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BPO Journal

Wednesday, June 01, 2005

Problems with Multiple Choice

There's an interesting article in CIO Magazine about the cost and complexity of managing multiple outsourcing vendors that's aligned with my discussions with several outsourcing managers in large firms. There is a general consensus on the advantages of use of multiple service providers: reduced costs and improved quality of service that stem from increased competition between providers, access to specialized skills or technical expertise of multiple providers, and reduced hold-up risk (associated with depending on a single service provider).

However, outsourcing managers attest to the time-consuming, complex and expensive management of these service providers. For example, the article states that P&G has spent the past two years shaping a new governance structure to oversee the outsourcing vendors, an area in which the company had little previous experience. Commonly cited dimensions of a governance structure in multisourcing include regular reviews of vendor performance with measurement applications such as dashboards or vendor scorecards, efficient contracts that spell out the need for cooperation and conflict resolution measures, and well trained staff and organization structures that facilitate coordination between and management of multiple outsourcing agreements.

The Deloitte study, "Calling a Change in the Outsourcing Market" that I discussed in an earlier post, highlights the dissatisfaction with outsourcing services among large firms. The findings are aligned with a 2004 CIO survey that cited "a poorly developed, underbudgeted, underresourced governance model" as the primary reason for dissatisfaction with outsourcing among user firms. It would be interesting to find out what percentage of the respondents in these studies were managing multiple outsourcing relationships. My guess is that multisourcing was the dominant strategy among a significant number of these respondents. I think this issue promises to get more problematic than its current form. As more companies leverage outsourcing to reduce costs and increase operational efficiency, more research will be required to understand the dynamics of multisourcing and the effective governance of multiple outsourcing relationships.

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