Accessing Best of Breed: Making Multisourcing Work
The diversity of ways in which information technology is exploited embeds it deeply in the operations of the contemporary firm. A competitive business, in its drive for performance, also draws on a widening spectrum of related human capabilities – from professionalism and experience in how to make the technology work to professionalism and experience in how to deliver its application. The well-demonstrated business benefits of focus and specialization argue that today’s organizations should therefore have a well-thought-through and focused IT sourcing strategy that guides how best to access the specific best of breed IT capabilities it requires. Options range from tightly integrated in-house operations to a blend of externally- and internally-sourced capabilities. What matters is that the choices made should demonstrably relate to sustainably delivering the competitive performance objectives of the business.
The ways in which the market offers today’s business the capabilities of contemporary IT are also changing and diversifying fast – from fully commoditized infrastructural and transactional services, to highly specialized consultancy and implementation services tightly focused on particular business sectors. Offshoring and globalization bring the extensive resources of India and China within reach; global telecoms, the World Wide Web and broadband access enable an increasingly open and globally competitive services marketplace. Perhaps most broadly, these days almost every large firm is a provider of technology-enabled business services (TEBS) to some part of its supply or demand chain, and thus most enterprises are both consumers and providers of various forms of IT services.
This growing diversity of sourcing options offers today’s organizations wider opportunities to ‘multisource’, an idea that goes back at least to the early 1990s, and whose evolution is charted on the next page. By multisourcing we mean the deployment of not just multiple vendors, but as we shall see, multiple forms of sourcing. However, with this multisourcing come the costs and risks of complexity. How a firm best strategically sources and manages best of breed IT capabilities to perform competitively is thus a serious business issue, to be actively managed by the Board, the CIO and the senior business/IT team.
This research project builds on and extends earlier work on dynamic outsourcing published by the LEF in 20041. It also draws on a 2006 LEF report2 that provides a framework for approaching the human dimension of the best of breed challenge. The objective of our latest research has been to validate and develop our thinking by accessing the experience and insights of a range of companies already grappling with these best of breed/multisourcing issues.
The report includes five self-diagnostics in the form of Worksheets (pages 11, 16, 22, 27 and 33-34) to help you better understand and apply the insights resulting from our research.
Throughout, the term Enterprise IT has been used to encapsulate the customer’s IT resource in the widest sense; and Vendor IT as a parallel expression for the supply-side resources in the IT marketplace.
Figure 1 - Evolution of Enterprise IT services, 1987-2017: the rise of multisourcing
The last two decades have seen continuous evolution of the Vendor IT ‘offer’. In the 1980s, most corporate IT was done in-house by Enterprise IT, which contracted external suppliers as required for programming and systems integration, to provide wide area network services, or to build or manage the local area network. Vendor IT developed, manufactured and marketed hardware, operating systems and specialist applications. The (generally nationalized) telecoms vendors sold analogue voice and digital data network services.
The 1990s saw rapid expansion in Facilities Management (FM), now called IT Outsourcing (ITO): large-scale, long-term arrangements outsourcing infrastructure and applications to a single supplier. These deals fuelled the growth of major American Vendor IT providers, created for the purpose (such as EDS and CSC) or through the diversification of existing Vendor IT (for example, IBM Global Services). These and other large players rapidly expanded into Europe and Japan.
In the late 1990s, a new breed of Vendor IT emerged, leveraging the increasing consumerization of IT. The Internet grew into a public infrastructure of global reach; companies such as Amazon, Yahoo! and Google began developing ever more powerful and attractive capabilities targeted at consumers rather than Enterprise IT. Meanwhile, the ‘Millennium Bug’ spurred much of the initial growth of Vendor IT companies in India.
Since 2000, the rigidities and disappointments of single sourcing deals have pushed Enterprise IT towards shorter, more flexible contracts and innovative business models. The consequent surge of offshoring to India and other emergent IT economies, the expansion in capabilities of ‘Tier 2’ suppliers in Europe and the US, the launch of Business Process Outsourcing (BPO) ventures, the fast growth of consultancy-led ‘transformation’ players such as Accenture, and the maturing of the consumer ‘offer’ all combine to create a vibrant multisourcing marketplace. Looking ahead, we can see a variety of possible scenarios, all of which will likely play a role in the services industry of the next decade.
Figure 2 - The LEF Best of Breed project
In our view, best of breed sourcing is about a business being able to access and exploit IT that is both:
- Fit for the purpose the business requires.
- Best in its class as demonstrated by objective measures well aligned with what the business requires to deliver its performance objectives.
Thus defined, best of breed IT resources may be found inside the firm, and/or outside the firm; inside or outside the IT function; and (in an increasingly global marketplace) anywhere across the globe.
Our research methodology was straightforward. Senior managers with prime responsibility for shaping and delivering their company’s IT strategy were interviewed, in most cases face to face, for approximately 90 minutes. The interviews were conducted within a framework of questions formulated in advance by the LEF team to explore the way each company’s IT sourcing practices had been developed in recent times, and how these practices related to delivering the business objectives of the company. The ‘Chatham House Rule’ applied: the confidentiality of each company is protected, while specific learning and insights from the interviews may be articulated and shared.
We made two important assumptions. The first is that supply-side business (Vendor IT) developments are as important to the sourcing debate as demand-side (Enterprise
IT) developments, and indeed that these two worlds are increasingly overlapping. Our interviews attempted to capture how both are currently seen. The second is that emerging best practices, or next practices, are being shaped as companies grapple with the increasingly complex sourcing challenges they face. Our interviews attempted to capture and articulate these next practices.
Figure 3 - Research plan
We interviewed 22 companies from a range of industries, and one Government agency. They are predominantly UK-based, with some based in the US. Many are members of the LEF and some are clients of mainstream CSC services. In selecting participants, we tended to choose larger companies and those with known experience in developing IT sourcing strategies. In almost all cases the companies interviewed had exploited external IT sourcing, generally in the form of classic FM or ITO deals.
Within the constraints of a 90-minute interview, our focus was inevitably on the big picture – the core aspects of the company’s IT and sourcing strategies. How things had come to be as they are took time to unravel but was often vital to understanding why things are as they are, and how this might constrain options going forward. A coherent sense of an Enterprise IT ‘journey’ over time developed, and this journey, once mapped, was and is broadly the same for most of the companies. This path we have articulated below (see page 15). Several have already travelled a long way, with the Airport company arguably leading the pack.
The next few pages summarize what the interviews revealed.
1 Tony DiRomualdo and Francis Hayden, “Innovation and Agility through Dynamic Outsourcing”, CSC’s Research & Advisory Services Report, November 2004.
2 Dr. Richard Sykes, “Delivering Sustained Competitive Advantage through Information Technology Services’’, LEF Report, April 2006.