Outsourcing has become such a part of everyday business vocabulary that it is easy to overlook the extent of its development. From its beginnings in big, typically broadly-scoped contracts that were often awarded to a few key providers, users now face more choice than ever before.

Such increased competition naturally results in a higher level of market knowledge and raised expectations, leading many major businesses to look beyond traditional sourcing relationships and a more evolved form of procurement ­ multisourcing.

Multisourcing is the use of several providers simultaneously by one buyer, and this form of external provision is on the increase.

In 2000, 81 per cent of outsourcing buyers chose to use only one or two providers, with just 19 per cent using three or more.

This year, the number of buyers using three or more providers has almost doubled to 36 per cent. ABN Amro is a case in point, dividing its IT services work across IBM, EDS, Accenture, Infosys, TCS, Patni, Verizon and Avaya.

The advantages to deploying a multisourcing strategy are compelling. Users want access to specialist expertise, using best-of-breed providers in niche areas.

Moreover, multisourcing can reduce IT directors’ risk by reducing dependence on a single supplier and allowing competition to be maintained between providers beyond the procurement stage.

Such a strategy introduces healthy competition and helps promote best practice across suppliers servicing the outsourcing contract.

The user’s position is strengthened through the latent possibility that a provider might lose their share of the total sourcing spend to a fellow supplier.

Ideally, multisourcing involves the centralised co-ordination of a firm’s entire sourcing arrangements, rather than at an individual department level.

Firms consequently stand to benefit most from increased economies of scale, better co-ordinated management of the outsourcing contract and a series of time and cost savings.

But while the advantages of multisourcing are alluring, the road to achieving the potential benefits is not always smooth. Even IT directors who have outsourced before run the risk of trying to apply their limited knowledge to a much more complicated scenario ­ and may be overconfident about the number of suppliers they can simultaneously manage.

Therefore it is vital from the outset to grasp not only what multisourcing can achieve, but also what skills and resources will be required to ensure that the benefits are realised.

Right skills, right scope

The resources involved in procuring and managing multisourcing are significant, and one result of an increasing multisourcing trend is that requisite skills are in much higher demand.

Such skills can be difficult to secure, and because of this, many firms seek to redeploy existing staff rather than recruit from outside.

Yet firms’ best performers are typically more likely to get involved at the procurement and contracting stage, rather than in the management phase.

Ongoing contract management ­ perhaps the most critical aspect ­ is often neglected, and seen as far less appealing by users involved in the programme.

A good procurement-to-management model should ensure that a percentage of the procurement team is maintained from the transition into the management phase.

And when scoping a multisourcing contract, it is important to understand what various providers can offer in any particular area ­ and which functions need to be retained by the client.

Such scoping requires more thought than for a traditional mega-deal. Try to research the offers available in the wider market, then to talk to service providers.

However, IT directors must be aware of suppliers’ marketing messages, which lead to a commercially ineffective result.

Users might find they have a clear idea of the services each department needs, but such needs could be differently segmented to the contracts that the market would expect.

To enable the best chance of success and for benchmarking to be effective, technology leaders need to align the business to the market.

Equally, it is clearly important to offer commercially appealing contracts so providers are encouraged to be part of a multisourcing strategy.

All suppliers assess potential deals against broadly similar qualification criteria, including:

* Business development ­ in terms of market sector, service type and geography, is your deal right for the particular provider?

* Revenue opportunity ­ it would be an unusual provider that did not assess the overall revenue opportunity of any prospective transaction.

* Length of deal ­ the security of a longer deal is generally attractive to suppliers.

* Level of risk ­ typically weighed against the deal’s expected profit.

* Geographies ­ suppliers will consider their existing infrastructure and resources in the area.

* Technology platforms involved ­ providers will consider not only their own familiarity with platforms, but also the nature of any commercial relations they may have with suppliers of technologies.

Managing a multisourcing contract

Multisourcing contracts can be managed in-house, through a prime contractor or outsourced entirely to a separate contract manager.

While the notionally lower cost of going in-house is a theoretically popular option, it is also the most demanding in terms of resources and expertise.

Many users lack the skills to join up several contracts so there are no gaps between the service scope of each provider.

Whatever your approach, it is crucial not to allow momentum to be lost by your firm once the deal has been signed.

Many deals go wrong within the first three months after signing the contracts, and in a multisourced environment using several providers means the problems can be multiplied.

Your sourcing procurement team must be encouraged to remain motivated throughout the governance of the deals that they have signed.

Each contracted provider must also be persuaded, through the appropriate contractual mechanisms, to behave consistently with you and the other outsourcers involved.

Essentially, one of the greatest challenges in multisourcing remains the issue of ensuring co-operation takes place between providers, so that service gaps do not appear post-contract.

The challenge is greatest when contracting directly with multiple providers. In taking such an approach, it is worth investing in inter-provider contractual mechanisms, such as operational level agreements (OLAs) that provide a framework to achieve the appropriate level of collaboration.

An alternative approach to an OLA is to require each provider to take a share of the overall risk ­ most typically via a shared monetary pool. If a service fails in some way, each of the providers becomes liable for a percentage of the risk.

The above co-operative provisions are best secured by engaging with all your suppliers simultaneously during the procurement process, or as part of a comprehensive strategic review when your bargaining power will be greatest.

Another option is the services integrator approach, whereby the day-to-day supplier and contract management functions are subcontracted to an experienced third party.

IT directors should not be too sanguine and believe that multisourcing is just a further extension to the existing outsourcing arrangements they may already have in place.

Multisourcing can allow access to the best levels of service and expertise but only when approached comprehensively and knowledgeably.

Thorough planning, adequate resources and deployment of trained talent are the vital components to making multisourcing a multi-win.

Glenn Warren is project director at outsourcing advisory specialist TPI