Out-Law News | 24 Feb 2014 | 12:56 pm | 2 min. read
IT contracts law specialist Simon Colvin of Pinsent Masons, the law firm behind Out-Law.com, said that there are different options businesses can adopt to achieve service integration, including through the procurement of dedicated service integrators, but he said that there appears to be a trend in businesses taking on the responsibility for service integration themselves.
"In the new world, where businesses are relying much less on one single major supplier of IT services, the biggest challenge is how the customer ensures the services offered by the different suppliers involved in a multi-sourcing arrangement integrate with one another," Colvin said. "IT buyers are readily appreciating that they must take a degree of responsibility regarding management of integration and to consider how their contracts deliver end to end services."
Colvin said that IT buyers that take greater responsibility themselves for performing service integration need an intelligent customer function made up of "technically-savvy" staff to manage suppliers, to process management information reported to them by suppliers and ensure effective governance of the end to end systems and processes.
He said collaboration, or co-operation, agreements are increasingly seen as an essential part of the contract make up to ensure that suppliers in a multi-sourcing environment "talk to each other" regarding integration of their services at an operational and process level.
"It is key for the suppliers to engage with one another and address issues of integration where one supplier's services are dependent, at least in part, on another supplier performing their role in the IT supply chain," Colvin said. "For example, being clear on the extent a supplier of email or applications management services will be reliant on the network supplier will be critical to integration of the end to end services."
Colvin said that there may be challenges for customers in 'big bang' approaches to transition from existing arrangements to multi-sourcing arrangements. When defining the strategy for the procurement customers should assess where there are likely to be key supplier-on-supplier dependencies and consider how the contracting process should be crafted to take account of the key dependencies. At the same time, however they will be driven by timescales of expiry of existing contracts, as well as any strategy for bringing aspects of the services back in house, another trend observed in the market currently, he said.
"It is important for businesses, wherever possible, to arrange a sequence to contract negotiations with individual suppliers that will allow issues around supplier dependencies to be addressed within the original contracts," Colvin said. "The risk is that if the dependencies are not considered at the procurement stage post contract negotiations on these points may begin to unravel the value of the deal."
Colvin was commenting after a survey by sourcing advisory company Information Services Group (ISG) found that, where UK companies outsource certain functions of their business, they do so with five or more suppliers in 44% of cases. In just 6% of cases UK businesses use a single supplier.
Other than in the UK, multi-sourcing is most pronounced in the Benelux trading bloc of Belgium, the Netherlands and Luxembourg, as well as Australia and New Zealand, where 36% of outsourcing deals respectively are with five or more suppliers, according to ISG's survey.
"We’ve been witnessing the phenomenon of increased deal fragmentation for quite some time now, but different markets exhibit varying appetites for this," John Keppel, president of ISG North Europe, said in a statement. "Although multi-sourcing is a global phenomenon, the level of uptake differs across countries."
"More mature markets, like the US, have previously embraced multi-sourcing but realised it can be difficult to manage the numerous supplier relationships and have swung back towards a model with fewer providers. However, the UK is still clearly in the honeymoon phase and is employing more sophisticated management models, such as the Service Integration and Management (SIAM) method to maximize efficiency."