Managing Sourcing Risks through Diversification of Outsourcing Relationships

Recently at the 2007 Global Services Conference in New York I had the opportunity to speak on a topic that is near and dear to me; diversification in sourcing relationships. One of the challenges that companies have in sourcing their projects to a service provider is first understanding or rather categorizing the type of project they are looking to outsource. Here’s what I mean. There are basically three types of projects that companies will outsource:

1.  Cost improvement projects that focus on driving efficiency in the organization, i.e. staff augmentation to offset labor costs
2.  Performance improvement projects around operations which further enhance the company’s ability to deliver a service back to the business or to its customers i.e. portals, maintenance on existing applications, feature/functionality
3.  Business improvement projects that result in innovation and transformation of core business processes and drive bottom line changes i.e. new applications deployed, integrating multiple systems to standardize, building new software to meet business objectives

Understanding where your project(s) fits will help in determining the value back to the business and the nature of the relationship that you require from a service provider. These factors will play an important role in determining how to best diversify your sourcing relationships. Too often companies default to a specific service provider or geography as a result of past history or assumptions on price, skills and so on.

The same sourcing risks that exist for companies that outsource equally become opportunities when a better understanding exists around available options. Companies that are concerned about cultural alignment need to investigate how service providers in other geographies such as Central and Eastern Europe may be better aligned with the social and cultural skills that will compliment their company. If you click the thumbnail image you'll see a figure that provides an overview of how perceived sourcing risks are opportunities, specifically when companies look to Central and Eastern Europe.

 

I encourage buyers to take the time to build a simply, straight-forward and effective plan that will allow them to properly assess the value of the project, the expected outcomes and the best place to get it done.

One way to do this plan is to conduct what we call a Sourcing Maturity Assessment™

This Sourcing Maturity Assessment™ is a no risk exercise that brings results and will do the following:

•  Identify “why” your organization needs to outsource
•  Align Sourcing and Business strategies
•  Define the opportunities and challenges
•  Set “diversification” criteria and segment projects
•  Know what the “measures of success” will be
•  Build an Offshore Evaluation Checklist
•  Determine the best geographic location based on specific and defined criteria

It is more than just building a spec or looking for a team to speak the same language. It is about fit and finish and companies that have multiple projects planned across many industry verticals need to explore their options and quantify their thinking for sourcing to a particular destination and/or service provider.