Why the public sector is turning to multi-sourcing

Opinion

Why the public sector is turning to multi-sourcing

More and more government departments are turning to multi-sourcing as opposed to single sourcing in the current era of austerity. Recent examples include the Department for Work and Pensions’ (DWP) ADEP (application deployment) procurement process which concluded in the autumn of 2011. Four vendors were awarded prime contracts in five lots:

  • Accenture - Lot 1: customer facing systems
  • HP – Lots 2 and 5 to support the legacy core benefits systems
  • IBM – Lot 3: business facilitating systems
  • Capgemini – Lot 4: business prototyping.

Another example is the Ministry of Justice (MoJ) which in March 2011 awarded three lots to different suppliers for various components of its shared services program:

  • Steria for a common back-office operating platform
  • Savvis for hosting services on an infrastructure-as-a-service basis
  • Accenture as lead for systems integration.

Back to the future

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Multi-sourcing has stood the test of time; twenty years ago in the relatively early days of IT outsourcing, it was widely assumed that organizations would soon stop using specialized firms for activities such as data centre and server management, workplace services, network management, and application management. It was argued that in the matter of a few years, these distinctions would disappear and the industry would be left with a small number of firms dominating multi-process IT outsourcing across the entirety of IT infrastructure management and application management.

Preferred suppliers

Instead, twenty years on, organizations still predominantly outsource IT infrastructure management services and application management services within separate, rather than combined, IT outsourcing contracts, as demonstrated by the DWP and MoJ examples. Only some vendors have capabilities across both IT infrastructure management and application management and clear divides still exist. Organizations in both the private and public sectors tend to maintain a single-digit number of preferred suppliers, frequently chosen along process domain lines, for application management. The purpose here is typically to maintain a level of competition between vendors as much as deploying vendors according to their strengths.

Drivers for sourcing

Primary drivers for multi-sourcing contracts include:

  • A desire to adopt best-of-breed for a particular process or domain and ensure access to superior capability
  • A desire to maintain a level of competition between vendors to ensure quality of service and a competitive price.

Single-sourcing, on the other hand, tends to be driven by:

  • A desire to reduce the level of resources incurred on vendor management
  • A desire to work more closely with a vendor and devote the resources appropriate to a strategic partner
  • A desire to take a more end-to-end approach to process development.

Multi-sourcing

The advantages of multi-sourcing in BPO are easy to see as it encompasses 100s if not 1000s of distinct processes– many more than in IT outsourcing. There are few vendors with end-to-end capability within individual processes, e.g. many vendors can offer P2P services and some have procurement support capability but few have significant category management capability to offer end-to-end source-to-pay. Similarly in HRO, the leading vendors in say payroll are only in rare cases able to offer say RPO or learning services. This means that at present it isn’t typically possible to select a single vendor to handle a wide range of processes across front-office customer handling, industry-specific middle office silos, and support functions even should the client organization wish to do so.

Nonetheless, in BPO, as in application management, and the current economic climate has speeded up vendor consolidation. By maintaining a small portfolio of strategic vendors organisations develop close collaborative BPO relationships based around centres of process domain excellence.

Disruptive technology 

At the same time as reducing the number of strategic vendors, it seems likely in BPO, as in ITO, that organizations will increase the scope of outsourcing activity within a contiguous process domain as vendor capability develops since the process scope within individual BPO contracts is typically narrow.

The disruptive element within this vendor consolidation process is the emergence of cloud, with specialist SaaS and BPaaS suppliers, of whom salesforce.com is an easy example, increasingly supporting edge processes alongside the client’s principal outsourcing vendor portfolio. So in the medium term, organizations are likely to maintain small, and reducing, numbers of strategic ITO and BPO vendors complemented by a range of SaaS and BPaaS specialists principally supporting edge processes.

Sarah Burnett is research director for Public Sector BPO at NelsonHall

 

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This was first published in May 2012

 

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