The outsource fraternity, by which I mean those who make a living out of outsourcing, be they lawyers, consultants or service providers and of which I am one, are an inventive crowd with a seemingly inexhaustible appetite for buzz words, tags and hype. Already in a relatively short time we have given rise to a new dictionary in a way that might make even the most hardened advertisers blush : step-in, step-though, near-shore, far-shore, service levels, ARCs and RRCs (pronounced “rooks”). Then we see the fad for purported new strains of outsourcing with the heralding of insourcing – which to my mind seems to be an “acceptable” way of describing an outsource that has failed much in the same way that the old Insolvency Departments of law firms are now referred to as Corporate Recovery Departments- and part sourcing. We now have multisourcing to contend with.

What do they mean by Multisourcing?

According to Gartner, who claim the honour of introducing the concept of multisourcing in 2005, multisourcing is a new way of making sourcing decisions through the disciplined provisioning and blending of business and IT services from the optimal set of internal and external providers in the pursuit of business goals. I am not sure that I am much the wiser.

As I see it, multisourcing could refer to two separate circumstances neither of which appear entirely innovative and both of which may bring with it its own set of potential concerns.

Multisourcing – type one

The first is the situation where a company has a range of services that it wishes to outsource. Picture the scene:

The CFO has returned from the golf course with messianic zeal in her eyes having been sold the virtues of outsourcing over 18 holes by one of the outsourcing fraternity. The back office has to be outsourced without delay. Having checked what exactly fits into the back office as against the front office with a quick trip to Wikipedia it becomes clear that the CFO has the IT, accounting and HR departments in her crosshairs. Now the dilemma which identifies our first possible meaning of multisourcing: Do we look for one single service provider to take over the IT, accounting and HR departments by outsource – no doubt we could invent a new tag to deal with this situation – we could, for example, call it “singlesourcing” – Or do we look to find separate outsource providers for each department – conceivably “multisourcing”? Quite why we need a word to distinguish this arrangement is beyond me. Surely we are no better of with a reference to “multi-source” than to “three outsources”?

Still, if someone has gone to the length of coining a new word it would be rude not to see if there are features that all should be aware of.

The decision to find three suppliers rather than one inevitably means that there will be three sets of contract negotiations with the attendant draw on management time, the possible employment of consultants and a posse of lawyers. It will also mean three contracts to monitor and manage with an associated increase in administration. If there is any degree of dependency between the three types of service there will be an increased potential for difficulty in identifying exactly which service provider is responsible for a default. Another consequence will be three sets of fee negotiations without the ability to aggregate the services and cost and seek a quantum discount.

Against this there is an opportunity to seek to find expert service providers for each of the separate fields to combat the fear of finding a jack of all trades. This is not entirely revolutionary as in my redevelopment of my house – a first rate example of this first form of multisourcing - I took great care to ensure that I avoided appointing the plumber to rewire the house and when I was inexorably drawn to asking the painter to build a couple of wardrobes I had the presence of mind to seek some evidence of his cabinet making ability. There is also the comfort of knowing that if one of the service providers goes bust the others may hopefully continue providing their services and the flexibility that if one service provider defaults that one can be dismissed with the remainder continuing unaffected.

Multisourcing – type two

The second form of multisourcing is an altogether grander affair. Now consider this :

The CFO of your global dominating multinational company has returned from the golf course with messianic zeal in her eyes having been sold the virtues of outsourcing over 18 holes by one of the outsourcing fraternity. The company’s global logistics requirements have to be outsourced without delay. Now the dilemma that identifies our second possible meaning of multisourcing: “Do we look for a global outsource provider to take over out this single service worldwide?” Or, “Do we break up the world into chunks and look for an outsource provider for each chunk?” (This seems to be a variant of multisourcing type one). Or, “Do we appoint more than one global outsource provider to work in tandem or troika etc. etc. with each other to take over out this single service worldwide?”

If we chose the last option – multisourcing type two - most of the cons paragraph under multisourcing type one will clearly apply with the exception being the point on dependency. The negotiations may be all the more protracted as there will be the negotiation of the entire deal with each supplier with the utopian but ultimately futile dream of seeking to keep each contract as identical as possible. The costs of negotiating this form of arrangement will be considerable – think of the costs of negotiating one such outsource deal and simply multiply by the number of suppliers who have a seat at the table. You may also have to look carefully into the contract management provisions to ensure you can require the suppliers to play nicely with each other. The putative benefits of multisourcing type two could fast evaporate if the suppliers are continually scrapping with each other.

The advantages are perhaps more obvious with multisourcing type two. You can hope that the ability to switch suppliers will provide a high level of confidence for business continuity. You can also hope that competition between the suppliers to win more of the share of the available work will keen the service performance up and the prices down. The terms of the contracts will clearly need to be carefully crafted to make sure that the benefits are secured. For example, particular consideration will need to be given to the volume metrics to allow the same to flex up and down; the pricing provisions will also need a high level of sophistication as will the contract management and termination provisions. Multisourcing type two may also be the only solution if there is no single supplier who can handle the expected volume of the outsource although this is more likely to give rise to the variant of multisource type one referred to above as you might seek to deal with the volume concerns by dividing up territories.

Closing thoughts

In certain circumstances multisourcing type two can pay dividends. However, it seems such dividends will only be realistic in the most substantial of outsource transactions where the benefits have a chance of outweighing the negatives. As for multisourcing type one - a clear case of a makeover.

About the Author

Simon Shooter is a partner in the Commercial Department of Bird & Bird's London office where he specializes in assisting clients with their IT and general commercial law requirements and in particular with outsourcing. He has advised both suppliers and customers on all forms of outsourcing, from office cleaning to legal services on an onshore, nearshore and far shore basis.