Consistent with the findings from the Australian BPO Report 2012 this new report from KPMG suggests that the market is taking a more considered view about outsourcing drivers.

Cost cutting is diminishing in importance as a reason to outsource IT, according to research of 630 contracts worth £14bn carried out by KPMG.

In its 2012 UK Service Provider Performance and Satisfaction study, the KPMG found 70% of businesses are influenced by cost when making their outsourcing decisions. This compares with 83% in the last survey two years ago.

The results, from over 200 participants from user businesses, showed 46% said the need for better quality services was their reason for outsourcing, while 51% said it was due to a lack of in-house skills.

Lee Ayling, partner in KPMG’s Shared Services and Outsourcing unit, said the need for better services combined with a lack of in-house expertise is driving outsourcing.

“Just going for a low-cost option isn’t the de facto reason to outsource anymore. Companies are now looking at how outsourcing helps improve the quality of service they can offer to customers,” said Ayling.

“At the same time a thirst for quality improvement means they want access to the skills that may be missing in house and the ability to respond rapidly to change.”

Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner, said the figures look about right from what he is seeing from his clients.

“These figures stack up but I would expect the figure for cost as driver to be in the mid eighties,” said Lewis.

“It also makes sense that a lack of skills drives outsourcing because if you are implementing new technologies it is unlikely you will have the skills in-house.”

The survey revealed 56% of end users were satisfied and very satisfied with their IT service, 31% somewhat satisfied, while 13% were unsatisfied.

Ayling said the increased take-up of multi-sourcing meant suppliers couldn’t take customers for granted and are being forced to re-invent their service offerings.

“The survey highlights that buyers are now using multiple service providers where they didn’t before – hence service providers have to respond to shifting preferences for how IT is delivered if the current trend is set to continue,” he said.

Other key findings revealed that customers are unhappy about service provider performance. A large 45% believe service providers are failing to actively identify opportunities for innovation and three in 10 claim that some agreements are not met on time or to budget.

Source: ComputerWeekly

Stephanie Overby (CIO (US))

An analysis of last year’s outsourcing activity reveals the continuation of a decade-long decline in deal size. While the numbers of mega-deals and mid-range contracts awarded each year has remained relatively stable since 2002, those valued at $100 million or less have more than tripled, according quarterly data from outsourcing consultancy Information Services Group (formerly TPI).
The shift toward smaller IT services deals has been happening for the past several years, with sub-$100 million deals holding steady at around 70 percent of contracting activity since 2009, according to ISG. While IT contracting activity in 2011 increased by 8 percent over last year and is up 86 percent since 2005, total contract values declined slightly year-over-year in the fourth quarter, and the full-year total of $66 billion represented a 6 percent decline over 2010.

In the less mature business process outsourcing (BPO) space, the preference for smaller deals has been more pronounced. “Organizations have been more cautious to adopt emerging BPO strategies as they wait to see if provider capability and quality is really there as promised,” says John Keppel, partner and president of research and managed services for ISG.

It’s not just new or smaller outsourcing customers inking deals of a lesser size. While the percentage of Global 2000 clients signing IT contracts is down from 69 percent (by contract volume) in 2004 to 44 percent today, an increasing number of big, experienced outsourcing buyers are signing smaller contracts.

“Especially in the Americas, we see many companies awarding ITO deals on their second and third generations, and they have become much more sophisticated,” Keppel says. “A decade ago, a client may have awarded an ITO contract to one service provider with instructions to ‘take care of everything’. These days, clients are separating out asset purchases from services and splitting the service stream by scope to many different service providers.”

The data underscores the widespread adoption of the multisourcing approach as the outsourcing market has matured and IT service providers specializing in specific industry or technology capabilities have emerged, Keppel adds. Such a best-of-breed approach can afford several advantages, including allowing IT organizations to establish competitive internal markets for new work, enabling the gradual introduction of new providers, and eliminating the reliance on a sole vendor. “Competitive dynamics keep providers earning the right to do business& a vendor can be tried out on smaller less-critical functions before being handed a bigger slice of business& [and] businesses can spread risk by utilizing a basket of expert suppliers,” says Keppel.

But the model continues to prove problematic for IT organizations to manage.
Several dominant issues plague multisourcing arrangements, says Keppel, including the following:

• Unclear Delineation of Responsibilities
  With little clarity around end-to-and responsibility, providers point the finger at each other or the client when service levels sink, and the customer spends an inordinate amount of time resolving disputes.
• Lack of Supplier Collaboration
  Real or perceived barriers to cooperation among outsourcing providers, such as concerns over intellectual property, thwart innovation and business change efforts.
• Contracting Issues
  With best practices for multisourcing contracts still in flux, the legal language of many deals leave customers wanting–such as poorly defined transition or transformation terms or ineffective service level agreements
• Impotent Governance
  From the client failing to take responsibility for the outsourcing portfolio to multiple governance organizations managing different contracts to inconsistent service management processes, multisourcing customers are flailing when it comes to day-to-day management.

Such management challenges have given rise to the latest outsourcing buzzword: service integration. In the most basic terms, it means coordinating and consolidating discrete services from multiple outsourcers to provide an end-to-end service to the business that meets performance, quality and cost objectives.

Both IT consultancies and, interestingly enough, IT outsourcers themselves may offer service integration. But mature outsourcing customers can also develop internal capabilities for managing multiple IT service providers. The key elements of multisourcing governance include clear delineation of roles and responsibilities, enterprise-to-enterprise processes, common metrics and reporting, shared management tools, risk management planning, and collaboration incentives. Whether such discipline is provided in-house or by a third-party, it’s a necessity, says Keppel, as all signs point to multisourcing as the dominant ITO and BPO model for the foreseeable future. “The development of centers of excellence for sourcing and service management, as well as the outsourcing of some of the core elements of provider control, are now key components of best-of-breed approaches to enterprise-wide sourcing,” Keppel says.

Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section.

By Jaroslav Cerny, CEO of RDB Consulting

Outsourcing has become an accepted model in the modern business, as increasing numbers of organisations begin to realise the advantage of procuring the skills of outside providers, particularly within the Information Communication Technology (ICT) space. Some of the tangible benefits of outsourcing include lowered costs, easier access to scarce skilled resources and improved turnaround times on issues, to mention a few.

However, the field of ICT is a complicated one with many different areas.

This makes outsourcing multiple aspects to one company somewhat problematic, and organisations are beginning to realise that if all services are outsourced to one provider, they are not guaranteed that service levels will be of the same standard across the board. This comes as a result of large outsourcing organisations absorbing smaller companies, which adds to their service stack but does not necessarily mean that these new areas will be specialities. Organisations end up locked into outsourcing contracts with providers who are not delivering according to their needs in certain areas.

As a result organisations are beginning to question the wisdom of placing all of their ICT eggs in one basket, so to speak. To address this challenge they are looking towards a strategy that involves multiple outsource partners for various niche areas, sourcing specialists who will provide high levels of service in each specific area. This has given rise to the next evolution of outsourcing, a trend that has become known as ‘multi-sourcing’.

Customers are beginning to demand better service levels in all industries, particularly in IT where any investment or service is a costly exercise.

When engaging with IT service providers, organisations now wish to ensure not only that they are addressing cost factors and achieving return on investment (ROI), but are also getting the very best levels of service without becoming locked into long-term service contracts.

By leveraging the multi-sourcing model companies can achieve smaller pockets of service capabilities that are easier to evaluate, which enables better fact-based decision-making regarding continuation of services.
With the outsourcing model, where multiple services are stabled with one provider, this switch becomes more difficult since it involves multiple processes and systems. Multi-sourcing on the other hand allows for certain services to be switched without much fuss should niche providers not deliver on these areas, and drives a more competitive environment between vendors as they strive to obtain the advantage by delivering better service levels and greater value adds.

The outsourcing model, and multi-sourcing in particular, falls neatly into line with modern business operations. The skills shortage in South Africa is a reality, and hiring full time resources in-house to manage all IT operations is simply not a cost effective option, particularly when the majority of administration is not in fact a full time job.

Outsource partners can deliver services quicker than internal IT departments, since Service Level Agreements (SLAs) ensure set response times to resolve issues, whereas internal resources are not bound by such agreements. Using outsourced providers also enables organisations to leverage economies of scale. In addition, they have access to a far wider pool of resources to find the best solution and deliver this in short order, on demand, without the need to pay the high cost of a full-time resource.

The multi-sourcing model can be used to find specialists in each area, which guarantees that a specialised service is provided in line with the latest technological innovations and evolutions.

Multi-sourcing as a model provides numerous benefits. Specialist skills are available when needed and costs can be negotiated easily. If similar services can be obtained from another provider for a better price, or an organisation is unhappy with service levels, the provider can easily be changed. These services can be obtained without the consistent expenditure of a full-time resource, and services can be scaled up and down depending on current and future needs. Organisations are not locked in to a single contract with a vendor who may not be delivering consistently across all areas, and using multiple service providers ensures that replacing one area can be achieved with relative ease to achieve better service levels.

On the downside, multi-sourcing does involve a lot more administration, as multiple contracts and SLAs need to be constantly managed. This requires an internal resource to review reports from providers and make decisions regarding performance in order to effectively govern the model. This model also increases potential for suppliers to play a blame game, with one service provider blaming another for bad service across the board. This makes effective management even more important, since the multi-sourcing manager will have the information needed to make decisions based on the facts of service provided.

Using one outsource partner for the entire ICT department involves a lot less administration, however it does increase the organisation’s risk since if that one provider experiences problems the entire IT system could potentially be compromised.

At the end of the day, outsourcing in its various models makes sense in today’s business world. When deciding between traditional outsourcing and the emerging multi-sourcing model, organisations need to weigh up between increased administration versus increased risk, as well as the benefits of obtaining specialist providers in each area when it comes to dealing with mission critical IT appliances.

Source: Developing Telecoms

Nearly 1000 major outsourcing contracts have expired across the globe during 2010 and 2011. A flurry of activity in the BPO and outsourcing marketplace has seen a host of mergers and acquisitions. Despite this, the market locally and across the globe remains crowded (with numerous players of varying size) and competitive. As contracts have been renewed, clients have been making a greater use of multisourcing.

According to research from TPI momentum, the new contracts that clients are signing are shorter in length and include a greater variety of suppliers. More than half of clients who spend more than $50 million annually on outsourcing are employing to or more service providers.

The principle behind multisourcing is fairly simple: breakdown a particular business process, function or service into its constituent parts and allocate those different parts to the ‘best of breed’ provider or internal resource who is best able to manage it. To engage in or manage a multisourcing environment, however, is extremely difficult and complex. Graham Beck, senior outsourcing advisor at PA Consulting Group stated recently “multi-sourcing can only be a viable strategy, if an organisation has the appropriate capabilities and managerial disciplines to discharge its responsibilities”.

It is highly recommended that organisation who have limited or no experience of outsourcing to be extremely careful if they are looking at multisourcing. According to Beck, a client organisations needs to have the technical skills and service management experience to create a framework that can integrate the multiple outsourcing relationships and different elements of the service or function involved.

In essence the client organisation will be adopting a new role as it becomes an integrator of various services and service provider relationships. Many companies and businesses may struggle with this and the investment necessary to be successful may come as an unpleasant surprise. For those organisations that recognise the need to invest and have sound plans in place, multisourcing can deliver real qualitative and quantitative benefits. Organisations that evaluate their outsourcing arrangements effectively from the outset are better placed to realise the benefits.

Mark Kobayashi-Hillary, in his article The Pitfalls of Multisourcing, highlights one major benefit as being the best of breed effect: choosing suppliers based on their specialised expertise and execution capabilities, rather than an ability to service every possible function, regardless of quality.

Multisourcing can also reduce outsourcing risk. Businesses can hedge their bets by utilising a basket of expert suppliers, rather than a single massive provider. It’s a lot easier to replace a supplier failing in a single service than to negotiate with a large supplier failing in key areas but satisfactory in others.

Multi-sourcing allows for vendor comparison, whereby a vendor can be tried out on a smaller or less critical function before being given a larger process or service in the future.

One way to address multisourcing is to utilise an experienced third party to integrate the different service elements and associated relationships. The third party provides the managerial and technical framework for integrating different service providers, as well the project management, consulting and change management skills to ensure the successful transitioning of outsourcing projects.