Outsourcing and Mixed Sourcing in the Age of Centralization

Over the last few months I have been researching sourcing and BPO relationship management ahead of the Shared Services Leaders’ Summit in London. Having spoken to professionals from a variety of industry backgrounds I have found that shared services leaders are beginning to look at mixed sourcing strategies over single vendor arrangements.

A mixed sourcing strategy usually involves a number of BPO partners, each managing a process or function that plays to their specific expertise. This is in stark contrast to more traditional outsourcing arrangements which might involve a single or a handful of BPO or ITO providers.

Guy Mercier, Head of Global Business Relations & Services Delivery Operations at Solvay, will be speaking at the Shared Services Leaders’ Summit on the topic of how their transformation into a GBS changed the way they thought about outsourcing. This ultimately led to the adoption of a mixed sourcing strategy involving more than 26 providers.

There are advantages and disadvantages to both approaches, but the core argument lies in whether a mixed sourcing strategy can provide superior flexibility and utility of specific expertise, or whether these benefits are outweighed by the scaled efficiencies of a single provider.

In a single BPO relationship there is a clearer understanding of accountability and a relatively simple governance structure. Bundling a number of services into a BPO package can allow the outsourcer to apply efficiencies across multiple back-office functions. This is conducive to technology and process harmonization and can have a significant (additional) impact on your bottom-line.

But with a single vendor approach it can be difficult to measure performance and improvement over time and how this would compare with another vendor’s services. Capitalizing on a mixed sourcing strategy does create some element of competition between vendors, and can allow a strategic relocation of services if another outsourcer becomes more competitive.

There is also considerably less risk involved in a mixed sourcing strategy. When migrating a service or function to a BPO, organizations need to understand the risk involved and put in plans for an exit strategy. In the event of BPO insolvency, endemic staff shortages, or a natural disaster in outsourcing locations, organizations need to be sure that there are other entities that are able to pick up the work.

A single vendor sourcing strategy does create some dependency, necessarily impacting business risk. I spoke to EXL Service on the subject and they advised that a combination of low flexibility with a single vendor agreement and single accountability for the process can lead to significant recovery costs in the event of failure.

A diversification strategy on the other hand can leave ample flexibility for correction if a BPO fails to maintain a high standard or becomes unable to deliver the service. In some cases the process or function can be smoothly migrated to another existing provider, who:

1. already knows your business,  
2. can (now) provide a better service for better value, and
3. has already demonstrated their value and effectiveness

All of which contribute to a pretty strong business case!

In fact, many of the professionals that I speak to claim that the competitive nature of a mixed sourcing strategy can drive performance excellence in itself.

The mixed sourcing strategy is sometimes said to be the preferred approach for those wanting immediate results from their sourcing strategy without great exposure to risk. But in the age of back-office centralization, the dissemination of services to different providers almost feels like a step backwards.

The answer may lie in establishing or expanding a BPO relationship management team, who can organize your company’s sourcing strategy in a centralized manner. A number of organizations that I’ve spoken to are already adopting this approach and tell me that one of their team’s biggest challenges is differentiating between BPO providers beyond cost comparisons.