the role of a multisourcing strategy in digital transformation

digitalization and its impact on sourcing strategy

 

Digital transformation is becoming increasingly critical for many companies, evolving into a central strategic priority. It extends beyond the digitalization of core processes at the customer interface or in production to include digitalized support processes and cross-functional areas such as human resources and procurement. This digitalization drives closer integration of processes, enabling all components of the value chain to communicate more seamlessly.

Consequently, companies are increasingly offering their products as services, complemented by a range of associated offerings. Similarly, as businesses adopt this "as-a-service" (aaS) model for their own products, they increasingly rely on external support for their creation. With the growing acceptance of cloud technologies, an expanding range of services—both IT-related and beyond—are now delivered as a service. This approach involves providing business processes, extensive data, and the necessary IT infrastructure through virtualized environments.

The procurement or sourcing strategy for such services faces significant challenges and must be closely aligned with both IT and business strategies. Special attention should be given to multisourcing strategies, which require a fundamentally different evaluation within an "aaS model." Additionally, the distribution of budgets for technology services is shifting in the context of digitalization.
For example, the Forrester study C-Suite Tech Purchasing Patterns highlights how decision-making weight is increasingly shifting toward roles such as the CFO, CMO, and CPO. As a result, sourcing strategies must account for a broader spectrum of stakeholders to ensure alignment and effectiveness.

 

understanding of multisourcing approaches

If multisourcing is understood as the distribution of services across multiple suppliers, the primary strategic advantage lies in the independence it offers. By enabling the customer to choose among different providers and flexibly allocate services between them, this approach delivers both commercial and qualitative benefits. From a business continuity perspective, particularly in crisis situations, multisourcing significantly improves risk management and strengthens compliance with regulatory requirements.

When multisourcing is defined as the distribution of individual services along a value chain to various suppliers, the first key challenge becomes service integration. To craft an effective sourcing strategy that supports digital transformation, it is essential to first establish a clear definition of the multisourcing approach.

Regardless of its definition, a multisourcing strategy also comes with inherent disadvantages. The effort required throughout the sourcing lifecycle is significantly higher. From drafting tenders and negotiating contracts to the operational management of suppliers, these additional demands can quickly offset the commercial and qualitative benefits. To address this, many multisourcing models involve commissioning service integrators to coordinate suppliers. While this approach helps streamline management, it introduces additional costs and can lead to challenges, as not all suppliers are willing to act as junior partners to a competitor.

Simultaneously, digitalization and the proliferation of cloud-based solutions are driving increased standardization of services. This standardization enhances the benefits of multisourcing by improving compatibility among suppliers. Consequently, cloud broker and cloud aggregator business models have emerged. For customers, these models transform the multisourcing of cloud services into a singlesourcing approach. In theory, customers could engage multiple cloud brokers to gain access to a broad range of cloud providers.

 

definition of service structures and service interfaces

Implementing complex strategies such as multisourcing requires precise definitions of service structures and interfaces. As mentioned earlier, many companies now deliver business processes from the cloud, integrating applications, middleware, networks, and infrastructure. For horizontal service layers, such as server platforms, a multisourcing strategy can often be implemented with relative ease—especially when these services are offered via cloud brokers.

However, the closer the model approaches the application layer, the more challenging it becomes to execute a multisourcing strategy. Mapping individual business processes using different applications from multiple suppliers is often impractical. Similarly, implementing a multisourcing strategy within vertical service interfaces for a single service presents significant difficulties.

Conversely, sourcing individual services from the best supplier in each category allows for the creation of a supplier portfolio that aligns with the service portfolio. This approach, however, raises concerns about dependency on the chosen supplier for each service.

 

choosing the right sourcing strategy

When developing a sourcing strategy, it is essential to define how individual services are structured, recognizing that a strict adherence to either a horizontal or vertical model may not always be practical. This is particularly relevant for end-user devices and security services. Security services, in particular, should be implemented as a horizontal layer across all business services to ensure comprehensive security and maintain the integrity of the organization's operations.

From a procurement and supplier management perspective, multisourcing introduces significant complexity and often conflicts with many companies' initiatives to consolidate their supplier base. Strategic decisions regarding the sourcing model must therefore carefully balance the need for procurement efficiency with the complexity of managing multiple suppliers.

The rapid digitalization and the proliferation of new providers offering business processes as-a-service (e.g., FinTechs) present additional challenges. Procurement and supplier management must increasingly adapt to a dual-speed approach—aligned with the concept of bimodal IT—to address the varying pace of traditional sourcing and digital transformation. However, applying a multisourcing strategy to digital as-a-service offerings remains particularly challenging due to their inherent integration and operational dependencies.

Conclusion: Digital transformation requires a reevaluation of sourcing strategies, considering new service interfaces. New as-a-service offerings cannot be integrated in the same way as established business solutions. Given that multisourcing is more complex than singlesourcing across the entire sourcing lifecycle, this strategy is best suited for horizontal service slices within established business solutions.

We at plenum have extensive experience in developing and implementing both single and multisourcing strategies. A large number of successful projects reflect the value our experts bring to the table.