In the case of integrated tasks, having just one vendor is better if performance metrics and revenues are very well aligned. Integrated tasks usually depend on more than just the efforts of one vendor; for example, there is also the involvement and input of the client. And in the case of multiple vendors, all these other vendors will be involved too.
So if remuneration is contingent on performance, which, however, is the result of joint work, the vendor can easily try to put in less effort than the other parties. This risk is minimised if there is only one vendor responsible for the task. Then the chances of becoming a free rider are very low, according to an article on the website of the INSEAD business school.
But there is also another problem: lack of alignment in remuneration structure, leading to poor assessment of outcomes. Here the individual circumstances and characteristics of companies come into play. A large Fortune 500 company probably isn’t able to track performance on any one project and therefore use of multi-sourcing as a default option can be justified.
Single- or multi-sourcing?
It seems that especially banks and manufacturers prefer multi-sourcing for their projects. If you want a single vendor to outperform multiple vendors, you need to link well the performance of the vendor to your revenues.
If the nature of the project is not related to the core business, this can be difficult. Tech companies, on the other hand, have good reason to consider single-sourcing as a way to minimise the risk that a vendor will be free riding.
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