With Application Outsourcers, Fewer is More

CIO - Editor's Note: Accenture partnered with the Everest Research Institute to analyze the costs and complexity of managing multiple ADM suppliers and how the buyers can benefit from concentrating their work with fewer applications outsourcing suppliers. They interviewed leading organizations that have reduced the number of their supplier mix, as well as leading suppliers that observed the impact of supplier consolidation across their customer base. This article discusses the research and lessons learned that you can take away.

The outsourcing marketplace has matured rapidly during the past two or three years as most Global 2000 companies have outsourced or have considered outsourcing some aspect of their businesses. While these companies have experienced the expected cost savings for outsourcing, they are asking "what's next?" and are now demanding a measurable increase in business performance through outsourcing.

Companies are seeking ways to rein in costs as a result of maintaining financial footing in the global economy. Similarly, liquidity and preserving capital is paramount today, especially for companies in survival mode. As companies look for ways to reduce costs, Application Development and Maintenance (sometimes referred to as ADM) outsourcing has grown in popularity as an area with significant opportunity.

However, in their attempts to leverage the benefits of ADM, some companies have amassed a complex network of multiple suppliers to meet their needs. And all too often, managing this type of network can create an enduring nightmare. So how are leading-edge organizations achieving more by engaging fewer ADM providers? Recently, Accenture and the Everest Research Institute interviewed companies that have reduced their supplier mix, as well as leading suppliers that observed the impact of supplier consolidation across their customer base to look at how leading-edge companies are meeting these goals.

What is the Motivation?

According to the study, the motivation for using multiple suppliers runs the gamut from variations in suppliers' capabilities to localized decision-making across an enterprise, or the simple desire to retain competitive tension.

On the other hand, in many cases, the extent to which multiple suppliers are utilized is a consequence of localized decision-making processes across the organization and individual preferences to leverage relationships with suppliers.

In either case, the evidence from experience suggests that organizations really need to be determined to rationalize the number of suppliers in their ADM portfolio before undertaking the effort. While the savings are very significant, so, too, are the challenges.

High Costs of Accumulating Suppliers

The simple reality faced by many companies is that outsourcers of ADM tend to accumulate whole families of suppliers. And as time progresses, there's a cost to it. A cost is borne for setting up each relationship, as well as managing it, resulting in missed opportunities for economies of scale.