Two-year timebomb for ad hoc multi-sourcing, Gartner warns

Offshoring won't save money

Australian organizations are sitting on multi-sourcing time bombs as they manage at least six concurrent outsourcing contracts at any given time that were created on an ad-hoc basis.

While these deals may be manageable now, Gartner analyst Linda Cohen warns, the contracts will become a financial burden within two to three years.

Speaking at Gartner's outsourcing and IT services summit in Sydney yesterday, Cohen said these deals will inevitably fail because they were created to cut costs and provide quick access to skilled workers.

She said multi-sourced deals need to evolve more to be truly effective..

"Most multi-sourcing done today is created with ad hoc compulsion and most IT shops are in problem-focused deals," she said.

"Outsourcing must not be created to cut costs or access skill sets because today's problems aren't flexible or enduring and they will catch up to you in two to three years," she said.

"The number one myth in outsourcing is that it will save you money; it won't and that includes offshoring.

"A single source [strategy] is not appropriate because there is so many vendors but businesses have gone too far into multisourcing without the competencies to handle it."

Cohen criticized current multisourcing strategies by comparing them to a more disciplined and effective model.

She labelled most agreements as reactive, compulsive, problem-focused, and built on command and control as opposed to trust.

Multi-sourcing agreements can only be successful if governance is maintained in the businesses, according to Cohen.

She emphasized the importance of financial and demand management from a nine-point checklist designed to keep outsourcing governance out of the hands of vendors.

Cohen's outsourcing management strategies form a governance blanket designed to control the money flow into sourcing agreements, and to identify future demand by business units looking to outsource.

"Financial management needs its own strategy to understand the cost of sourcing agreements, [while] demand management identifies the needs of business units and should be the number one priority," she said.

Utility pricing may offer better pricing, but Cohen warns it can be a financial pitfall for businesses not following strong guidelines such as strategy, services and relationship management.

"Utility pricing will be available for everything but be very careful because if you don't have financial management control, you will waste a lot of money," she said.

She said sourcing maxims must be enforced to articulate processes and rules for outsourcing in the same manner as business maxims.

"Enterprises can form committees to nut-out the effect on cost, performance, and employee relationships," she added.

Cohen warned against re-instating employees from outsourced units as sourcing managers, claiming their vested interests will hamper the vendor's productivity.

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