OutTake: The Need for Speed
Economy Pressures Some Companies to Expedite Outsourcing
by: Peter Iannone, Executive Director and IT Practice Lead, EquaTerra
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Downsizing. Divestiture. Mergers. Restructuring. These are the decisions that dot the landscape as many companies strive to cut costs in a volatile economy, and it’s no wonder they’re turning to outsourcing to help drive the change.
But organizations are approaching outsourcing in different ways. Some companies – such as automakers, airlines and those seeing lower demand in general – have already started the long process of selecting an outsourcing provider and working on the contract.
Then there are those that are desperate, the ones that need outsourcing to help them save money now. These companies, including some financial services organizations, are trying to reduce costs, monetize assets and otherwise create liquidity – immediately. Indeed, in a recent EquaTerra survey on economic impact, 73 percent of financial services companies said they planned to cut back on hiring, compared with 61 percent of organizations across all sectors. And 54 percent of financial services companies – along with 37 percent of companies in general – had started the process of layoffs.
But how can these troubled companies get immediate savings when just preparing for outsourcing is a long, complex process? The reality is that if organizations take the usual nine to 12 months just to do the deal, they won’t get any savings for 2009. Instead, desperate times require desperate measures, and that’s why some companies are jumpstarting their outsourcing through “speed sourcing.” It’s an approach for quickly choosing a service provider and getting to a contract in just two to three months.
Speed Sourcing
If you’ve outsourced before, you know it takes time to vet a vendor and sign a contract – up to a year for a large, complex deal and six to eight months for a medium-sized agreement. Speed sourcing, on the other hand, is a way to significantly compress that time. It doesn’t mean shirking all due diligence. It means deferring some of it until after the contract is signed. Speed sourcing has two basic phases:
First 30 days:
Choose a provider. Instead of conducting an exhaustive review of the IT outsourcing marketplace, limit your search to Tier 1 providers, or providers with whom you have an existing relationship. If you already have a desktop contract with IBM, for example, maybe you can expand that relationship for a larger outsourcing need. In addition, consider whether there’s anything unique about your organization’s environment that points you toward a certain provider. Maybe you need a provider that specializes in healthcare services, for example, or one that can support your global business. Asking these kinds of questions can help narrow the field.
Once you’ve identified a few prospective providers, run a mini-selection process. Instead of a traditional request for proposals (RFP), which can take months for soliciting and reviewing the detailed proposals of providers, consider a streamlined “request for services” (RFS). You might tell candidates that your organization is a financial institution in 14 countries with eight data centers, and you need an outsourcing solution for reducing costs and capital expenditures.
In response, you’ll get a few high-level pitches. A provider might propose, for example, to consolidate your IT operations over a period of two years for estimated savings of 30 to 40 percent. Based on these proposals, decide the best fit and choose a partner.
Next 30-60 days: Get to a signed contract.
Once you’ve made a selection, collaborate with the provider on a contract that focuses on what matters most, including must-haves like pricing, statements of work, key terms and conditions, a default service level agreement, and a high-level transition timeline. Some of the other time-consuming detail, meanwhile, can be handled as part of cleanup after the contract. These post-contract activities might include detailed service level agreements; detailed transition plans; and ancillary schedules such as lists of your individual locations, key personnel and competitors.
In outsourcing, the contract process is like taking a piece of granite and carving a horse. But in speed sourcing, you’re just going to carve out some big chunks to form the semblance of an animal; the actual horse will shape up later. Importantly, this “later” must be defined in the contract, and the post-contract processes must be executed in the prescribed time frame. If these activities go undone, their absence will threaten the performance of the deal.
Final thoughts
The goal of speed sourcing is obviously to get to a contract as soon as possible so you can start realizing the intended savings. But make sure you understand your organization’s deadlines. Why, for example, must the deadline be Jun. 1 instead of Jun. 15? Keep in mind that certain trade agreements may require announcement of a deal on a certain date, but you may be able to satisfy that requirement with a letter of intent while allowing more time to work on the contract.
Another important consideration for speed sourcing – indeed, any kind of sourcing – is to understand the goals from the beginning, which will help in selecting the right provider and solution. Is your organization trying to downsize? Preparing for a divestiture? If the latter, ensure that outsourcing will enable the effort, not hinder it. That is, if your organization has 15 subsidiaries and wants to spin off half of them, it may be difficult if you’ve consolidated all IT operations in a shared services or outsourcing deal. Instead, if you’re anticipating a divestiture, keep the IT assets as separated as possible to enable a successful spin-off.
In conclusion, as organizations respond to economic turmoil, the outsourcing agenda is often becoming more about immediate cost reductions than long-term improvement of end-to-end processes. After all, organizations that are under water simply don’t have the luxury of time for the traditional RFP, provider selection and contracting process. They need the fast track, a way to quickly get from provider selection to contract so they can start deriving the benefits of outsourcing. For these companies, speed sourcing is a solution worth considering.
EquaTerra sourcing advisors help clients achieve sustainable value in their IT and business processes. Our advisors average more than 20 years of industry experience and have supported more than 2,000 transformation and outsourcing projects across more than 60 countries. Supporting clients throughout the Americas, Europe, and Asia Pacific, we have deep functional knowledge in Finance and Accounting, HR, IT, Procurement and other critical business processes. EquaTerra helps clients achieve significant cost savings and process improvement with internal transformation, shared services and outsourcing solutions. www.equaterra.com |
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