By June 1, 1998 Read More →

The Meat and Potatoes of Multi-Vendors | Article

outsourcing deal discussionWhile the glamorous multi-vendor deals are the ones garnering most of the attention in outsourcing, the real growth in that area will come in the less sophisticated arrangements. That’s the opinion of Bill Martorelli, an industry analyst formerly with Giga Information Group.

“What we’ve seen is the tendency of customers to split awards, perhaps in the context of prime contract/subcontractor relationships or as totally different and discrete awards based on different needs,” he said. “I think we’ll see the latter occur more than the Pinnacle Alliance type structure.”

While structures such as Pinnacle can offer many benefits, Martorelli said they also can be problematic in terms of level of management needed. “A lot of people have been preferring to make more direct relationships with their outsourcing vendor, as opposed to building up this multi-vendor structure,” he said.

Find a Management Balance

Martorelli also noted the danger of creating a bureaucratic structure that can drag out decision making. That issue is one that a customer contemplating any multi-vendor relationship structure should consider.

“They’ll need to be careful about finding the right ground between leaving too much control in the hands of the outsourcing vendors versus over-specifying and over-bureaucratizing the outsourcing governance and capability,” he said.

Six Steps to Success

That bit of advice was one of several Martorelli offered customers considering a move into multi-vendor relationships. Six other key points included:

  1. Make sure the companies being considered have dealt with one another in the past. “Try to make sure that their organizing principles and their cultures are not so alien that they’ll have a hard time working together,” Martorelli said.
  2. Be explicit about where the ultimate responsibilities lie. If there is a prime contractor, try to make that organization responsible for as much of the overall activity as possible. At a minimum, be certain everyone knows who is responsible for what, even if some of that responsibility ultimately goes to the customer level itself.
  3. Incorporate protection, in terms of provisions for renegotiation, reevaluation and other similar activities. Spell out the conditions for subcontractor relationships that are beyond the initial participants. Know under what circumstances the customer has approval of who can be selected to fulfill what function.
  4. Specify the circumstances in which new vendors may be brought into the relationship. This can help minimize the tendency of vendors to resist bringing in new parties and avoid situations where such resistance makes it virtually impossible for vendors to work together effectively.
  5. Customers should be very sure to retain within their own organizations the capability to monitor and manage the relationship effectively, even if they are relying heavily on the prime for management. “At the same time, they need to have enough wherewithal to manage and evaluate their relationship on their own and take appropriate steps as needed,” Martorelli said.

Serving the Mid-Range Market

The mid-range opportunities are an important element in multi-vendor outsourcing, according to Martorelli. “As important as the very big deals are, that’s not going to be the be-all, end-all of this business as a whole,” he said. “The kinds of relationships in which customers retain control not only accommodate a wider range of customers, but also allow them to be more flexible in terms of their own business requirements. Those requirements are going to be rapidly changing for all companies, including those in the middle tier.”

Business process outsourcing (BPO) is one of the drivers in the multi-vendor arena. “Clearly companies have different processes,” said Martorelli. “They’re not going to outsource them all to one vendor, because no one vendor is the master of all business processes. That’s going to be a major challenge as to how a company can farm out separate business processes to separate companies and yet retain some sort of overall coherence of cross-functional views.”

Pushing the Envelope

How companies respond to those challenges is one to be one factor in success, according to Martorelli. He noted that the outsourcing marketplace has always changed and evolved and cited the movement in BPO and ERP as proof that the lines between what outsourcing has been in the past and what it’s becoming will continue to blur.

“Customers should keep their thoughts on other emerging forms of outsourcing,” said Martorelli, “and not let their minds be shackled by historic patterns, so they don’t overlook some possibilities that could be advantageous to them from a business perspective.

“They should challenge the conventional wisdom of outsourcing,” he added, “because that’s what all the truly successful customers have done.”


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