Is selective sourcing truly more satisfying?
Although the outsourcing market continues to grow at a significant pace, many client organisations are becoming increasingly disillusioned with the concept of "mega deals". Indeed, many large-scale, single-vendor arrangements have been characterised by excessive fees, unrealised cost savings, ill-defined contractual terms, ineffective service levels, and vendor inflexibility in response to changing business requirements.
In response to these problems, the "selective sourcing" model has emerged as a viable and attractive alternative to the single-vendor approach. Essentially, a selective sourcing approach involves choosing a stable of "best of breed" vendors to administer various business services or business functions, leading to either a total or limited point solution.
The perceived success of the selective sourcing approach in defining meaningful service levels, achieving cost targets, and enabling effective governance has gained it increasing favour in the executive suite as the preferred approach to sourcing. However, while selective sourcing may indeed address some longstanding outsourcing challenges, it also presents some new management issues. Moreover, many of the benefits of selective sourcing can at times be equally well realised by applying leading management practices to a single-vendor model.
Selective Success Factors
Evidence suggests that selective sourcing is more effective than total outsourcing, in terms of critical success factors such as achieving targeted cost savings, maintaining or improving service levels, and renewal of contracts.
A 1998 study of 61 sourcing decisions directed by Leslie Willcocks, an academic outsourcing expert at the Warwick Business School in the United Kingdom, found that 85 per cent of selective outsourcing decisions met customers' expected cost savings, whereas only 29 per cent of total outsourcing decisions met expected cost savings.
Willcocks and others cite a number of factors that contribute to the success of selective sourcing. These include the ability to choose vendors with specific areas of specialisation to match requirements. Selective sourcing is also seen to facilitate a competitive environment, and to enable greater flexibility to adapt to change.
The major drawback of selective sourcing, according to Willcocks, is "the transaction costs associated with multiple evaluations, multiple contract negotiations, and multiple suppliers to manage and coordinate".