Offshore Software Development News, Articles and Analytics: INSIDER

During the past month i realized it's hard for me to post large materials on weekly basis. So i've decided to drop "weekly" from WEEKLY INSIDER and post articles as they go, hopefully twice a month. I will use the official logo of Outsourcing-Insights blog as the new image for my articles. This article is called "Understanding Multi-sourcing" and i hope it will help people realize the challenges and benefits of this approach.

Sourcingmag dictionary defines multi-sourcing as a strategy that treats a given function -- such as IT -- as a portfolio of activities, some of which should be outsourced and others of which should be performed by internal staff. This approach moves away from the idea that all of a function should be viewed as a commodity, easily handed over to a service provider. Multi-sourcing (or multi-sourcing) is also known as "selective sourcing."

Outsourcing of software development and services has become a mainstream for many Fortune 500 companies across diverse verticals. But betting on a single vendor often is not a viable option as functions that an organization wants to outsource may differ greatly. Software, hardware, operations, processing - it looks natural to engage multiple providers that specialize in each of the above.

Even if a company managed to outsource diverse functions to a single provider, there will be always the fear of dependancy on that supplier and the power which transfers to the outsource supplier in respect of their own business activities. Multi-sourcing is the way to mitigate these risks. In fact, industry research indicates that multi-sourcing will be the prevailing outsourcing model.

By 2010, market leaders will instill disciplined multisourcing as a core competency for successful business operations. Lack of multisourcing management discipline will result in large-scale business disruption among buyers, suppliers and their value chains. Gartner

Managing outsourcing relationships is a challenge that requires a whole new set of skills, requiring staff training and setting up a new management structure. Although, when done right, multi-sourcing benefits greatly to achieving high performance.

The Benefits & Challenges of Multi-sourcing.
One major benefit of multiple outsourcing is the best of breed effect: you choose suppliers based on their specific expertise, instead of outsourcing every possible function to a single provider. Further, you create competitive environment, lowering the risk of delivery failures, escalating fees and inflexible services. The multi-sourcing approach also gives organisations more flexibility to follow the crazy pace of tech industry developments like softtware as a services (SaaS) and service oriented architecture (SOA).

Multi-sourcing strategy brings complexity: even if you are engaged with three or four strategic suppliers, breakthrough organizational efforts and sufficient funding are required. While some expenses are one-time, others are ongoing. For instance, tracking all outsourcing agreements requires qualified staff with financial and technical skills.

The other side effect is that you probably will loose some of your outsourcing contracts with majors because large outsourcers are not interested in smaller transactions.

Below are best practices of multi-sourcing and also the list of things to avoid

Multi-sourcing Best Practices

Managing multiple offshore providers can become mission impossible if you fail to follow the best practices:

Look for strategic partnerships
Technology analyst, Forrester Research indicates that best-practice organizations try to establish strong relationships with a few providers, instead of dealing with multiple outsourcers with the goal of reducing outsourcing services to the level of commodities. Taking the time to develop each relationship in a multi-sourcing arrangement is important and can pay off in smoother communication, better execution and avoidance of unnecessary expenses.

Create transparency
Typically multi-sourcing relationships span across diverse IT functions: one provider is responsible for hardware or software, the other is running operations. When the software vendor deploys a new application, the hardware vendor must know ahead how, say, processing requirements will be effected by this new software.

Develop a single SLA
While managing outsourcing vendors across the globe, legal issues can become a bottleneck. Developing a single standard contract worldwide might speed up project lifecycle.

Measure Everything
multi-sourcing projects should be measured vigorously from day one. There are different methods to evaluate outsourcers' performance, such as Balanced Scorecards. Corporate executives love ROI metrics, however it is important to measure not only Return in Investment, but also return on every resource you use.

Multi-sourcing Bad Practices

Focus on price
The number one bad practice deals with the common myth that outsourcing and offshoring are two strategies for getting cheap software and services of good quality. This is last century even if we talk about outsourcing to a single vendor. Today outsourcing as well as multi-sourcing become major tools for building competitive advantage through long-term strategic engagement with best of breed providers. Speaking at Gartner's outsourcing and IT services summit 2007 held in Sydney, Gartner's analyst Linda Cohen said than hit-and-run deals will inevitably fail because most of them were created only to cut costs and provide quick access to skilled workers and managed poorly on both sides.

Ad-hoc management
While running ad-hoc processes is a bad practice per se in any king of offshore engagement, it becomes a real nightmare when you have multiple outsourcers and no outsourcing management strategy. Typically such projects fail to deliver ROI, if any meaningful outcome at all. Setting up proper practices, beware re-instating employees from outsourced units as sourcing managers because their vested interests may hamper the vendor's productivity

"Me too" approach
When done right, multi-sourcing requires significant time and finance commitments, at least initially. Thus multi-sourcing for its own sake does'nt work. With smaller-scale outsourcing contracts it is just not cost-effective to break up the sourcing approach across multiple suppliers. If you need to outsource diverse functions and internal resources are scarce, consider granting the project to a single vendor that manages multiple sub contractors.