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Outsource magazine: thought-leadership and outsourcing strategy | August 24, 2017

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The sourcing model paradox

The sourcing model paradox
Outsource Magazine

Here’s a paradox for you: even though service providers have put more focus on simplifying and streamlining their IT environments, why are they actually working with more external IT services vendors than they used to?

While 72% of the service provider respondents in a new Amdocs-Coleman Parkes survey revealed that they have been choosing a specific sourcing model in order to reduce complexity, it’s surprising to discover that in the last five years, not only have 74% of respondents increased the number of vendors they’ve engaged with, but 26% actually doubled them. That definitely shows a huge conflict between what service providers are aiming to achieve and how reality has actually driven them to act.

So why have they found themselves in a complex multi-vendor situation that they didn’t want in the first place?

Service providers needed to respond to their customer needs. They began adding more and more applications to make it technically possible for them to deliver on customer expectations and as a result, they were left with an enormous number of applications to manage (and a growing number of vendors to handle them). They also needed to support new types of technologies and platforms such as cloud and big data analytics platforms to meet these evolving communication needs. And while all these might have opened up new possibilities for service providers, they have forced their IT organisations to work with an even larger number of vendors, drawing their attention and focus from their core business.

Take, for example, one North American service provider that had different vendors managing over 1,000 applications across its wholesale, ordering, care and billing platforms. And if that wasn’t complicated enough, try having to manage its programme governance in order to meet over 50 strict performance SLAs.

The Amdocs survey confirms that new technologies are considered to be the most important trigger that fuelled growth in vendor numbers from the start. Some 77% of those surveyed identified emerging IT domains – cloud computing, data analytics and other SMAC (social, mobile, analytics and cloud) components – as the key factors driving the rise in external services engagements, while new organisational buying centres (74%) and an ever-growing skills gap (72%) follow in a close second and third place.

So how should service providers best tackle this multi-vendor paradox?

The North American service provider mentioned above decided to reorganise its relationship with its vendors by bringing in an external service integrator to take ownership and accountability for all operations and sub-vendors to ensure the service provider was meeting its overall business objectives. The results were impressive and in some cases, immediate: for example, costs savings of 20% from day one, drastically improved order flow through from 50% to over 80%, and defect removal (i.e. the amount of defects caught and fixed before delivery) rose to over 98%.

A tier-one European service provider also took the same external single-point-of-accountability approach to manage over 35 third-party applications in the areas of CRM, retail or online billing, wholesale billing, interconnect or revenue-share billing, prepaid top-up services and network provisioning. This strategy was subsequently validated by a string of significant operational and financial improvements to enhance its customer experience, including reducing the bill run time by more than 55%, increasing online access speeds by 30%, and ensuring that provisioning never falls below 97%, not to mention the ability to resolve any critical or high incidents within SLAs, and being able to quickly launch marketing initiatives due to the now stable environment.

While there were a range of different service sourcing model options for these service providers to choose from in the market, the reason they both decided on an external service integrator was that they needed the advanced technical knowledge, integration expertise and access to an established ecosystem of technology partners that the service integrator could bring with it (and which weren’t sufficiently available internally). The service integrator acted as the service provider’s business partner, proactively identifying and driving the implementation of technology-based solutions, while taking ownership for the multiple vendors involved. Most importantly, the service providers understood the importance of selecting a service integrator with real expertise in telecom, specifically the BSS and OSS domains, and who could offer the added bonus of global best practices and innovative service methodologies to ensure overall business goals would be met as well as exceeded.

Some 63% of the survey respondents indicated that the type of sourcing model selected has a significant impact on business results – the examples above prove them right in the best possible way.


Yoav Guez 150About the Author

Yoav Guez is Vice President, Head of Services R&D at Amdocs. He has more than 20 years of IT experience and over 14 years in Telecommunications. In his previous roles in Amdocs, Yoav has worked with service providers in leading complex IT transformations, business and system migrations, system integration and IT operations management across Europe, North America, Asia and the Middle East. He holds a BSc. in Industrial Engineering and Management from the Technion University of Science in Israel.

Comments

  1. tectl

    I’m not particularly surprised by these facts. The most plausible and justifiable reason is for risk reduction through geographic and provider diversity. Add to this focused expertise and now you have a bit of a hit as to the foundational catalyst. I don’t necessarily believe that its at a the result of a preconceived model or by governance (maybe that is how the error is being justified but certainly no one in their right minds could consider a mess as justifiable). For this reason I might wish to point to some systemic causes; procurement practices (bidding-vendor qualification-pricing thresholds…), administrative policies that force circumvention (vendor centric policy, sole source provider provisions and political pressures by divisions & management), and the effect of piecemeal downsizing forcing pieces to be put on top of pieces outside of the enterprise.

    • Jerry, thanks for this – in particular that very last point struck a chord with me: “the effect of piecemeal downsizing forcing pieces to be put on top of pieces outside of the enterprise.” Might you be interested in expanding on this for a column?

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