In our capacity as counsel to Global 1000 companies in sourcing transactions, we are frequently asked whether we recommend use of a third party advisor. If the transaction is outside of the norm for that entity and entails new components that are beyond the expertise of the existing in-house staff, the answer to that question is generally "yes, by all means." The reasons for this view are threefold: expertise, bandwidth and politics. While not based on any formal study, our consistent experience is that sourcing advisors materially contribute to the development, structuring and execution of a complex transaction and its long-term success.
One reason to utilize a sourcing advisor is the expertise that they bring to the table. Simply put, they make it their business to know the market, the suppliers and their capabilities, the subtle and sometimes not so subtle differences between offshore sourcing destinations, and transaction structures. Additionally, they each have their own methodology that they develop and employ in the assessment and execution phases of a transaction. Of course, it is up to each customer to determine which sourcing advisor they think will work best within their organization and which methodology best suits their needs - if they need an advisor. Indeed, given the increasing acceptance of outsourcing in large corporations, many have created executive level strategic "sourcing" or "transformation" officers and corresponding support organizations. At the upper end, many of these officers and their staff have many of the attributes of a sourcing advisory firm and can conceive and execute the most complex transactions with the same degree of success as a competent sourcing advisor.
Experienced legal counsel can often help in one or more of these areas; however, legal counsel's role is just that - to manage and execute the legal components of the transaction. Counsel experienced in the sourcing arena can and should give you their advice on many business issues based on their experience with similar transactions, but one must bear in mind that it is not a lawyer's primary business to be expert in, for example, the differing costs of labor in Manila and Bangalore. There is inevitably some overlap in the expertise brought to the table and in the activities conducted by a law firm and a sourcing advisor; however that can easily be minimized by cooperation and open communication between the respective firms. If all is going well, the two firms clearly define their respective roles and then work together in an independent, but complimentary manner, all with a view to minimizing expense and optimizing the structure and execution of the transaction.
Another reason to utilize a sourcing advisor is that they will be able to provide raw manpower for execution of the transaction. As anyone who has participated in a large sourcing transaction knows, there is often a huge time commitment required to gather and analyze all of the relevant information, identify/communicate with and assess potential suppliers and then negotiate the transaction (particularly if dual negotiations are employed). Under the best of circumstances, this is a full time job for what can be a sizable group of personnel. It is difficult, in these days of ever-scarcer resources, to borrow personnel from other areas within the organization for a full time commitment of several weeks, if not months, for your transaction. Particularly when the transaction may be a one-time endeavor and may also not be the most popular transaction internally, it may be difficult to get personnel and their managers to "volunteer" for this duty (especially if their position is at risk). While using outside resources does not come without a cost, it may certainly be preferable to poor execution, missed deadlines and incomplete or sloppy work product that is only going to disadvantage the customer during the term of the agreement.
Another subtle, but profound, reason for using a sourcing advisor is to help develop and maintain internal support for the transaction. Customers should have a clear vision of their goals for the transaction at the beginning of the process. While different organizations will sometimes call these different things (e.g., mission statement, guiding principles, etc.), having executive support for what the organization is attempting to accomplish is a valuable tool in executing the transaction. Sourcing advisors bring an independent view to the process of developing these goals and can validate or invalidate assumptions that, without their expertise, may have been accepted without question. Indeed, the best advisors will sometimes recommend against an outsourcing transaction or, at least, significantly impact the initial view of its scope and execution. Politically, this independent view can then be leveraged by the corporate champion of the transaction as a validation of their business case.
As an added benefit, during execution of the transaction, stakeholders sometimes engage in protecting their turf and their people, rather than in a dispassionate execution of the mission statement. Skilled outside advisors should be helpful in identifying, dealing with and perhaps even creating a buffer against individuals that may (sometimes without even realizing it) be working to benefit their own department or people, rather than in the overall best interests of the organization. This is not to say that the transaction can simply "be turned over to the consultants" and they will then serve as a teflon-coated magic carpet for the transaction. They can, however, provide material assistance in establishing the goals for the transaction, staying on point throughout the process and, depending on the institution and the personalities involved, possibly assist with the internal politics that often arise any time an organization attempts to significantly restructure itself.
The point of this article is not that a complex sourcing transaction cannot be accomplished in-house - quite the contrary. The point of this article is only that without a dedicated staff of sourcing professionals (whether from the inside or outside of the organization) with appropriate executive level support, our experience is that the assessment, development and execution of, and the ultimate success of the transaction may be less than what the customer would have desired for one of its most critical and complex corporate endeavors.
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