Alsbridge has published a new whitepaper, “Governing in a Multi-Supplier Ecosystem,” that is presented in four components, the first of which is presented here: “Transforming Multi-Supplier Complexity into Service Value.” The other three areas – Balancing Accountability in a Multi-Vendor Ecosystem, Implementing a Multi-supplier Governance Model and Vendor Management and Governance – are included in the entire whitepaper, available online via the information presented at the end of this article.
Transforming Multi-Supplier Complexity into Service Value
Corporations continue to virtualize themselves to the point that we can now say with some certainty that “nothing happens solely within the four walls of any corporation today.” A recent study of 2,000 companies of various sizes across multiple industry sectors shows that spend on sourcing as a percentage of total revenue is growing at a rate of 6% annually while the same spend on labor is decreasing at an annual rate of 8%. The data further finds that a 1% improvement in supplier cost management has a six time greater impact on profitability than does a similar 1% reduction in labor costs. Hence, a focus on supplier management is paramount to corporations who are seeking to optimize the value received from their sourcing arrangements (see Figure 1).
The trend toward sourcing is not abating and, in fact, multi-sourcing is now the norm. As this trend continues, IT functions are transforming their supplier management functions to multi-sourcing and are now facing the enhancement of their IT Service Management capabilities (ITSM). Governance capability is now a core competency of the IT organization. Governance involves many stakeholders at many levels:
IT finance and project governance
Supplier relationship management and governance
All categories of governance call for new skills and new structures. Additionally, there are other trends increasing the ‘workload’ for governance such as continuous increase in IT responsibility for managing multiple interfaces among providers, managing between providers and business unit customers and the commoditization and globalization of IT delivery.
This complexity is depicted in the process map in Figure 2, which illustrates the growing redefinition of operating level agreements, contractual service level agreements and non-contractual operating practices. Such non-contractual operating practices are captured as part of a contract run manual that defines what happens in the white spaces where hand-offs occur and where doing the right thing among the stakeholders becomes the order of the day. These are all trends that are impacting the structure and negotiation of sourcing agreements in multi-supplier ecosystems.
Such complex environments can be confusing, thus creating value erosion across multiple relationships, impacting customer service negatively and creating a governance nightmare. These issues can be successfully addressed through governance transformation that leverages models and solutions available to simplify governance complexities. These transformation challenges and needed interventions are addressed in Figure 3.
Coming to the conclusion that a single “strategic” supplier is unable or unwilling to transfer its knowledge to other players in the emerging ecosystem has created immense concern among IT executives. Consequently, corporations have moved slowly and, in many cases, created more problems for themselves when a quicker and more decisive response to re-sourcing their major outsourcing contracts and renewals – a move to multi-sourcing – would have positively altered the dynamics of the supplier-client relationships to create more value. That said, it is not an easy transition and some suppliers may behave badly when faced with having to play well with others. Hence, these circumstances create the need to address new risks with improved governance structures.
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Next Up: The Emerging Profession of Vendor Management & Governance and the Automation Driving Measurement
Vendor Management & Governance (VM&G) are the nerve centers for optimizing the value exchange between an enterprise outsourcing buyer and their provider(s). Join Sirion and Alsbridge in this session, to hear from thought leaders at the forefront of implementing VM&G Centers of Excellence, gain insights into emerging VM lifecycle automation tools and their relative capabilities and understand how VM&G organizations operate and how they are being positioned inside the enterprise. Participants in this session will receive a copy of a recently completed analysis of VM lifecycle automation tools. Alsbridge will share their research and insights as well as how to remain on the cutting edge of successful VM&G.