The "Business as Usual" Approach

Historically, buyers of outsourcing services (and their sourcing advisors) have followed a fairly standard approach to vendor identification and selection. Typically, prospective outsourcing service providers are evaluated and selected based on a few major criteria such as experience and expertise, past performance, longevity, financial stability, and resources (e.g., number of employees, employee skill, knowledge, turnover, etc.). These are, of course, all valid criteria, but there's something missing from the process, which often goes something like this.

The corporate procurement staff and/or their sourcing advisors will lead a department or function through a data collection effort to identify and define the current processes and their related activities, as well as establish the buyer's baseline costs. Next, a high-level discussion ensues concerning what the buyer believes should remain in-house and what should be outsourced. A Request for Information (RFI) is then sent to a group of prospective providers, and the responses are used to narrow the group of providers to a manageable number, who will then receive a Request for Proposal (RFP).

Here's where the process usually begins to fall apart. The RFP is typically very rigid in structure, providing extensive details of existing processes, systems, and their exact requirements. Unfortunately, it is also often very prescriptive in nature, defining specifically how the buyer wants things done. In many cases, providers are told that proposals deviating from the prescribed format will be eliminated from consideration. While occasionally buyers may accept and consider alternative proposals in addition to those specified in the RFP, providers rarely prepare them due to the cost and scant likelihood of success.

Once the proposals have been evaluated, two or three vendors are invited to make an onsite presentation. Typically, only one is selected. The buyer, sometimes assisted by a sourcing advisor, enters into contract negotiations with the provider. It is at this late stage that the buyer and provider first begin to have meaningful dialogue about solutions the provider can offer which lie outside those defined in the RFP.

The provider, often shielded from direct contact with the actual recipient of services until now, has not be given an opportunity to collaborate with the buyer about how the provider's scale and expertise can be used to bring the most value.

A Better Approach

Doesn't it make more sense for the buyer to tell qualified providers what outcomes it seeks, and allow those providers to use their domain expertise and scale to determine how these outcomes should be achieved? Shouldn't the focus first be upon what needs to be done before turning to how it will be done? Often, providers can create a much more valuable relationship with a buyer when they are given an opportunity to work this way. But how do you go about doing so?

The "business as usual" RFP process serves several valid purposes for both sides of the market. It helped outsourcing service providers focus their efforts on buyers who had demonstrated a sufficient commitment to undertake a serious review and documentation of internal processes before engaging prospective providers in costly discussions and negotiations. Buyers of outsourced services (often early adopters and first-time buyers) could have higher confidence in the competitiveness of the providers' pricing and terms. However, the consulting and outsourcing industry's reliance on these constraining RFP processes and bid structures tends to lead to sub-optimized operational solutions.

So, how do you maintain the benefits of the traditional RFP process while dropping the rigid structure that prevents a collaborative approach to solution development? How do you hold on to the proverbial baby while throwing out the bathwater?

The approach is sometimes referred to as a "reverse RFP". Here, the buyer, their sourcing advisor, and the pre-qualified provider(s) collaborate around solutions in conjunction with or following the "current state" data collection process. In this scenario, the sourcing advisor matches the most appropriate providers with the buyer and then serves as a facilitator of the process. The sourcing advisor's role in this situation entails not only providing the buyer with their domain knowledge and expertise, but also acting as a "trusted advisor" to the buyer. Due to the close working relationship that will develop between the buyer and outsourcing service provider, it is important that an objective third party provide advice and counsel to the buyer during the development of the solution. A competent sourcing advisor will help buyers to ask the right questions and help the provider(s) to align their capabilities with the buyer's needs. The objective is to help both parties establish a win-win value proposition.

Sometimes the best solution is never considered because it didn't map to the buyer's rather limited process description. For example, buyers often begin with a limited scope RFP when the true value of a provider's capabilities remains locked in their broader end-to-end offering; most of the value is "left on the table". This can be easily avoided by engaging the outsourcing service providers in proactive discussions prior to sending out the RFP.

Complicating matters is the fact that most often, buyers are unaware of alternative solution capabilities of providers simply because they don't know what questions to ask. To engage the outsourcing service providers in a proactive discussion, Buyers should first focus on the outcomes that correlate with their corporate strategy. For example, a corporation spending $200M annually to support human resources should ask itself what it wants from that spend. Does it want to have the most productive workforce in its industry? Does it want to be ranked among the most admired corporations, or considered one of the best places to work?

Once you have determined the desired outcomes (i.e., what you want) you can effectively collaborate with outsourcing service providers to find out how you should achieve them. This gives the service providers a chance to leverage their knowledge and experience in the solution development process, and in turn differentiate themselves from one another. The buyer ends up with a better solution and a clearer picture as to which service provider fits their unique needs. And that, in my humble opinion, is a better approach to vendor selection.