Leading off Gartners recent Outsourcing Summit in Las Vegas, analyst Linda Cohen repeatedly sounded the theme of multisourcing and its corollary: the art and skill of managing multiple outsourcers to the competitive advantage of your company. “The CIO becomes the business solution aggregator,” said Cohen. “Multisourcing management and governance must become a core competency.”
Sounds fine, but it wont be free. Cohens research shows that outsourcing customers are spending between 3 percent and 12 percent of the value of their outsourcing deals to manage those deals. Cohens take is that about 5 percent of a deals value is a good amount. So how you spend that 5 percent or whatever and what you get in return for it become critical to the competitive advantage that IT can deliver for your company.
One of the best presentations at the conference, at least in terms of providing hardheaded advice for the real world, was that of Gartner analyst Kevin Parikh on managing multisourcing. Parikhs research shows that by 2008, investments in outsourcing relationship management will increase by 50 percent, and we may see more companies naming chief sourcing officers.
“You shouldnt multisource without investing in strategy, organization, process, governance and management,” said Parikh. But, again, the key word is in- vesting. “Negotiations cost money. You should plan for their cost, including outside attorneys and consultants,” he said.
Parikh brought out other hidden costs, including the sagging productivity of a demoralized IT organization that is waiting to be outsourced. And when youre in the process of switching over, there will be delays, interim service inefficiencies and potential risks to your business.
Another thing to think about in managing the outsourcers: planning for the termination of the deal. “All deals will end. Contracts should require service providers to offer transition assistance and disentanglement services,” said Parikh.
Where theres a clear need, a vendor soon appears. One such vendor is Blue Canopy. “Were an integrator of integrators, or a fourth party. We become the operational arm of the CIO,” said Binod Taterway, CEO of Blue Canopy. “Customers come to Blue Canopy with the need to integrate different outsourcers,” Taterway explained.
Blue Canopy knows its niche. The company is competing against the big integrators that take over everything, and internal IT management, said Taterway. Blue Canopys selling point is its independence. “We are the aggregator on behalf of the client,” said Taterway.
Out and about
Out and about
Like mammals emerging after the asteroid took care of the dinosaurs, surviving service providers (dont call them ASPs!) are emerging to inherit the IT services ecosystem.
“ASPs are coming back in stealth mode,” said Gartner analyst Ben Pring during a presentation at the recent Gartner Outsourcing Summit.
In one example, Savvis Communications—whose stock once traded at $28 per share, dipped to $0.22 per share three years ago and is now up to $1.59 per share—is continuing to make a go of it, despite its near-death experience. Still losing money (a $94 million loss on $253 million in sales), the company acquired the assets of Cable & Wireless America in January and is now building on that acquisition to announce this week a managed utility service to let customers use Microsoft Exchange 2003 and Windows SharePoint Services.
The on-demand e-mail service utilizes Microsoft Exchange Server 2003 and includes anti-spam, anti-virus and content-filtering features as well as support for BlackBerry wireless devices. A key selling point is that customers pay only for what they use, although Savvis is not making pricing information available yet.
If Pring is right, companies such as Savvis are headed for better times. The analyst predicts that the years 2006 to 2009 will be “The Service Age,” in which there will be a “massive wave of innovation and new applications from service providers. Worldwide software-as-a-service revenue in 2008, Pring predicted, will be $14.4 billion.
Stan Gibsons e-mail address is [email protected].