The increasing complexity in modern business is transforming the supply chain as we know it, with organisations adopting strategies that focus on rationalising and consolidating their supplier base. It makes sense but the collapse of Carillion and problems seen at Capita brings this into question. Should organisations adopt a multi or single source model for example, and which model is more manageable and effective at mitigating risk? The answers are as unique as the organisations asking them.
Outsourcing elements of a business that are critical to operations has always been an important decision for most organisations – especially when those elements do not fall into their areas of expertise. After all, why invest in internal specialisms that could potentially remove time and resources otherwise spent on core functions? It’s no wonder that outsourcing IT services in particular has seen Cloud technology lead its growth, with a 27 per cent increase between 2017 and 2018 according to Information Services Group (ISG).
With the UK IT outsourcing market maturing, the multi or single source dilemma now plays a leading role in decision making. Procurement teams need to decide whether to outsource services to a small number of specialists or just one. Another consideration, driven by the UK government’s former National Technology Adviser Liam Maxwell, would be to outsource to numerous providers and disaggregate service consumption. It means moving away from monolithic contracts and realigning technology products and services more closely to the individual organisation’s needs – a model known as Service Integrators and Management (SIAM). Arguably, this model is supported by the effects of the collapse of Carillion and the impact of Capita’s errors on patients of the NHS.
Tens of thousands of organisations, including the UK government, outsourced elements of their operations to Carillion. However, when Carillion entered 2018 with almost simultaneous news of liquidation, organisations across all British industries plunged into uncertainty.
Similarly, fully outsourcing IT services also has its tales of disaster. The British Medical Association (BMA) expressed its concern to the NHS over its contract with IT specialist Capita, which holds the contract for providing GP back-office services. However, in 2018, the technology provided by Capita failed to send 48,500 pieces of follow-up correspondence to those who had cervical cancer screenings. The BMA complained the error was the latest in a series of failings from Capita. As with Carillion’s customers, a large element of functioning was outsourced to Capita and many people were let down.
While these are not isolated examples, they clearly demonstrate one thing: the more you aggregate the services you outsource, the more reliant you are on a single provider to consistently maintain that service. If the provider fails, the function of your business that they were supporting will also be at risk.
So how can businesses avoid becoming the next victim of an aggregated outsourcing failure? Liam Maxwell got it right when he said it can only be disaggregation. However, it isn’t that simple.
Arguably, for larger enterprises, disaggregation works best. The vast operations undertaken by such companies require a level of scalability and expertise that is best delivered by a smaller, specialist company. These specialists can target specific needs and support mission-critical operations directly. What’s more, the environment in large businesses is likely to be more complex than that of a smaller organisation, so again, working with specialists is often the most effective solution. The investment in a procurement team that can manage a range of specialist partnerships can be cost effective, ensuring value for the business. This leads to the development of, and investment into in-house teams that can provide this management and support the organisation moving forward.
On the other hand, for mid-sized organisations, disaggregation can actually increase costs. Adopting the SIAM model demands a lot of internal investment. They would need the in-house expertise to manage multiple suppliers and successfully integrate the services. Otherwise they will struggle with providers shifting blame between each other, and potentially introducing charges between them. It can become a huge drain on resources. Therefore, the most cost-effective option for mid-sized organisations is seemingly to aggregate the services they outsource. Completely outsourcing IT for example, gives another company that headache. Except, for that company, it isn’t a headache. The right partner will specialise in IT, demonstrate sector expertise and have teams made up of highly trained individuals and services that meet the stringent regulations and requirements of any market, from financial services to the NHS.
Recognising that the aggregation of services shouldn’t be avoided by all, the UK government has introduced ‘living wills’ to outsourcing contracts in the public sector – a move led by Capita among others – should the worse happen. This means there will be a formal structure for sub-contractors to step in should a main contractor cease trading or is unable to reasonably evidence financial sustainability, including being able to pay its own suppliers.
The wills remove the current lack of visibility and understanding around what providers are buying for customers. This knowledge will reduce the cost of change and introduce a fluidity to the process for government organisations. It is a positive step in appreciation of the fact that outsourcing requirements are always going to differ across organisations, but being able to outsource a function outside of their expertise to a specialist company is allowed.
The bottom line is that technology is not a one-size-fits-all asset, and it shouldn’t be. With every organisation under pressure to digitally transform, IT-based decisions are more important than ever. However, digital transformation needs to happen in accordance with where an organisation is on its journey and where it wants to be in the future. It’s up to that organisation to decide what digital transformation actually looks like because, for most businesses, it means different things.
Whether digital transformation requires aggregating or disaggregating services is ultimately the organisation’s decision. A business that aggregates the services it outsources cannot outsource its transformation. There must be a cultural change and cross-organisation buy-in that can only be truly driven internally. But it doesn’t mean organisations have to go it alone in the decision-making process. The key is finding an experienced software company with known, valued and trusted solutions in markets – and a team of experts who can support the development of a tailored digital transformation strategy.
Jon Wrennall, CTO, Advanced