What to Watch: Sourcing Issues for Managers

by John Berry, Senior Consultant, Cutter Consortium

In the rush of sourcing issues that threaten to pull you under like a riptide, it is worthwhile sometimes to step back and recalibrate your perspective to better understand the current sourcing environment as a necessary step in planning for the future.

Several current sourcing issues loom over managers. Here they are in no order of importance or urgency. All are worth watching closely.

Multisourcing. The debate on delivery options from fully captive to third-party providers and combinations of these continues to rage in the corporate world. "Multisourcing" is adding a new complexity to the equation and makes it important that all the options are put on the table and analyzed. Key forward-looking issue: will organizations adopt a version of portfolio management for their growing collection of sourcing initiatives that can combine captive and multiple third-party relationships? That is, if the organization expects to manage many relationships across multiple vendors, should all of them be treated at one level as a portfolio of value-generating assets with various risks associated with them?

A second key forward-looking issue? For most people, multisourcing means multivendor when, in fact, it has taken on a more sophisticated meaning: the provisioning of business process and other business services (IT) that leverage a mix of internal and external service providers in support of larger business objectives. Will the more mature definition gain sufficient traction?

Changes in the provider and low-cost country landscapes. New locations as sourcing options are emerging all the time. It's not just about China and India any more. Think Estonia in Eastern Europe and some South American countries. Key forward-looking issue: will organizations diversify locations into which they offshore or will a consolidated model in which most if not all sourced activities are located in the same country prevail? Traditional risk management (at least in finance) says diversification minimizes risk. Is this equally true in the sourcing?

Building an effective relationship model. Strategic sourcing suggests a profoundly different relationship model than what organizations are familiar with, such as application development backoffice workflow or call centers. What characteristics might define a successful relationship model when the processes involved are higher value-added and more strategic? Key forward-looking issue: What will contracts, the foundation of the relationship, look like as companies build a track record of strategic sourcing? What about service provider compensation? If the goal is new product development, is it feasible to share the profits with the service provider for its contribution? Intellectual property ownership issues might loom as well.

Drivers of offshoring. The traditional driver for offshoring -- cost reductions -- has become relatively less important. Demographic changes in the developed world and the search for talent are becoming ever more important issues for offshoring and global sourcing. Key forward-looking issue: where talent shortages domestically draw companies to offshore markets, is the answer simply to recruit workers or alternatively offshore more business processes?

I welcome your comments on this issue of the Cutter Edge and encourage you to send your insights on the market in general to me at jberry@cutter.com.

-- John Berry, Senior Consultant, Cutter Consortium