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Changes in ITO Contract Sizes Reveal Issues in Multisourcing

by: Sarah Joson

Tuesday, January 31, 2012 | Outsourcing News |

ITO through Multisourcing

NetworkWorld.com recently released an analysis of Information Services Group’s (ISG, previously TPI) 2011 quarterly statistics report, where data revealed that the sizes of contracts in the information technology outsourcing (ITO) sector are shrinking for the past decade. Moreover, smaller contracts, which are valued at around $100 million or less, are believed to have ballooned three times their size since 2002 and have now surpassed medium to large deals.  
 
The report from ISG likewise showed that since 2009, the smaller IT deals-bracket has been accounting for 70 percent of the total contracts, a trend that started years back. Furthermore, even if the number of signed deals during 2011 jumped eight percent from the previous year and has increased 85 percent since 2005, the overall values of signed contracts decreased marginally every year during the fourth quarter and for the whole year since 2010. The total decline was at six percent or $66 billion.

John Keppel, ISG’s Partner and President of research and managed services, said those who are new to the business process outsourcing (BPO) industry favour smaller contracts as the clients are more vigilant of the quality and capability of organizations. In fact, those who know their way around in the ITO sector are now more inclined to ink smaller contracts. He added that clients nowadays are trying to apply multisourcing or the process of isolating their ITO processes into several sections, and outsource each vertical to a different provider, instead of hiring just one provider.

Keppel warned that even if multisourcing is an ideal model, it comes with several major challenges:

Poor Management of the Multisourcing Operation

There are several problems in an ITO operation which can be brought on by the clients. Some of which are mismanagement of hired providers and having no sense of ownership of responsibilities whatsoever.
 
This is where service integration comes in handy. It means collectively managing multiple IT service providers internally to streamline the entire ITO process. The process should be able to alleviate performance, quality, and cost issues that may affect an operation’s objectives. It can either be rendered by a third party provider or managed internally.

ITO clients who are already established in the industry are likely to develop a system in managing different IT providers. Control over the multisourcing model is very crucial, which is why proper delegation of tasks and responsibilities should be worked out long before the operation starts. The providers should also align their processes with the clients’ goals and expectations should be discussed before drafting a contract.

Keppel said since globalization has paved the way for ITO and BPO, multisourcing will be one of the foremost models that will be used by customers.
 
Vague SLAs
Contract ambiguity will remain an issue as customers are still getting used to the idea of multisourcing and only a handful have had the experience of making use of the model. This will also result to ineffective service level agreements (SLAs).

Security Issues
Trepidations over intellectual property and data security can affect the growth of an operation. More often than not, further development in a multisourcing operation is hampered if service providers disagree with one another.

Expectations and Job Descriptions are not Properly Identified
Usually, when plans miss the mark, the providers blame each other or the customer. This often results to precious time lost in trying to find a proper remedy for the situation, which also costs money.

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