Stop outsourcing, start multisourcing, says Gartner

Out-Law News | 09 Nov 2005 | 9:04 pm | 2 min. read

Companies should look beyond the traditional view of outsourcing and adopt a more disciplined approach called multisourcing if they are to achieve business growth and agility, according to Gartner, the market analysts who coined the new term.

The firm warns that outsourcing has become such an integral part of successful business practice that many organisations are embarking on outsourcing programmes almost without thinking.

However, according to Gartner vice president Linda Cohen and Allie Young, author of Gartner's new book Multisourcing: Moving Beyond Outsourcing to Achieve Growth and Agility, firms would be better to avoid compulsive outsourcing.

"Chaotic and compulsive outsourcing creates as many challenges as it solves. Furthermore, in many cases, the problems are caused by the immaturity of the organisation's sourcing practices rather than being the fault of the service provider," said Cohen. "Organisations learn too late that managing external services requires vastly different competencies than managing the same, internally provided services."

Gartner lists eight outsourcing myths that are undermining outsourcing success.

  • The myth of sourcing independence: This is the idea that sourcing decisions can be made entirely independent of business strategy. As a result, organisations create outsourcing relationships that are incompatible with the business results expected.
  • The myth of service autonomy: A similar myth is that services are autonomous-and one sourcing relationship has nothing to do with another. According to Cohen, in today's world, "all of a company's business processes and services are interrelated. We've created an operating environment where autonomous services simply don't exist."
  • The myth of economies of scale: This myth takes the form of service recipients demanding cut-rate prices for highly customised services. "Service providers can only pass along cost savings from economies of scale if they can achieve scale through standardised offerings," said Young.
  • The myth of self-management: Buyers believe that once they sign a contract the outsourcer and the contract itself will manage the service. Most organisations do not budget and plan adequately for the ongoing management of the relationship and the services that are provided.
  • The myth of the enemy: This is the idea that service providers are out to fleece service recipients. Many organisations view contract negotiations as a war in which there will only be one winner rather than an attempt to create a mutually profitable relationship.
  • The myth of procurement: A related myth is that the sourcing of services is primarily a procurement exercise where best price wins. In reality, many services outsourced today are vital to corporate strategy, and therefore issues of capability, culture, relationship, and other factors are often more important to long-term success than price.
  • The myth of the steady state: This myth supposes that, once signed, the outsourcing contract remains set for its term length. In reality, outsourcing contracts and relationship management must be developed to anticipate and accommodate change.
  • The myth of sourcing competency: Finally, and perhaps most painfully, many organisations believe that they have the requisite expertise to manage complex sourcing environments even when they have never done it before.

According to Cohen, building a successful sourcing operation requires a new approach that goes beyond the traditional view of outsourcing – hence multisourcing.

Gartner describes multisourcing as an innovative discipline that takes organisations beyond "quick-fix" cost cutting to enable capability building, global expansion, increased agility and profitability, and competitive advantage. As such, it requires a new mindset and frameworks for communicating, interacting with, and overseeing service relationships both inside and outside the organisation.

Central to a successful multisourcing approach is the creation of a sourcing strategy that is tightly linked to the overall business strategy and constantly monitored by an effective enterprise-wide governance system.

Firms looking to move beyond outsourcing to multisourcing must therefore have an integrated, holistic sourcing strategy across all services and focus efforts on creating sourcing governance appropriate to the organisation and service needs, said Cohen.

They should also make sure that in evaluating a provider's performance they measure and track the things that directly relate to business outcomes.

Finally, companies should also remember that multisourcing is about building a network of relationships, not just signing contracts.