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Is the Patchwork fit for the future?

"We selected PA because their people understood the complexities of our needs right from the start."


Market shift from single to multi-vendor sourcing

Over the last decade, the market has shifted from one-supplier “single vendor sourcing” to a more differentiated “best of breed” or “multi-vendor sourcing”. Independent market research indicates that the average number of vendors per outsourcing customer used worldwide has increased by 112% since 2005:

  • Over 50% of customers use between 2 and 9 suppliers

  • Average Contract Value has decreased in Europe from 128 Million EUR in 2006 to EUR 52M in 2009.

This in turn means that the nature of outsourcing is changing dramatically, creating new governance challenges for sourcing and vendor management.

Patchwork-style governance doesn’t deliver the expected benefits

”Best Practice” multi-vendor governance is hard to come by in real life, as most organisations have to make do with sub-optimal patch-work structures, based on differentiated responsibility levels and historical case-by-case parallel-sequence outsourcing. This leaves the company with different service levels, different reporting, different payment models, different incentive schemes and not-really-fitting process interfaces between the client organisation and the different suppliers for each of the outsourcing contracts they have entered into over the last 15 years.

The key questions which CIOs in charge of mature “steady state” IT organisations are asking themselves are:

  • What should the retained organisation look like?

  • How do I efficiently manage services from a number of more or less strategic vendors in a multi-vendor governance setup?

…but these questions are difficult to answer given the principal governance challenges that companies experience:

  • Fragmented approach to managing suppliers (divided responsibility and unspoken competition between IT, Procurement and Vendor Management)

  • Client satisfaction is still mixed. In particular, companies continue to view supplier’s ability to deliver innovation in a negative light. One of the reasons is that innovation is not managed. Contractual provisions are often lacking leaving innovation as an undefined but expected side-effect

  • SLA’s are necessary but not sufficient.

Successful outsourcing requires a united approach between IT and management

CEOs and CIOs look differently at business requirements when it comes to outsourcing. Many CIOs consider stability and availability as top priorities, whereas CEOs are looking to their CIO and their suppliers to deliver innovation.

This statement derives from a new, extensive survey conducted by PA Consulting Group among CIOs in a number of Denmark’s large companies– and a similar survey has been conducted in Sweden and one is currently under way in Norway.

How do those companies, who have chosen to outsource all or part of their IT services, meet management’s demands in the most cost efficient manner? PA Consulting Group has asked this question to a number of CEOs in some of the largest companies in Denmark. The survey suggests the following recommendations to CIOs:

  • Confirm business expectations on IT and determine consequences

  • Leverage supplier capabilities to achieve customer satisfaction, it works!

  • Treat your most important suppliers similarly to the way you treat your most important customers

  • Work continuously to further develop your organisation and its required competences

  • You are not alone, learn from your peers in other companies.

To understand how PA can help your organisation take advantage of changes in the IT Outsourcing industry, please contact us now.

Contact the sourcing and procurement team

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