Customers are at crossroads - should they source all IT needs from a single vendor and face high risk, or multisource and have inherent complexities to manage? The sourcing complexity increase when sourcing has to encompass both consolidation of operations and applications. Does the answer lie in consolidating both or just one of these stacks?

A topic crucial to outsourcing had the experienced participation of

• Donald Martin, CIO Armstrong a global company active in 19 countries, manufacturing wooden home products.
• Mark Power, Global Strategic sourcing leader for Hewitt Associates, the world leader in HR outsourcing.
• Martin Walker, CIO, Sygenta an agribusiness that's of international repute.
• Pete Schofield, the infrastructure and operations director, Carphone Warehouse, UK, a 4 million Pound Sterling company with nearly 1500 branches in the UK, and Europe.

Abstract

The discussion explores the feasibility of single sourcing versus multisourcing. What are the factors that organizations should consider while selecting multiple or single providers or partners? How companies can best leverage their relationships with multiple or single providers? Panelists suggested that a deep understanding of the internal strengths and weaknesses of the organization is really helpful in selecting the right vendor or partner. A strong governance model and cultural compatibility are the important ingredients to make the relationship successful.

Discussion

Danny Rappaport: The subject we are going to talk about today is - multi-sourcing or single-sourcing and does the answer lie in operations consolidation. The gentlemen that are going to talk to us and give their own perspectives about this represent a mixture of experiences both with HCL and the outsourcing subject.

Danny Rappaport: Can I ask you gentlemen to give your perspectives in terms of the core subject that we are here to discuss, multi-sourcing vs. single source?

Martin Walker: The answer is about consciously deciding what you need from the marketplace. Some of those partnerships are strategic, some are commoditized, and for me it is about maintaining a mix that enables me to make right decisions at the right time and to be flexible if I need to. So I have three questions: How do I maintain the control? How do I keep vendors interested in me? What is in it for them?

Pete Schofield: The answer depends on your own organizational maturity and goals whether you go multi-vendor or single vendor. If you are in the live run-time environment and the infrastructure, you need to get it right and keep it safe and keep it up and keep it ready. If you get that wrong, you probably would get sacked. In the application management space you want low governance overhead yet keep your vendors working very much in a partner model with you. In the applications space, do you organize yourself in vertical shapes, or by line of business? Do you have a handful of people looking after specific applications and solutions that drive your business? Clearly you could go multi-vendor across each of those or you could combine in a right mix.

Mark Power: We have seen a huge transition from large single source deals to best-of-breeds deals and a new strategy, a consolidation of all different suppliers through a smaller handful of high value suppliers. The business strategy is to look into your IT portfolio, decide what is core and non-core to the business and understand the capabilities to go through the evaluation selection process, structure contracts, live through transition, and actually put a governance structure in place. There is really a huge rationalization about deciding on what's the right way between our internal organizations back in the States vs. our captive in India, vs. the third-party service providers. Companies continue to grow these centers without stepping back and understanding the strategy they are trying to achieve.

Donald Martin: We wanted to find one provider in India who would do application development, infrastructure management and a number of business processes including customer service, business analysis, and F&A. After a detailed analysis of the capabilities we began to realize that very few of the organizations had created the bridges across either from IT to application development or from infrastructure to application development or from business process to application development. Getting back to the original question, obviously, from a smaller company perspective the fewer relationships that we have the better off we are.

Danny Rappaport: What are your selection criteria for the companies in the context of multi-sourcing or single sourcing?

Martin Walker: I use criteria in terms of what I inherited, because certain decisions were made many years before I joined this business. But staying with the question it has all been about where are my strengths, my weaknesses and how do I plug those and what change I need to make internally to catch up with the future opportunities the marketplace will provide.

Pete Schofield: The criteria for your organization should be whoever you are going to be partnering with should become part of your organization and not just another group of people. We at Carphone Warehouse looked more at what was the organization that we are going to partner with like and did we feel comfortable doing business with that organization.

Danny Rappaport: You mentioned being able to work with the partner. Is that cultural effect or an organizational one, engagement model? Explain a bit about what do you mean.

Pete Schofield: Primarily it would be cultural. It is not just geographical culture but the working culture.

Mark Power: The key asset is experience in the vertical that we are trying to make. We are actually looking for an organization that will help my organization transform across what I am going to do. So there has to be some transformation and extra mile from the service provider to help their buyer untap their capabilities, and I think that's what separates the top-tier organizations from the ones that are second and third tier.

Danny Rappaport: Do you actually use your captive center as part of that process to judge?

Mark Power: Absolutely, the amount of collaboration that takes place and decisions made from a huge collaborated process at Hewitt are to a degree that I have never seen before, and I would like to say that there was some consensus across all decisions.

Donald Martin: As we were evaluating the vendors that we were considering for outsourcing, we began to see clear differentiation amongst their match and fit to what was in the Armstrong environment and recognized the high risk steps that we were taking like having the perspective of what went wrong in the past.

Danny Rappaport: What is the key to multi-source or single source operations consolidation? Can I have your views on that?

Martin Walker: I inherited a number of suppliers in applications, infrastructure, telecommunications and I have transitioned into and out of various suppliers in that area through team merger and so for me it has been important to provide a single point of contact for the internal organization through helpdesk and operations and then to rationalize the delivery organization through a single infrastructure application organization and by shaping my organization up internally to work that way.

Pete Schofield: At Carphone, in the infrastructure space, we've just HCL as sourcing partner. We might get a second one or two, it is probably about as much we want to consider, because in the solution area and in the application area we have something like six I believe and that just feels a little too many. The right way to try and solve the multi- or single-sourcer question is to answer that question for the right reasons and not for just the reasons of maybe we should consolidate our operations because that gives us less of the vendor governance problem to wrestle with.

Mark Power: From my conceptual point of view, I agree with the aggregation of infrastructure and application. I have the opportunity to talk to multiple suppliers who are trying to expand their footprint in the organization. But I haven't actually seen that move to an execution level. So would I move more business and single source it? Probably not, again I would probably fragment it to a small handful of providers that would actually give me wider footprint capabilities.

Mark Power: I think from my experience, as every organization is different, the answer to the question about multi-sourcing and single sourcing is not black and white; it's absolutely just a ball of gray. Simplifying the interfaces would bring in more economies of scale, which should help the price points. So simplifying the governance end makes sense. The real proof is in the pudding, if can you really execute that model.

Donald Martin: I really tend to agree with my counterparts here. Certainly at this scale of Armstrong the fewer is better. With fewer leads you would move those chosen few from the supplier standpoint into the partner perspective. Larger companies find it increasingly difficult to achieve that. So then you boil down to as few as you can while still maintain the diversity you need.

Danny Rappaport: The issues we have are: how much can you afford to manage as a multi-sourcing arrangement - the management of it, the governance. How do you make it work when you made the decision about the suppliers? What is the good strategy to make it work and how do you manage it?

Donald Martin: It is important that at each level of management there is some form of governance in place that is both being measured and reported on and done in a fairly regular basis and equally important are significant visibility in the initial months of the engagement from the organization's executive management into the transition and the stabilization.

Mark Power: In the governance phase, it is really about communications across all levels and about spending time on clearly defining successes and failures and how are you going to handle change management and escalation. Anything that you miss upfront on the process will show itself exponentially in the governance process.

Pete Schofield: Your governance depends on how you set up the relationship in the first place where trust is a cornerstone and contractual rigor is the opposite. The lighter you can probably make the rigor, the more trustworthy and the more open you can then make the relationship, enabling more fruitful relationship with the partner.

Danny Rappaport: Do you believe in terms of the contract that is engendered in the contract or do you have to legislate for a lot of things?

Pete Schofield: I think it depends on how the relationship between the two or multiple parties actually is. It is really a bit of a catch 22. I believe there has to be a better middle ground somewhere where you have not nailed everything down to the last point of an SLA or the last point of the contract, which protects your organization's interest.

Martin Walker: There are two things basically that do not work. One is the contract and the other one is their menus. From my perspective, spending some time understanding how you are going to be successful together is the best kind of investment that you will make in a supplier relationship.

Questions and Answers

Question: We had a similar task about two years ago, looked at a single provider for ITO, ADM and BPO. You married applications and ADM together, probably for some internal business reasons. We went the other way and did ADM and BPO. And the second part of that question would be did you make the semi, insane decision that we did to do all three simultaneously for implementation and transition.

Donald Martin: I will start with the first part which is I would agree with your assessment that the expectation should be that the BPO and ADM people should be more coupled than perhaps infrastructure and application development. Since at the time of our assessment there was no one to couple the practices, to get a rough scale, we found a provider that was capable enough in both areas and over the course of time we would select a BPO provider. And the answer to your second question was our decision was clearly the right decision.

Question: Given the change of the currency exchange rates between India, and North America and Europe what would you guys do to drive more value out of your contracts two years from now? If it continues in the same direction and given what you know today, would you make the same decision on outsourcing or would you be more inclined to keep things in-house?

Martin Walker: I do not think outsourcing is purely a cost decision. I think it is a core competence of the organization decision and what's available in the marketplace. With regard to the marketplace and its strategic ways to the services, I will adapt with the marketplace and if the currency calls us to adapt that then so be it. But that is not the major reason to outsource. It is about gaining. I think better access to skills is going to be out in the marketplace and it will be very difficult to maintain and keep in-house going forward.

Pete Schofield: I do agree with that if it became financially restrictive or prohibitive, then the market will find another way of doing it. So if the Indian market became overly burdensome from a cost perspective, then it is going to change and either other markets would then join in or maybe there would be some kind of subcontracting shift away from the dominant Indian position. So is cost a main factor? It's certainly up there in the top two, and if you value service that you are buying or partnering with higher than the cost, then you would continue regardless of the cost, because the service was wonderful.

Mark Power: I agree with my colleagues. I think it emphasizes the importance of picking a world-class provider because they are going to have to adjust their business models from a buying perspective. It is about getting the required talent to the table and reducing the fixed cost of your business to actually migrate to much more variable cost model to be able to build up and break down depending on your business requirements.

Question: Have you ever tried to implement the TCO model and if yes to what depth? Do you think any of the Indian suppliers and also suppliers based on any of the other offshoring locations have the capabilities to match your TCO model? If you have any of the European operations, specifically, on the other side of the Atlantic or the English Channel on the Continental side, what kind of cultural experience bearing did it have on the TCO model?

Mark Power: I think many organizations struggle with understanding what the real TCO is and the real costs associated with their IT environments. As service providers are better placed than the organizations on the issue of TCO, they can help their clients in making them understand all the components of TCO.

Danny Rappaport: From a cultural point of view, is language ever an issue?

Donald Martin: The language issue is a challenging one and the further northern Europe you move the more challenging it becomes.

Question: We are in the process of setting up an IT outsource governance team. What should be the roles and responsibilities of the team and what should be the skill sets of the team? Thank you.

Martin Walker: The internal model that we follow is one of having business-facing part of the organization, which is all about business requirements, business partners if you like, interfacing into service management organization. We then have a part of the organization that we call sourcing and that is all about service management of our supplier environment and we try to develop skills in going forward and then last but not least is the architecture part of the organization which is looking business process, application to support process, infrastructure to support process and our end-to-end management environment.

Pete Schofield: Mine is very similar to Martin's experience. But we are retaining the IT helpdesk. Why are we doing that? On the cost footing, incrementally, we don't save that much by asking any of our partners to maybe take that on as a service, and on service footing, I am not convinced that the service will be much better than what it is now.

Donald Martin: Within the governance structure, you need to make sure that there is at least a single point of contact for both the organization and the service provider.

Question: My question is how much does outlining your business process requirements upfront play a role in your selection regardless of your supplier and how are you going to architect your solution. How much of you did the groundwork first to say what do I want to be when I grow up as a company and scalability and how do I map my business process around that so that the function or use of the tools and the architecture and the applications prove as efficient as all the claims are in the white papers that are out there?

Pete Schofield: How much time do we spend looking at the business process and from the infrastructure part of the deal if you like, really not as much maybe as you might imagine rightly or wrongly. One thing that we did do, we questioned ourselves that are we now a scalable IT organization and we don't believe that it is. So one of the founding values if you like of our company, and I guess, it would be many of yours, is being able to be responsive. So if we want to get to that market before competitor whether that be Vodafone whether that be Orange, we need to be able to respond. We are actually answering some of the questions, because we think we know what the business wants out of our group IT capability. So we can be responsive in the 80 verticals by employing some of our sourcing partners to maybe take on an entire piece of work, whilst the rest of the IT organization is still busy doing all of the other things. So we can incrementally scale. So we think we are going in a right direction; by the way we are building it anyway.

Question: How you encounter the situation where you got multi-sourcers whose products need to interface with each other to come out with a final product and have you been in the situation, where a problem has risen, source A is blaming source B, source B is blaming source A, and you are the one who's stuck with the problem? Have you anticipated that risk and how have you managed that risk once it cropped, if it has cropped up in your experience?

Martin Walker: In my experience I have identified the environment, service suppliers who are working and are accountable for and then used my own organization to interface between the two, and this has worked well.

Mark Power: I think it is the functional maturity of the internal organization as well as the service providers that matters in business relationships.

Question: My question to the panel is regarding the pricing of services. When you deal with outsourcing what are the factors that go into your mind that are the pluses which would lead you to think about the price increase or maybe the other way round?

Mark Power: All the service providers are really drawing from the same pool of people. From my perspective it is all about the deal structure, about how you are going to actually structure a deal to get the efficiencies out, the economies of scale to really make a value proposition for both the service provider and the buying organization.

Martin Walker: I think there is accountability on an internal organization to try to understand the supplier as much as there is accountability on the supplier to understand the organization because at the end of the day you're looking for a win-win. So I think you need to introduce benchmarking or whatever and the deal structure to make sure you do those two things.

Concluding Notes

Donald Martin: I think my best advice does not have anything to do with multi-source or single-source but I will try and keep it within the frameworks and that is where we started. Throughout the net-wide when you are evaluating your potential opportunities, but clearly narrow it down to as few as you can because I think there is more value for the company and the partners in the short term and the long term by having a closer more aligned relationship and that comes from a fewer rather than a larger number of suppliers.

Mark Power: You know from my perspective whether you go sole source or multi-source I think the biggest success factors or at least one of them when you take away capabilities is choosing a service provider that is going to help your organization live through the transition and transformation and really get to the capabilities where they can really extract the value that the leading service providers bring to the table.

Pete Schofield: From my perspective, I think it's fairly straightforward. Choose your partners such that they match the kind of culture that either your businesses or what you want to move towards. Spend more time finding the organization that actually believes in the kind of values that you do. So you wouldn't want to be the smallest fish maybe in the biggest pond because you might question how you're going to get good value out of that. So get the criteria for choosing your supplier right and really question it if you think it is just the money.

Martin Walker: I think I would turn my attention to the internal organization. The success I think whatever path you choose is really down to the skills, the competencies, the self-learning abilities that you have in your own organization to make it work. If you have got those skills, then there is a market out there that can meet your needs. If you do not, then you will struggle in most relationships.