DuPont: Purposeful Multisourcing
Chemicals giant DuPont was already seen to have a highly capable IT function prior to deciding to outsource its IT service requirements to two major global IT providers in Accenture and Computer Sciences Corporation. The 10 year, $4 billion alliance partnership signed in 1997, resulted in some 3,000 DuPont employees being transferred to the outsourcing providers. While DuPont had made the decision that IT was not a core function for the business it wanted to achieve a flexible IT resource capable of supporting a dynamically changing business portfolio and innovative core business solutions, while sustaining best practice cost performance. From the start DuPont decided to use two, rather than a single outsourced provider. It also retained the right to source new project work beyond the two main providers to enable it to keep some competitive tension in the arrangement.
A review of the DuPont outsourcing experience was reported on by Willcocks and Feeny (Winter 2006). Half way through the contract DuPont had been successful in achieving several of its business objectives which included reducing its fixed IT costs by 40%, gaining access to a broader skill base, some increases in speed of service and flexibility and modest cost reductions. A retained IT staff of some 70 people dealt with strategic planning, architecture, security, emerging technologies and enterprise wide projects. A further 47 staff were allocated to managing the outsourcing alliance. Several hundred additional employees were providing regional and specialised services oversight.
Despite the early gains made, DuPont began to question whether it had outsourced too much of its technical and management expertise. Willcocks and Feeny applied their own IT capability framework which confirmed some of DuPont’s concerns. Specifically the operational capabilities for managing technology work, contract facilitation and relationship building were under resourced, resulting in local CIO’s having to deflect their attention away from more strategic, business oriented activities. The longer term impact was that the strategic partnering of IT and the core businesses was being negatively impacted and the potential for innovative IT driven solutions reduced.
This case study shows that DuPont did many things right in setting up their outsourcing alliances. From the start DuPont had adopted a multi-sourcing strategy. However, by under resourcing in some key operational areas, their ability to sustain IT leadership and governance, technical planning and informed sourcing was being compromised. As organisations move more strongly into multi-sourcing arrangements they will no doubt learn the lessons of DuPont in the need to “right size” their internal IT capabilities, which invariably will mean retaining more, rather than less.
The increased reliance on alliances and joint ventures brings into question traditional definitions of what constitutes “the firm”. Figure 4 provides a perspective from one of DuPont’s executives as to how the company has evolved from a typical large conglomerate to a firm which now primarily achieves its business objectives through partnerships.
Figure 4. The changing face of DuPont (Reproduced with permission)
This short account of the business evolution toward multisourcing sheds a little light onto why it has happened. To gain some insight into the reasons for this evolution it is necessary to explore some of the fundamental organisational theories at play. The next section explores the socio-economic theories that underpin the business evolution described above.