Multisourcing of IT and business services - with or without a Guarding supplier?

25 June 2019

When sourcing Information Technology (IT), one of the dominant trends is multisourcing - the practice of procuring interdependent IT and business services from external suppliers to achieve optimal business goals. Benefits of multisourcing include increased competition amongst suppliers in terms of price, quality and degree of innovation; lower operational risks and dependency (each supplier becomes less critical); and lower strategic risk sensitive information is split amongst different suppliers. Amongst the risks of multisourcing are reduced incentives to make customer-specific or supplier-specific investments. Along these lines, the two parties are less willing to make investments in relationship building, technology, dedicated staff or physical assets as the basis for enhancing their collaboration. Furthermore, multisourcing arrangements increase management overhead as client firms incur costs associated with contracting, developing relationships with suppliers, and coordinating work. Multisourcing also has implications for suppliers, as each supplier needs to be aware of interdependencies and commitments of other suppliers, implying the need for interactions between the suppliers in order to jointly deliver an overall service. Therefore, in assessing the success of a multisourcing arrangement, it is not the performance of the individual suppliers that matters most, but their joint performance, i.e., the degree to which the combined services delivered by the suppliers meet the client’s expectations. An example of such a multi-sourcing arrangement is British Airways’ (BA’s) “Know Me Programme”, which was initiated in 2013 and involves three suppliers, Tata Consultancy Services (TCS), Opera Solutions, and e-Dialog (now Zeta Interactive)[1]. Together, these three suppliers form a new personalized customer contact system. Although each supplier has its own responsibilities, i.e., TCS for collecting, integrating, and managing customer data, Opera Solutions for providing business analytics services, and e-Dialog for creating e-mail-based marketing services, the success of the project relies on all three services working together. Accordingly, the suppliers have to manage the interdependencies between their services, which requires them to cooperate and coordinate their actions.

While facets associated with governance of dyadic client-supplier relationships, such as putting in place Service Level Agreements (SLAs) and using various organizational controls to motivate suppliers to achieve desirable results, are also relevant, the client firm needs to put greater effort into governing the supplier network in IT multi-sourcing, as well as incentivizing and monitoring both individual and joint supplier performance. On this account, the use of a guardian supplier to assist the client firm in governing the supplier network has been portrayed as one of the unique features of the IT multisourcing setting.

In our paper entitled “An Information Processing View on Joint Vendor Performance in Multi-Sourcing: The Role of the Guardian[2]” that is forthcoming in the Journal of Management Information Systems (JMIS) we investigate the role of the guardian supplier, in comparison to a direct sourcing model. In the direct model (figure a) the client takes full responsibility for managing the suppliers. In the guardian model, the client transfers some responsibilities to the guardian supplier. We argue that each model has important implications for the information processing (IP) capacities needed to achieve a high joint performance.

We argue that managing interdependencies between multiple suppliers imposes substantial information processing (IP) requirements on clients. To achieve high joint performance, clients therefore need to possess sufficient IP capacity. We examine how three sources of IP capacity, two internal (i.e., the client’s inter-supplier governance and the client’s architectural knowledge) and one external (i.e., the guardian supplier), work together in realizing joint performance. Our results show that formal governance and architectural knowledge contribute to joint performance. The guardian supplier contributes to joint performance in settings where the client deploys strong governance but lacks architectural knowledge. This suggests that, contrary to common views in the academic literature, guardian suppliers should not be understood as mediators (or single points of contact) who relieve clients from governance efforts. Instead, guardian suppliers are more fruitfully understood as architects, who complement the client’s governance efforts by compensating for knowledge gaps. Put simply, client firms should consider using a guardian supplier to strengthen their weak architectural knowledge while still maintaining strong formal and informal governance of all suppliers.

 

Professor Julia Kotlarsky

University of Auckland, Business School

[1]  e-Dialog was part of GSI Commerce (which was acquired by eBay and renamed eBay Enterprise in 2013), and sold to Zeta Interactive in 2015 (http://zetaglobal.com/clients)

[2] Oshri, I., Dibbern, J., Kotlarsky, J. and O. Krancher (forthcoming) “An Information Processing View on Joint Vendor Performance in Multi-Sourcing: The Role of the Guardian”. Journal of Management Information Systems.