction and demarcates responsibilities between multiple vendors. This helps avoid disputes (between the outsourcing partners) which could potentially jeopardise the project’s success.”

However, Wee stresses that where an organisation’s internal capabilities are immature in terms of governance and processes, managing supplier relations in the Multisourcing space will be an onerous challenge.

Capability Maturity Models are good tools for auditing organisation capabilities to manage interaction capabilities effectively. They also allow organisations to pinpoint the gap between where they are today, where they want to be in future, and develop a strategic path to achieve mature, disciplined internal processes.

Achieving healthy client-supplier relationships is not a one-way street

In the Multisourcing space, achieving healthy client-supplier relationships is not a one-way street: Service Providers need to adapt the way they interact with clients and other Service Providers in order to share other ‘pieces of the pie’.

Wee notes that innovative price models are becoming increasingly commonplace in Multisourced engagements. “A basic support service relationship is typically managed on cost and the client pays for the service at a pre-agreed fixed price. In most cases, the client is entirely responsible for the investment and associated risks. The provider is accountable for specific project deliverables, but not the final business outcome,” says Wee.

“However, when Service Providers engage with clients at the value-add, strategic level, they may consider moving beyond fixed-price work into a contract where client and Service Provider share both the risks and rewards. As a strategic business partner to the client, the Service Provider’s revenues and margins become dependant on the measurable outcome of the project,” he explains.

On a more cautious note, he suggests that to be effective, shared risk/reward engagements must be underpinned by a relationship based on mutual respect and flexibility, where both parties are focused on reaping the long-term rewards of each other’s successes.

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