8 Myths of Outsourcing

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    Have you ever had the feeling, while sitting in a conference presentation, that the presenters were talking exactly about a blunder you personally have made? That’s the sensation I had during a session on multisourcing given by two Gartner analysts Linda Cohen and Allie Young at the recent Gartner Symposium/ITxpo 2006 in San Francisco.


    They opened with the statement that multisourcing is not the same as working with multiple service providers. They define the latter as being "selective sourcing" — choosing best-of-breed vendors to handle specific aspects of services, one vendor for the data center, for example, and another for application maintenance.


    No. Multisourcing, Young explained, "is the disciplined provisioning and blending of business and IT services from the optimal set of internal and external providers in the pursuit of business goals."


    It starts with the development of a sourcing strategy and builds from there. Why the emphasis on defining your strategy for sourcing? Without it, Cohen said, you’ll end up with "ad hoc — almost compulsive" sourcing decisions.


    In research, she said, Gartner discovered that most global organizations use three to four outsourcers. About 85% say they’re doing it on an ad hoc basis. "They’re going to make situational outsourcing decisions," she said, "vs. decisions focused on a strategy."


    Their talk went on to explain "eight myths of outsourcing," which tend to hold companies back in the effectiveness they can achieve with their sourcing efforts — and tend to generate dissatisfaction with the results. In fact, the speakers said, most companies overrate their sourcing competency.


    What are the myths?


    Sourcing independence: This is a key one — that sourcing decisions can be made entirely independent of business strategy. Young presented a case study that shows the perils of a disconnect between sourcing strategy and business strategy. A company new to outsourcing had an IT initiative led by the CIO and driven by a desire to efficiency, effect and cost takeout. Everything was going well. The initiative had a carefully drawn up RFP and vendor selection process. Then, six months into the deal, unbeknownst to the CIO, a major acquisition was announced that completely upset the outsourcing plan. It involved global integration. Suddenly, the outsourcing deal that focused on taking out costs became "very, very costly."


    Service autonomy. Cohen explained that this involves the idea that somehow one sourcing relationship has nothing to do with another. This nonintegration can cause complexity and disruption needlessly.


    Economies of scale. Calling this one "probably the most prolific" myth, Cohen said it isn’t always true that you can go outside to a service provider and achieve better economy of scale than you can create on your own. It’s really only possible when your operations are standard (not just in your own environment but across the other environments served by that provider) and when they’ll scale.


    Self-management. You’ve signed the contract, set the SLAs, and chosen the best service provider. It’s all self-running from here on out, right? Actually, no. You need to invest in management of outsourcing over the entire lifetime of the contract


    The enemy. The service provider with which you’re contracting is the "enemy," and you can’t give an inch, otherwise, you might not be declared the winner in the contract negotiations. Said Cohen, "Too often, the lowest priced deal is not the deal that you can really live with or not the deal that the SP can make any profit on — for three years, five years, seven years. You have to create a situation that is absolutely win-win."


    Procurement. Outsourcing is an activity that your procurement department can handle for you. The problem with that is that service contracting focuses on relationships and outcomes. Cohen calls the procurement of outsourcing arrangements "an art form," which requires external help — specialized attorneys and advisors — to complete the transactions.


    Steady state. This is the myth that says the services you’re outsourcing will never change. You actually need to create a flexible deal and hire a flexible contractor because you don’t know what your business demands or tech demands will be two years or five years from now.


    Sourcing competency. Even if your company has been outsourcing services for 10 or 15 years, that doesn’t make it mature in its sourcing abilities. Said Cohen, frequently they hear from clients, we "really shoulda had a strategy."


    Have you bought into any of these myths? I have too. To start on your cure, you could start by buying and reading a copy of the Cohen/Young book on sourcing, Multisourcing: Moving Beyond Outsourcing to Achieve Growth and Agility.

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