In the sourcing market place, organisations are increasingly opting for multi-sourced ecosystems over single-source mega-deals. Employing different suppliers for specialised services enables them to secure best-in-class capabilities, systems and services. At the same time, they realise the benefits of competition among a wider network of suppliers.
But multi-sourced solutions present their own challenges. Suppliers involved in delivering a multi-sourced solution don’t always work well together. And, without clear governance and management, the ownership of work can fall between supplier boundaries, resulting in delays, confusion, finger pointing and, at worst, significant service impact.
To address these challenges, more and more organisations are establishing a service integration and management (SIAM) capability, creating a single point of ownership/accountability for end-to-end service delivery. Many advisers recommend that organisations outsource this SIAM capability and transfer the integration risk to a supplier. However, in our view, this is rarely the best option.
Outsourcing the service integration and management capability means organisations must relinquish control over service provision. They must also place an enormous amount of trust in the SIAM provider to manage the interfaces, processes, data and people of suppliers that are likely to be its competitors. As Isaac Watts said: “Learning to trust is one of life’s most difficult tasks."
Our experience is that keeping service integration and management in-house can often give organisations the best chance of creating a well-oiled, collaborative service delivery engine. There are four main reasons why:
External suppliers often perform a critical role in providing IT services to the business, so they should be treated as strategic partners. And, as with any strategic partnership that carries significant business risk – in this case, IT failure – you need complete control of the relationship to manage the risk effectively. You can’t outsource the business risk, so why outsource your control of it?
In addition, as external suppliers will have day-to-day interaction with your business clients, you need suppliers to understand and embrace your company’s culture. This is more easily achieved when you have a direct relationship with suppliers, rather than one conducted via a SIAM provider.
Many IT processes and services are core to the successful running of the business. This means the internal IT organisation needs to be in direct control of the services delivered by suppliers and able to communicate the business’s requirements to them directly and unambiguously.
For one of our clients, a multinational construction company, being able to set up new construction sites rapidly was a core capability and depended heavily on IT services. To ensure successful delivery of its ‘site set-up’ service, the company chose to keep management of its IT services in-house. For this company, relinquishing control of this key capability was too much of a risk.
For service integration and management to work effectively, all suppliers must collaborate to deliver end-to-end services. They can usually be incentivised and persuaded to do so by an in-house customer organisation, but will be less keen to take direction from a company that they usually compete with. As most credible SIAM providers are the same organisations that compete for ‘tower’ service contracts, other companies in your supplier network are unlikely to consider SIAM providers as truly independent. Setting up a collaborative environment could therefore prove challenging.
AstraZeneca has recently implemented a multi-sourced solution for information services and has developed a sophisticated ecosystem to foster collaboration among the new supplier group. To address the challenge of independence, AstraZeneca appointed PA to act as a non-competitive intermediary and introduced the role of ‘ecosystem arbiter’ to nurture the network and optimise service performance.
Drawing up a contract for an outsourced service integration and management capability means addressing difficult questions around risk and return. Will SIAM providers be accountable for end-to-end services being delivered by other suppliers (for which they will want a significant commercial return)? Or will they only be responsible for carrying out integration tasks (leaving the risk for end-to-end service still with your organisation)? Neither choice is ideal and any compromise will be difficult to capture in a contract.
It is also difficult to build desired behaviours into a contract. These include behaviours such as taking full ownership of performance, working with the client’s best interests at heart, and being open and trustful. We all recognise these behaviours when we see them, but capturing them in a way that is unambiguous and enforceable in a legal document is far from straightforward. In terms of legal fees, it can also prove very expensive.
Our work with a global logistics company has given us first-hand experience of the time involved in creating documentation to support the outsourcing of the SIAM function. After investigating different methods to incentivise SIAM suppliers, we concluded service integration and management services could only be run on a time and materials basis. Assessing the SIAM supplier’s performance on the basis of other suppliers’ performance, measured against contracts agreed by the client, did not seem a workable proposition.
Keeping the SIAM function in-house offers important benefits, but this option has its own challenges. These include creating the governance, designing the organisation, drafting the contracts and finding the right people. The in-house service integration and management organisation must also develop a range of management capabilities, including strategy and architecture, service delivery governance, security and business demand management. Only with these capabilities in place can it control the direction of service delivery and ensure alignment with the overarching business strategy and vision is maintained.
To find out how your business can establish an effective SIAM capability, contact us now.