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POV

For Innovative Sourcing: Date More, Marry Less

by ISG

Anyone who’s been in the outsourcing business for any length of time has heard the cliché that outsourcing relationships are like marriages – they require hard work and commitment over the long term. Well, maybe it’s time to change that.

Rather than marrying your next outsourcing provider, take them out on a date and see how things go from there.

The fact is, our current approach to outsourcing contracts is completely out of touch with the needs of a business world where the pace of change rapidly exceeds the pace of learning. Specifically, the hyper-granular 1000-page contract that takes six to nine months to complete still prevails as the industry standard for major initiatives. While this approach certainly facilitates mutual commitment, it’s designed to serve static operating models. This means that, in today’s dynamic environments, many traditional contracts are essentially obsolete by the time they’re signed, or shortly thereafter.

We need a new approach where the “contract” for services is an understanding and a framework rather than a formal document.  The 1000-page contract is replaced by a 100 pages and a “handshake,” resulting in a process to manage and evolve the relationship over time.

This radically new approach to contracting and procuring services – which can be termed “Evolutionary Contracting” – obviously requires new approaches from clients, providers and advisors.  Rather than a strictly defined procedural interaction, the contracting process has to be more nuanced, sophisticated and intuitive.  Trust is imperative for all parties, as is transparency.

Moreover, all parties need flexibility to continuously adjust the scope and commercial terms of the relationship on an ongoing basis.  The “on ramps and “off ramps” to engage with providers need to be easier to navigate. Put differently, an outsourcing relationship can start with a date, not a marriage.

The idea of Evolutionary Contracting is closely linked to the concept of the “Request for Solution” (RFS).  In contrast to the traditional RFP, which is based on a highly specific and prescriptive set of requirements, the RFS states a broad problem – which might have more than one solution – and solicits responses on how that problem might be best addressed. By definition, this approach significantly enhances the potential for innovation and creativity, since the basic question becomes, “What do you think?” rather than “How will you deliver what I’ve told you I want?” (For more info on the RFS concept, download this new ISG white paper.)