Beyond the PSL?

Chatting to a couple of clients in the last week, a word came up that I hadn’t heard for a while: multi-sourcing.

The last time people really talked about this was around the dotcom boom, perhaps because the circumstances required a lot of specialist skills which they didn’t think they’d find in the big generalist consulting firms. A great idea on paper, Multi-Sourcing Mark I foundered on the three C’s: complexity, culture and cost. Clients found it difficult to pull together people with different expertise from different firms into an effective team; consulting firms found that having to work side-by-side with their competitors was a cultural change too far; and both sides found it costly.

Will Multi-Sourcing Mark II be any different?

Access to specialist skills is again the driver, but for rather different reasons. Partly as a reaction to the plethora of consulting firms big organisations worked with during the dotcom boom, much procurement time and energy since then has been focused on whittling down those suppliers into a more manageable, and often very small, number. However, that creates a different problem: as the number of firms on the preferred supplier list (PSL) shrinks, the breadth of services the firms have to cover grows. Now clients are starting to realise that generalists don’t always offer the depth of expertise required. What to do? Ask your preferred suppliers to subcontract some of the work you give them.

So, the key difference in Multi-Sourcing Mark II, is that consulting firms will bear all the costs – and they will, for two reasons. First, faced with a contracting market, they’ll bow to client demands. Second, consulting firms find it hard in any case to balance supply and demand, so using flexible resources can make sense for them too.

Longer term, however, Multi-Sourcing Mark II has more serious implications for the consulting industry. It potentially changes the shape of the consulting firm because there’s a world of difference between a consulting firm that chooses to subcontract work when its own staff are busy and one that has to, at a client’s behest, even when its people aren’t occupied. To cope with this, consulting firms on the PSL will reduce the number of consultants they employ and will increasingly rely on others supplying the resources they need to deliver projects. Moreover, the industry will bifurcate. In one corner will be the PSL firms: these will have brands and control client relationships; in effect, they’ll be the ‘shops’ that organisations buy from. In the other corner will be the ‘factories’, the firms that supply the skills and services.

So if you think that multi-sourcing is old hat, think again.