Bain uses cookies to improve functionality and performance of this site. More information can be found in our Privacy Policy. By continuing to browse this site, you consent to the use of cookies.

Forbes.com

How to Keep Control of an IT System That's Outsourced to Multiple Suppliers

To master increasingly complex IT, companies are turning to multiple suppliers. But that strategy creates another risk: loss of control over mission-critical functions.

  • May 15, 2016
  • min read

Article

How to Keep Control of an IT System That's Outsourced to Multiple Suppliers

This article originally appeared on Forbes.com.

To master an increasingly complex information technology universe, companies and public organizations are turning to multiple suppliers and internal delivery teams. But that strategy creates another risk: loss of control over mission-critical functions.

The shift to multiple IT suppliers makes sense. Long-term outsourcing contracts to a single specialist firm have left many tied to legacy technologies and processes that limit their ability to meet customers’ needs and increase efficiency. Organizations that assemble an array of services from best-of-breed suppliers and internal delivery teams are more flexible and nimble. In the first nine months of 2015, the number of smaller deals valued at less than $40 million hit record levels, while the number of large IT awards valued at more than $100 million annually fell to its lowest level in a decade.

But managing multiple IT suppliers poses new challenges. For one, there’s no single entity to hold accountable. In the absence of a large vendor, in-house IT departments must oversee and coordinate suppliers, and that’s no easy task. Many organizations will need to bolster the skills of their internal IT teams to get the most from a multisourcing model. That means having the ability to switch suppliers rapidly and integrate disparate IT services into a unified technology capability that is secure, reliable and agile.

Of course, leadership teams can outsource service integration and management of a multisourced IT environment, but our experience shows that organizations are more successful when they maintain a critical minimum of four core IT capabilities in-house: overall architecture and design, operational service management, effective change delivery and proactive vendor management. This critical set of functions gives management teams the necessary combination of control, security and flexibility in managing IT services.

First let’s look at architecture and design. Multisourcing allows organizations to select the most cost-effective best-of-breed technologies and services, taking into account the organization’s insights about future market developments. A single supplier must understand the integration of the systems under its control. In a multisource world, each supplier provides one piece of a bigger puzzle that is designed centrally. Companies that rely on multiple IT suppliers perform best when they retain that mission-critical IT architecture and design capability in-house.

To get the maximum benefit from enterprise-scale IT, organizations should redesign business processes and IT architecture in tandem through multiyear innovation programs. That approach paves the way for successful business transformations. Direct control over IT architecture allows companies to make rapid changes at lower cost.

The second mission-critical function is control over operational service management, or the capability to oversee operational performance, resolve issues, ensure cybersecurity and manage change. In recent years, some organizations have outsourced operational service management on its own or with other services, including vendor management, as Service Integration and Management (SIAM). However, those that retain this capability in-house benefit from powerful advantages.

SIAM models aim to accommodate frequent changes in the supplier portfolio while maintaining service oversight and quality. This approach becomes strained, however, as the nature of services evolves. Organizations that keep control over operational service management have full visibility of performance and the customer experience across the environment, including at a lower level than typically required from tower outsource providers.

Project delivery is a third IT capability that is best managed in-house. Delivering complex change means coordinating stakeholders, architects, security functions, and internal and external delivery teams to identify customer needs, develop a solution with an acceptable business case, decide on a delivery approach, obtain the required resources, and manage the integration of delivery and handover to operations.

In some circumstances, a third-party delivery partner can provide end-to-end project delivery. But to enable flexible multisourcing, an organization needs an internal delivery capability that will coordinate delivery across multiple suppliers in one or more towers. No supplier has sufficient knowledge of systems, architecture, capabilities and business context to manage complex changes in a multisource environment. Organizations are better positioned to maintain this knowledge in-house by developing long-term relationships with business and IT stakeholders.

Finally, it pays to keep control over vendor management as a fourth critical IT function—including supplier selection and procurement. That approach helps ensure productive relationships, manage performance, maintain secure supply chains and evolve services over time in line with their own business requirements.

Some organizations seek to outsource vendor management, often as part of a SIAM function. While this can be appropriate for simple, commoditized goods and services, organizations that have multiple IT suppliers should retain this core capability. The benefits of direct vendor management include aligned incentives for all vendors, insight into suppliers’ organizations, and the knowledge and skills to promote innovation and continuous evolution.

Managing a multisource IT model effectively requires robust in-house technology expertise, and in many cases, that means expanding IT staff. Organizations with large-scale outsourcing contracts should retain at least 15% of their total IT workforce.

Given the continual rapid innovation in IT services, the multisource approach to managing IT is likely here to stay. It’s a smarter and more flexible model, with many advantages. But companies and public organizations should understand that ultimately they are responsible for managing all the complexity that comes with it.

Stephen Phillips is a partner with Bain & Company based in London, and he leads the firm’s Information Technology practice in Europe, the Middle East and Africa. Nigel Cornish is a Bain partner based in London. Steve Berez is a partner based in Boston, where he leads the firm’s Information Technology practice in the Americas.

Tags

Want to continue the conversation?

We help global leaders with their organization's most critical issues and opportunities. Together, we create enduring change and results.