Outsourcing complexity gives rise to "multisourcing"
The "group" approach to outsourcing seems to be gaining favor over the traditional use of a single third-party provider. A global outsourcing study conducted by PricewaterhouseCoopers (PwC) found increasing use of what it calls "multisourcing"— hiring several service providers for a complex outsourcing task, such as contracting out manufacturing, logistics, customer support, or information technology.
The consulting firm came to this conclusion after canvassing 226 users and 66 outsourcing providers in 19 countries across the globe. Based on this sample, the survey found that the most commonly outsourced business functions are information technology (IT) services and production or delivery of core products and services. Logistics and distribution ranked third, cited by 51 percent of respondents. (See the accompanying chart.)
When the function or service being outsourced is a commodity, such as IT infrastructure services, a long-term, single-source arrangement can work well. But the more complex the task, the more beneficial multisourcing or other collaborative business models can be, says the report.
Many companies appear to agree with that assertion. Although 39 percent of the survey respondents said they plan to increase their use of a single provider for outsourcing, 51 percent said they expect to increase their use of multisourcing, and 45 percent said they plan to increase their use of joint ventures. Finally, some 35 percent expressed an interest in "open, public, and collaborative business models," which are sometimes referred to as "peer production." These arrangements coordinate the contributions of people (usually with the aid of the Internet) into projects, mostly without traditional hierarchical organization or financial compensation.
PwC identified two possible business models for multisourcing. Under one model, a company contracts with a lead service provider that functions like a general contractor, managing the other suppliers. Under the collaborative partnering model, a company contracts with a group of "master partners," which are supported by niche or specialty suppliers.
Respondents believe that such outsourcing models will generate significant benefits. Sixty-eight percent said they expect that collaborative outsourcing will reduce their costs. Another 66 percent said they believe it will yield better quality.
The report also noted some potential drawbacks to collaborative arrangements. For one thing, they require brokering several business relationships at one time. These kinds of business relationships, moreover, require transparency, a high degree of communication, and a high level of trust between the parties involved. Yet some 40 percent of respondents said they believe their outsourcing providers are less than honest.
That signals a need to promote honest and transparent dealings, share risks and rewards, have joint governance structures, and decide matters of interest jointly, the report notes. As outsourcing accordingly becomes more complex, the authors say, many companies will require special internal centers to successfully manage these relationships.
[Source: "Outsourcing Comes of Age: The Rise of Collaborative Partnering," PricewaterhouseCoopers, 2007: www.pwc.com]