successful multi-sourcingSuccessful Multi-Sourcing An early form of multi-sourcing was to give the integration and governance role to one of the vendors -- usually the one that seemed

successfulmulti-sourcing:

7 steps to ensuring that “best of breed” service providers can work together to lower your costs and improve service performance

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Successful Multi-Sourcing

contents03 | executive summary

04 | the potential pitfalls of multi-sourcing

06 | the common (incorrect) approach to multi-sourcing governance

08 | 7 steps to multi-source successfully

08 | step 1 - get the right skills into your Intelligent Client Function (ICF)

09 | step 2 - relationship management

09 | step 3 - contract management

10 | step 4 - keep your vendors in check

11 | step 5 - promote positive dialogue

11 | step 6 - enforce long term involvement

12 | step 7 - avoid “man-marking”

12 | summary

13 | how to reduce costs and improve service outcomes, fast

14 | how to accelerate your approach

15 | about best practice group

02 www.bestpracticegroup.com


03www.bestpracticegroup.com

Most outsourcing agreements are defined by one of two key structures:

1. “Traditional” outsourcing: a main contractor does some of the work

in-house, but also sub-contracts other elements of the service to

more specialist providers.

2. Multi-sourcing: the client employs and directly manages multiple

“best of breed” providers with specialised skill sets.

On the face of it, multi-sourcing presents an opportunity to reduce costs (by handling the

overall management of the contract in-house rather than through a prime contractor) and

to increase service quality (by employing specialised contractors directly).

However, for any would-be outsourcer, multi-sourcing presents two inter-related

challenges:

1. How does one embrace the integration role? and

2. How does one govern and manage what is inevitably a complex

contractual and commercial environment across multiple

providers? Such challenges become even greater in the regulated private sector or the public sector,

where the enterprise is usually faced with having to satisfy a regulator or overseer, who

will be keeping a keen eye on the integrity of its arrangements.

In this white paper we will explore the potential dangers of multi-sourcing, and how the

typical approach to governance is flawed. We will then conclude with a step-by-step

guide to successful multi-sourcing.

executive summary



An early form of multi-sourcing was to give the integration and governance role to one of the vendors -- usually the one that seemed to be best qualified either by its experience in integration and commercial management or, too often, the one that was the largest by value or the most important technology provider.

An occasional variant on this theme was to engage one vendor to exclusively perform the roles of co-ordination, integration and governance. Such arrangements were glued together by complex commercial arrangements obliging the various suppliers to bow to the leadership role of the so-called “lead vendor”. In a sense this was a bastardisation of the “prime” contractor role, and in that, its weakness emerged.

The advantage of the prime contractor route is that it provides for one organisation to be held accountable for non-performance. The prime contractor chooses its suppliers, and that one entity takes responsibility for the entire contract.

However, such roles inevitably come at the cost of both a risk premium and overhead charge on top of the various subcontractors’ charges. This presents an environment where the prime contractor can increase

the potential pitfalls of multi-sourcing

its profit by taking on more and more of the work itself.Whatever its operational and technological downsides, the prime contractor approach is not without its advantages commercially. However, it does not represent multi-sourcing in its true sense, nor does it bring with it the same unique benefits.

A lead vendor in a multi-source cannot, by definition, take on the responsibilities of a prime contractor. It cannot choose other vendors, has no direct contractual relationship with them, has no “levers of power” over them, and is ultimately not responsible for the performance of those suppliers. Furthermore, it cannot take responsibility for the technical solution of any individual vendor, nor whether the various vendors can properly work together -- either technologically or operationally.

Outsourcing (single source)

client sub-contractorsprime

contractor(outsourcer)

Responsibilityfor integration

The advantage of the prime contractor route is that it provides

for one organisation to be held accountable for non-performance.



Whilst a lead vendor may try to grease the wheels in order to keep a multi-source running, it cannot take on the level of responsibility that you would expect from a prime contractor. Therefore, the full responsibility rests upon the shoulders of the customer. With that in mind, it can be tempting for a customer to stitch together complex commercial and governance arrangements whereby the parties commit to work together, with the customer somehow playing the role of mediator. Whilst fostering and obligating collaboration in a multi-source environment is of vital importance, the customer must not deceive itself -- it is not a neutral mediator. It has key obligations -- both to the suppliers but, more importantly, to the enterprise as a whole. In other words, the customer is always the customer and it cannot shift risk that, by the very nature of the structure of multi-sourcing, is its own. In fact, by trying to assume

the role of a neutral party, it effectively leaves both the customer and integrator role unoccupied.

A customer could bring in a party (or parties) to assist it in carrying out the integration role, or even the governance and commercial roles, and put performance targets on that party or parties. Whilst this approach can be an effective tool, the customer should remember that it is not ceding any form of risk or responsibility by doing so. Whoever is brought in is ultimately the customer’s agent, and there is a limited amount that such an agent can or should do in such role.

All of the above leads to one clear point -- the price of multi-sourcing is that the customer must occupy the integration and management roles itself, and it must do so effectively in order for there to be a beneficial outcome. That price is almost certainly worth paying, but it must be recognised, respected, and addressed appropriately.

Responsibilityfor integration

Multi-sourcing

client multi-source contractors

A lead vendor in a multi-source cannot, by definition, take on the

responsibilities of a prime contractor.

The price of multi-sourcing is that the customer must occupy the integration

and management roles itself.

compromising the boundaries of commercial and operational responsibility.

This still happens today and it could be argued that some vendors deliberately confuse matters by offering to help the customer design the so-called “retained” function. Whether it is deliberate or not, customers need to understand that a supplier is hardly a disinterested party in designing the entity that will be its prime customer interface. As a supplier rather than a customer or customer advisor, it is usually more expert in what it wants, rather than what would maximise value for the customer.



the common (incorrect) approach to multi-sourcing governanceIn the days of traditional outsourcing, we used to talk of the “retained team” -- typically known as the client management team, or Intelligent Client Function (ICF). This team was usually made up of a small cadre of people who did not transfer to the vendor, or where original roles were made redundant and who were put into new roles to manage the contract.

More often than not, the retained team was made up of those who were too expensive to transfer or make redundant. They were typically accomplished employees who knew the business and technological environments very well and were competent managers and technologists. And yet, such people had little exposure to contract or supplier management, nor had they been mentored in the roles of being a customer or integrator.

Furthermore, executives would often still feel the need to “take charge” and directly instruct ex-employees now working for the provider. These ex-employees would typically be reluctant to refuse the wishes of their prior employer. Moreover, they were almost certainly instilled with the new culture of the vendor, which was to keep the customer happy and, if possible, grow the business by taking on new work. Unfortunately, all of this circumvented the structures and governance established by the outsourcing contract, thoroughly

Executives would often still feel the need to “take charge” and directly

instruct ex-employees now working for the provider.

Little exposure amongst managers to contract or supplier management leads to confusion in understanding the behaviours around thecontract terms.

?contract

The lesson to be learnt from first and second generation outsourcing is that the original concept of the “retained function” is wrong. Customers do need to retain knowledge of their domain and the capacity to set their own strategy and leadership in response to the dictates of the business. However, most of the skills they will need in an outsourced environment are new and unlikely to be found amongst those who have taken a traditional career path within the enterprise. People can of course be retrained; but only if they are suitable, want to pursue the appropriate career path, and recognise (as does their employer) that it will be a long time before they have the requisite experience to effectively manage a complex outsourcing environment. Moreover, an entity with the appropriate experience has to be identified to provide the suitable training.

In truth, most of these skills will need to be procured either in the form of new employees, or by engaging external advisors that can provide them to the customer -- albeit with the enterprise itself taking ultimate responsibility and training their internal terms. All of this presents a much greater challenge in multi-sourced environments. The integrator role, both technologically and strategically, is placed firmly on the shoulders of the customer. The price of engaging “best of breed” suppliers is that this situation has to be managed. Although multi-sourcing offers huge theoretical upsides, the customer must accept a great deal more risk in order to achieve positive outcomes.



The customer must accept a great deal more risk in order to achieve

positive outcomes.

new contractmanager

new contractmanager

employeein new

role

Most of the skills needed in an outsourced environment are new and unlikely to be found amongst those who have taken a traditional career path within the enterprise. These skillswill need to be procured and your teams trained.

what you expect

what actually happens

employeein new

role



7 steps to multi-source successfullySuccessful multi-sourcing revolves around the customer’s acceptance of its role in the contract, and by extension, its willingness (and ability) to perform the necessary role. This requires a considerable shift in expertise and culture within the client governance team.

step 1 -- get the right skills into your Intelligent Client Function (ICF)As you might expect, the first step to effective multi-sourcing is to create an appropriately equipped ICF. You need employees who are skilled in integration, delivery management and contract management.

What you don’t need are vanilla project managers, who are by their very nature ill-suited to the task at hand. The best project managers naturally wish to control the totality of the environment, so that they can ensure that everything happens to plan with the least risk. They are rarely happy with multi-sourcing, due to its multi-faceted nature.

Your team must understand their responsibilities as managers of the vendors, not the services. Their job is to ensure that all vendors are well-integrated and meeting their targets, and their focus is always on the “what”, not the “how”.

Your team must understand their responsibilities as managers of the vendors, not the services.

✖ ✔

clientprime

contractor(outsourcer)

In-house managers need to manage the vendor not the services.

sub-contractors

ex-employees &sub-contractors

client



As part of a multi-sourced service, you must employ a relationship management team -- often called the Strategy Relationship Management Team (SRMT).

Their role is in some ways a reverse of the various supplier account executives. They take responsibility for managing the interface with the vendors, ensuring everything is working, and that the opportunities presented by the vendor “community” are harvested to the benefit of the enterprise.

It is a pivotal role and is probably best done by individuals who have a thorough knowledge of both the whole customer enterprise and the supply industry. They also need to understand the direction of travel in the service, and what this means for the business as a whole. Finally, it is important that this individual or team is committed to and disciplined in abiding by the intended nature and spirit of the outsourcing relationship.

step 2 -- relationship management

You will also need a contract management team -- a guardian of the “true faith” and integrity of the multi-sourcing contracts.

This team takes responsibility for the various contractual and commercial arrangements, contract changes, financial matters, and the relationships between the various contractors from a commercial and governance point of view. It also acts as the prime negotiator with the suppliers, and has to be involved in all formal or semi-formal dialogue with the supplier community as a whole, as well as the various individual vendors.

There is a tendency for customers to not understand the importance of this role. However, contract management is a career path in itself, and good contract managers are actually very difficult to find.

In default of an appointment, the role tends to devolve to procurement, or even the legal department. This is unfortunate, because the necessary skills are very different. In procurement, the emphasis is on getting the best deals up front. In legal, the emphasis is on

step 3 -- contract management

Make sure the contract and behaviours maintainalignment for best business outcomes.

best businessoucomes

behaviourscontr

act

best businessoucomes

Strategy Relationship Management Teams workwith vendors to ‘innovate’ and design better ways of working to reduce costs and improveperformance across all services.



addressing serious disputes or supporting major negotiations from a strict legal obligations point of view. Neither of these approaches is suitable for using contract management to achieve the most effective business outcomes.

Neither of these approaches his suitable for using contract

management to achieve the most effective business outcomes.

There is a strong tendency in outsourcing for suppliers to circumvent the ICF, in search of a more forgiving dialogue directly with the heads of service themselves.

This is particularly dangerous in a multi-source environment, as the business rarely understands the particular responsibilities of each supplier, nor the commercial underpinning of the whole set of transactions. It must be avoided at all costs. For more information, see our white paper on “Strategic Vendor Responsibilities: why New Court Rulings mean that strategic vendors must take more responsibility to ensure that your business objectives are met.”

step 4 -- keep your vendors in check

There is a strong tendency in outsourcing for suppliers to

circumvent the ICF, in search of a more forgiving dialogue.

Some vendors will attempt to take the easier path to circumvent the client management team,or Intelligent Client Function (ICF), in an attemptto ‘get away with being challenged commercially’.

ICF

Together, the SRM team and the contract management team should take responsibility both for the governance structure with individual suppliers and the supplier community as a whole.

It is important to engage with the ICF in these processes, but careful thought should be given to extensive engagement with the enterprise. Whilst high-level commitment is pivotal, executives may not understand the nuances of the relationships, and may react in a manner that is not conducive to the well-being of the multi-source.




A successful multi-source is in part defined by effective human interaction. As such, those participating in governance (on all sides) need to be encouraged to have shared “ownership” in the relationship and collaboration, and to have common goals towards success.

Whilst governance ultimately must address issues effectively, the aim should be to deal with matters in a constructive and effective manner, rather than with an accusatory style.

In a multi-source, the customer has to lead by fostering a culture of collaboration. It is therefore advisable to ensure that one has access to those individuals experienced in behavioural issues, both in establishing

step 5 -- promote positive dialogue

In a typical multi-source, there almost certainly needs to be several layers of governance -- both with individual suppliers and on a cross supplier basis.

At very least, one usually finds governance divided between a strategic and operational level. It is particularly important that the appropriate level of executive or senior management is involved at the relevant forum and that, once committed to attend, such individuals do actually take part. A lack of client engagement shows little respect to any of the parties involved, and indicates a dearth of interest from the business as a whole, which will be quickly picked up on by the vendors. It is far better not to commit senior executives to be engaged, than for them to be nominated but not participate.

step 6 -- enforce long term involvement

the governance arrangements, and in guiding all parties to properly take advantage of what has been established.

Far better not to commit senior executives to be engaged, than

for them to be nominated but not participate.

Don’t assume the vendor is trying to ‘take advantage of you’.

Additionally, there is an increasing tendency for the level of customer engagement to drift downwards as a contract ages, merely because the multi-source is not so pivotal in career terms. If that is conscious and justified, so be it; but let it be agreed, planned and understood by all. However, the assumption that matters become easier and less strategic as time goes on is by no means reflected in reality. Indeed, one could argue that if relationships work well, they will transition into even more strategic partnerships, thus justifying greater senior engagement.



Both governance and management of the contract and relationship can often degenerate into “man marking”, where each side feels that it ought to have equally skilled individuals shadowing their “counterparts”.

This approach is fundamentally flawed. Man marking assumes that the roles of customer and suppliers are essentially the same when they clearly are not. The suppliers are there to deliver and/or develop; the customer is there to commission. Blurring the lines between these roles causes distrust and engenders a breakdown in relationships.

step 7 -- avoid “man marking”

Blurring the lines between these roles causes distrust and engenders

a breakdown in relationships.

summaryRunning any outsourcing relationship is very complex -- particularly so in a multi-sourced scenario. Were the advantages of multi-sourcing not so persuasive, a sensible business might seriously consider whether the management of the various relationships and their co-ordination represented too great a risk -- particularly if they have limited or no experience in what is required.

With that in mind, it is important to remember that the customer can engage the services of a business experienced in multi-sourcing, who can undertake much of the management and governance role on their behalf -- often with a view to skills transfer -- and/or train the customer’s own people to discharge the relevant roles.

Man-marking promotes ‘distrust’.

Ultimately, the most important step a customer must take when multi-sourcing is to recognise that it cannot avoid its role as the party

with ultimate responsibility for integration, risk, and management. Implementation is typically far easier

than unequivocal acceptance.

If you’re considering commissioning a service or a managed service relationship with a strategic vendor, talk to Best Practice Group. We have the framework, skills and all the templates you need to help support your team to set up and run either internal or vendor based commissioned services, or both. This includes:

• A proven process for setting specifications to improve performance quickly; as well as a template library of service specifications which can be aligned to your circumstances, thus accelerating construction of specifications

• Template Section 75 agreements when a public sector to public sector relationship is required, as well as agreements for private sector contracts. These agreements ensure accountability, encourage collaboration to innovate, reduce costs and improve services, and which can be aligned to your specific services and circumstances

• A process for performance measurement and management, and for managing service changes throughout the contract

• A reshaping process that drives innovation, collaboration and true partnership working to achieve better outcomes at lower cost.

Our framework can considerably accelerate the timescales to achieve beneficial outcomes, and reduce the risks of service commissioning, and ultimately lead to significant reductions in your service delivery costs. We have a deep understanding of both the operational and contractual aspects of service provision, so we are ideally placed to help you achieve your desired outcomes.

Best Practice Group has already worked on over 500 relationships in service commissioning, service integration and managed services. To date we have helped organisations re-align their intelligent client functions to reduce commissioned / integration / managed service costs by 15% to 35% per annum. For more information on how Best Practice Group’s approach has helped these organisations make savings and improve services visit www.bestpracticegroup.com or if you would like an informal chat in confidence about the issues your organisation faces, please get in touch. Our contact details are provided overleaf.

how to reduce costs and improve service outcomes, fast




how to accelerate your approach You can accelerate your organisation’s approach to reducing costs and improving service outcomes by outsourcing services by adopting Best Practice Group’s (BPG) framework.

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• Align template documents to organisation and vendor speci�c requirements• Workshop to executives• Go to outside consultation• Procurement / facilitation / clari�cation of service delivery

• In-house or external vendors• Talk to potential vendors• Can you work together?

• Where are you now?• What’s the shortest route to effectiveness?

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• Continual monitoring of vendor / integration partner performance • Improve poor performance quickly, without jeopardising relationships

£How does BPG achieve this

?BPG trains client teams to become

world class commissioners and

support the innovation of new service delivery,

improve performance management and

qualify them to negotiate / renegotiate

agreements directly with vendors without

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Best Practice Group is an independent advisor that helps you reduce the cost of working with major outsourcing, technology and shared service partners, whilst ensuring you gain maximum benefit from the solutions they provide to you in a much shorter time frame. We make vendor partnerships work…

A proven track record

The reputation we have achieved for delivering strong working partnerships between client organisations and the strategic vendors, whilst producing direct cashable savings, is based upon a proven track record of working in close collaboration with you. With over 500 previous vendor partnership successes, all of our clients are directly fully referenceable http://www.bestpracticegroup.com/testimonials

We help clients in 3 ways:

• Creating new vendor relationships

• Improving existing vendor relationships

• Vendor transition and exit management

Our specialist advisors are unusual in that they have overlapping technical and contractual expertise; they take a proactive, hands-on approach helping your teams get mutual benefit from complex and strategic vendor relationships. Ultimately, Best Practice Group can help you:

• Cut operating costs by 15%-35%

• Achieve business outcomes twice as fast

• Turn your vendor into the true partner you always wanted them to be.

introducing the specialists who can help support your teamsWith experience in over 500 strategic vendor partnerships, our specialists have proven track records. Please contact any of the individuals below for an informal chat.

Allan Watton [email protected] specialises in the innovation side of re-thinking how organisations contract for outsourced and managed services from both public (Section 75 Agreements) and private sector (Outsourcing

Agreements) vendors. He works to ensure that the maximum possible value is attained from your service partner.

Peter Carter Associate [email protected] ensures that working relationships between client organisations and their strategic vendors are governed correctly. He has a keen focus on ensuring that the relationship between an

organisation and its vendor aligns with the contractual terms and that they are interpreted and actioned appropriately. He ensures that vendors are suitably motivated by your internal teams to reduce costs and improve service delivery outcomes on an ongoing basis.

Richard Kerr [email protected] specialises in helping providers understand how they can offer maximum value to a client organisation’s desired business outcomes. He works to translate vendors’

promises into firm contractual terms to ensure true innovation, partnership working, and strong relationship management.

Mark Baxter Senior [email protected] specialises in the programme management of complex strategic vendor partnerships. He enables the outcomes from these relationships to be realised in an accelerated timeframe, thus

significantly reducing the cost of service delivery whilst increasing service delivery outcomes.

Chris Browne [email protected] specia lises in ensuring that your business cases are clearly quantified and aligned with your business outcomes. Furthermore, he works to identify strategic vendors that can

support your culture and innovate your service delivery.

Stephen James [email protected] specialist in the technology field, Stephen has a strong background in software systems that drive service provider performance. He is adept at managing programmes to ensure your business

objectives are met.

about best practice group




If you’re considering maximising the value youachieve from your strategicvendors, talk to Best Practice Group.

Northern Office Atria, Spa Road, Bolton BL1 4AG

Southern Office 70 St Mary Axe, London EC3A 8BD

T: E:

www.bestpracticegroup.com

0845 345 0130 F: 0845 345 [email protected]

© Best Practice Group plc

successful multi-sourcingSuccessful Multi-Sourcing An early form of multi-sourcing was to give the integration and governance role to one of the vendors -- usually the one that seemed

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