Why UK companies should master the multi-vendor approach to IT sourcing?

IT Sourcing

IT Sourcing is the process of choosing or procuring information technology resources from a party outside of the organization. Traditionally organizations would outsource their mundane IT activities as a single contract with a single partner which was done mostly as a cost optimization solution – the lowest bid would generally get the contract. With a fast-changing global economy and evolving business objectives, it has become essential for CIOs and IT Managers to create a strategic sourcing plan where the relationship with the vendor would be one of collaboration; ensuring their capability to respond to the organization’s changing business needs in order to deliver value.

Why UK companies should master the multi-vendor approach to IT sourcing?

As Brexit and IR35 changes approach, it is becoming increasingly more apparent why UK companies need to adopt a multi-vendor approach to IT sourcing. So, what can UK based companies learn from their European counterparts who seem to be ahead in this approach?

As a founder of a specialist IT consultancy based out of the UK, I have found it easier to build direct sales relationships with companies based on continental Europe, in comparison to more local UK companies. While mulling this over during the holiday period, I started to think about why.
I have listed down the reasons I could think of below, do you agree or disagree?
  • IT Outsourcing: UK companies have outsourced IT operations to big system integrators through multi-year frameworks, and that hinders external innovation up in many ways:
  1. Outsourced too deep: Many UK companies have outsourced some of the key roles like strategy, architecture, design and programme delivery etc. This limits their ability to make decisions and manage small suppliers on their own without dependency on the system integrators.
  2. Procurement Frameworks: Procurement frameworks skewed towards big players limit entry of startups through a direct supplier route.
  3. Monopoly over as-is knowledge: Often startups and clients themselves depend on system integrators for as-is knowledge and transition to BAU.
  • Risk taking culture: Having worked with global companies for some time it is striking how culturally the British have less appetite for risk taking, which suffocates innovation, especially in comparison to their continental peers.
  • Language: As an English-speaking country, system integrators were able to penetrate UK market faster, whereas in continental Europe, local language knowledge is valued, so outsourcing options are more varied.
Fundamentally, IT is a knowledge-based domain and the quality of service is highly dependent on the personnel deployed. Multi-year frameworks decided primarily on day rates ignore the fact that building a bespoke software (although at a lower day rate), ends up costing more in terms of total cost of ownership.
Things are improving
The good news however is that looks like UK companies are realising this and based on this excellent article by David Benady, there is an increasing trend away from single vendor outsourcing.
I have taken out some of the key messages from this article which resonate in my mind:
“Over the past five years, a range of revolutionary technologies have come to fruition that are set to transform business processes,…. Many of these technologies are offered by specialist startups. Client companies are partnering with these specialists,… “
“Once you have mastered the process of managing multiple vendors, you will understand the value of this approach and see the value it brings to the organisation’s growth and success”
Independent Contractors and IR35
One unrelated change which I believe will make UK companies open their IT frameworks to specialists is IR35 change coming in April 2020. Companies partially managed balance of knowledge (power) with system integrators by directly hiring independent contractors. However, with upcoming IR35 changes; it looks like this route is full of legal risk and many companies are adopting blanket bans on independent contractors.
It seems now more than ever, with the EU departure date looming, that UK companies should start adopting multi-vendor approach to IT. If you needed any IT related service please contact us.

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