Breaking up outsourcing deals

Swap monster outsourcing contracts for many smaller ones and you gain control, but management overhead is a killer

A few months back, I blogged about getting more value from your outsourcing strategy: Rather than sign a single $1 billion-plus deal, break your services up.

Smaller deals, focused on smaller projects or services, may be the new way to go, I conjectured. After all, outsourcing everything to a single vendor and making a long-term commitment -- often as long as 10 years -- can lead to problems down the road, especially when it comes to business process innovation.

I concluded, with the help of Peter Lowes, principal at Deloitte Consulting and leader of Deloitte's Outsourcing Advisory, that breaking a project into smaller pieces increases your chances of finding providers who take a specific focus, and thus your ability to maximize the value of your contracts.

However, something has been nagging at my conscience since then -- mainly that any multisourcing strategy comes with its own set of challenges. Here are the four main issues you need to be aware of before diving in:

More players, more complexity

Obviously more vendors means greater complexity, especially if you are dividing up a single project. Coordination and communication are key. In other words, just like you tell your children, everyone has to play nice and get along together. But as the IT coordinator and project lead that's your function.

Large providers seek large slices

The moment you make the pie smaller for each potential provider, the less interested they became in doing the job. They heard the cash registers ring, and now that the ring isn't so loud, they may opt out -- especially if they are a larger company. After all, the bigger the company, the bigger the overhead they have to deal with; at some point, the deal may not be worth it to them.

Project management begins in-house

You will need highly competent project managers who know how to juggle multiple projects, keep to a schedule, and have the technical expertise to separate the technical BS from serious issues that threaten to derail a project. The blame game has to stop at your desk.

Savings often give rise to new costs

That time commitment of more managers spending more time on multiple project will also increase the cost of your initiative. So, if you thought you were getting a good deal by hiring service providers who fit nicely into your smaller budget, don't be surprised when the cost you thought you saved pops up somewhere else.

Although there is less likely to be a single point of failure when you break up your outsourcing strategy, internal management costs can be significant, Lowes says.

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