Why Is Outsourcing And Multisourcing Trending?

Multisourcing

Outsourcing and especially multisourcing of IT is trending – and this phenomenon is being reported by multiple sources, across multiple sectors and territories. But why? Why now? And why is multisourcing especially enjoying such spikes? It seems that growth in Multisourcing, this ultra-modern solution to IT sourcing, is being driven by a very old fashioned concept – demand, specifically the need for businesses, organisations and data centres to cope with fluctuating and sometimes difficult to forecast demand.

In a report commissioned by Zenium Technologies, just 21% of IT professionals were confident that their infrastructure could definitely scale in response to demand from their business. This has led to 70% of businesses allocating at least a portion of their IT budget to modernisation of systems.

Some have approached this in a “traditional” way of patching new systems onto existing infrastructures, creating an IT spaghetti nest of confusion that ultimately only has one outcome, others have integrated outsourced systems and talent into their existing IT estate and operations … but many have seen it as an opportunity to take a broader view, often from a purely commercial perspective, and have entirely restructured their IT resource.

It seems that organisations spending “their own money” are quicker to embrace and benefit from multisourcing than those in charge of the public purse.

The Register is reporting that UK public sector IT outsourcing has “doubled over the last six years to be worth £20.7bn in active contracts” but the number of actual contracts signed has not increased remarkably, suggesting that much public sector IT is still being outsourced to the usual suspects – despite government commitments to break up large IT contracts and move towards a multi-vendor/supplier approach. So proportionately speaking, the public sector is falling behind the private sector in embracing Multisourcing – but it is catching on.

Meanwhile, in the private sector (during the same period) IT outsourcing value increased by 30 per cent and is now said to be worth £12.7bn, but the number of actual contracts signed has increased at a much faster rate. This is being fuelled largely by a commoditisation of IT and multiple contracts being offered for a range of components within a project, rather than one overarching deal for the whole lot.

Multisourcing has proliferated within the private sector, and those who have taken advantage have benefitted from an IT offer that is more business case aligned and is at the cutting edge of latest technology and current best practice. Public sector outsourcing shows no signs of slowing. As a barometer of appetite, in the latest Outsourcing Index (published by Arvato), the value of local government Human Resources outsourcing increased by 164% (year on year) during the third quarter of 2014.

Logic suggests that the coalition government’s commitment to break up those big IT contracts, together with necessary cost cuts and promised improvements in efficiencies will have to steer public sector outsourcing towards a more multi-supplier, portfolio approach. They will never look back. The paradox of cutting costs whilst driving up performance! If the recession did one thing, it exposed the public sector to the pressures that private sector CIOs have been dealing with for years – Multisourcing is the most efficient way to do this.

Sourcing to multiple providers is the predominant trend, suggests the third quarter outsourcing index by Information Services Group (ISG). Key multinationals in particular are increasingly adopting a Multisourced approach to outsourcing, allowing them to combine their internal structures and personnel with external consultants and offshore IT providers.

The challenge for the next phase is twofold.

First, the public sector will have to learn quickly if it is to yield maximum benefit from multisourcing, it may find that engaging the services of a “client-side” multisourcing agent may be the best way to navigate unfamiliar territories. At least that would cut down on touch points and contacts, giving public sector CIOs the feel of the familiarity of the old one vendor for everything approach, whilst truly sharing IT contracts across a broader spectrum.

The second challenge is for the smaller IT firms to find a route to the new public sector markets. Taking your eye off your private sector portfolio and taking a glancing view will not work, as anyone who has tendered for public sector work will know – you have to jump through a hoop or two to score your rewards. The “client-side” multisourcing agent will play a pivotal role here too, bringing contracts to the best suited vendor and providing a contractual bridge between supplier and client.

The upward trending looks set to continue (understatement) and if 2008 to the present day in the world of multisourcing was exciting – it looks like we haven’t seen anything yet.

jamie buttle

Jamie is Managing Director and co-founder of Stoneseed, with more than 20 years’ IT industry experience: Jamie launched the Stoneseed business back in 2009 with the firm belief that conventional IT Services organisations had become too vendor focused and what clients really needed were strategies built on objective technology decisions delivered by talented people at a fair price.