Better than Outsourcing, go for Multisourcing
Outsourcing one single given operational area while maintaining the rest in-house is as much of a good strategic approach as to outsource several operational areas as long as it proves to represent having such services better accomplished, in a cheaper manner as well as faster while leaving you available time to focus on key Core Business activities.
The definition of Multisourcing had it’s origin from the IT landscape when some large companies decided to Outsource several components of their IT Services to distinct 3rd party providers. One would take care of the ERP support and inherent user services while other would be entrusted with the Local and Wide area Network (LAN and WAN), plus yet another one would assure the Service Desk and so on …
Nowadays Multisourcing is no longer an exclusive strategic prerogative reserved to large companies with vast service portfolio components; a small individual professional (e.g. like a YouTuber) may leverage Multisourcing just as any other market player.
Let’s considers one simple example where it makes sense to Multisource; meet John, he is a “work tools” business owner who having inherited his business from his father in a small shop at some suburbia neighbourhood, has been experiencing growing success at on-line retailing, which now accounts for 60% of his business revenue. He decided to go lean, which means to outsource several components of his work process formerly done in-house, namely:
- Accounting – he was able to find some nice a cheap accountant that assures his numbers and tax reports to be spot on for a fraction of the former cost.
- Personal assistant – upon the retirement of the personal assistant that had supported his father for so many years, John decided to try the Virtual Assistant (VA) concept and was amazed by the skill set and effectiveness of a nearshore VA that ended up representing a much lower cost than having someone as a direct employee. Since he hired the service through a VA’s agency, the bonus is that if the person that usually supports him is not available, the agency assures a proper replacement, meaning that John might not even be aware of it, since the workflow is not impacted.
- Logistics - John decided to get rid of the warehouse (that represented a high operational cost, comprehending rent, insurance, security, other …) as well as the receival/ dispatching and distribution of his retail products (he sold his fleet of small trucks) and went for a Logistics Dropshipping Provider who assures his inventory to be properly stored and secure as well as received and timely dispatched to John’s clients. Al for a fraction of the cost that owning a warehouse represents.
- Marketing – John focuses on direct CRM (Client Relationship Management) and he does not abdicate from doing so as well as being the company CEO. Nevertheless, all the Marketing and initial leads generation sales component have been outsourced to an expert agency that assures his on-line Marketing (Social Networks, Web Site and SEO included) as well as the initial direct contact with prospects that have shown to be hot leads due to their interaction with the sales assistants. When the Hot lead is qualified, then John personally steps in to close the deal. You may imagine how much time (and money) this has saved him.
All of the above mentioned Operational Areas and inherent processes have been assigned to different providers due to required expertise in fulfilling them, hence John is not merely Outsourcing, he is Multisourcing.
Having now started to experience a business expansion via the Internet that allowed him to reach across the ocean and start selling in other continents, Multisourcing within the same Operational Area has become mandatory. He now has a Logistics partner for North America, another one for Europe and yet another one for Australia and New Zealand. The alternative would be to open offices in several countries, which is something that would never “fit the Business Plan”, since the inherent costs would be much higher than the potential revenue, let alone profit.
So, Multisourcing is the right way to grow Business
while maximizing profit, right?
Well … yeah, No!
Multisourcing may prove to be the only solution which allows business growth and expansion just as fast as it may prove to speed up doomsday.
It is a Strategic Business move and therefore it requires being well thought of.
Let’s consider a given company that Outsources most of its IT-related services to one single IT Services Provider, having its IT in-house team assuming the role of steering and managing while the provider has the hands-on responsibility of assuring the IT services. This means to place a significant part of that company ability to function in the hands of another entity, therefore raising the effective risk level, even if appropriate SLAs or penalties are in place. Remember that the enforcement of a penalty does not make time go back and the impact on Core Business of any given incident go away.
Now, instead of having Outsourced its IT related services, that company has decided to Multisource them, splitting the several Service Lines by distinct IT Services Providers. That raises the risk factor exponentially. To begin with, Outsourcing demands high internal overhead effort in producing and managing contractual processes and documentation that when speaking of Multisourcing escalates in diversity and quantity. Then there is the inevitable “finger pointing” that no matter how strict contracts and SLAs are, will take place and become worst over time. Any System’s incident will eventually become a “Network Problem” by definition even before any troubleshooting, so if the ERP was not able to write or read from the Database, there will be an initial report from the contracted IT Services Provider stating that everything was fine on the ERP side, so the problem is certain to be from the communications infrastructure (the Networking Service Component), and the client lost precious time and money while the root cause is being investigated with support of two providers who’s primarily objective is to push the blame on the opposite direction, because there will be penalties and a deterioration of the perceived service quality level.
Multisourcing may also lead to additional unforeseen costs. When it is proved that a given incident that impacted a certain service is not imputable to the Service Provider, usually that company is entitled to get paid additionally to set things right and if the client is lucky enough to have the root cause clearly identified as within another provider’s sphere of responsibility, the cost may be supported by that entity; unfortunately though in most cases it is not clear where the root cause lays, and since that the client is the one having the service not properly in place, it ends up having to pay for the bill.
But let’s have a look at eligible Pros and Cons:
- Having expert partners dedicated to specific operational service components assures best in class support while mitigating potential risks.
- Reducing operational costs when compared to having internal expertise (training, redundancy)
- Leveraging innovation cycles by having expert partners dedicated to specific service areas in several clients and contexts, allows prompt availability and faster deployment and adaptation of latest market innovative solutions if that is the chosen course of action.
- A higher effort towards managing different suppliers both during normal operation (contracts and SLAs) as well as upon incidents or problems (litigation amongst them concerning responsibility for events).
- Higher integration management effort that derives from having to assure multi-provider cohabitation. Mainly when it is common not to have the contracts with those providers beginning and ending on the same date.
- Higher costs may be the result when the service is just not there because two or more providers are not able to get along.
Multisourcing may be a blessing that foster and boosts business potential or it may well be the end of a company, it all depends on how the “machine” is fine tuned.