Outsourcing - a little Jekyll and Hyde?
"The supplier will be proactive, innovative and flexible and will make continuous improvements to the services . . ."
"Price reduction mechanisms, best market pricing and benchmarking will be
required . . . "
"We are not bound to accept the lowest cost bid or indeed any bid . . . the contract will be awarded to the most economically advantageous bid."
These and similar phrases are often to be found in Outsourcing RFPs (IS especially), and frequently all present in the same document. At best there is contradiction here, and at worst this 'something for nothing' dance can hobble the deal from the start.
What do YOU think? Do you agree or disagree? For instance:
- Would you accept it as a fair pastiche of RFPs you have seen?
- What does the first one even mean in concrete terms?
- Are there conflicts between these requirements?
I'm kicking off the final module of my Diploma with this action research question. I don't know what I'll find, so don't hold back in your views, whether you are for or against whatever you suspect my position is!
So please leave your comments, and with luck the comments will spark thoughts in others.
Thanks, Graham
posted by Graham Jump @ 11:02
7 Comments
7 Comments:
"The supplier will be proactive, innovative and flexible and will make continuous improvements to the services . . ."
This is certainly one of the most common aspirations in the RFPs that I've been party to. But that's what it is...an aspiration... The problem with such statements is that without some form of measurement / target they are of little use. I have no issue with their incorporation.... providing there are measures
There are two separate issues here, the first is the clients aspiration for Business As Usual, the second is his Change aspiration.
Let's take the first - this depends on economic climate and client industry, most want least cost, but do not want to sacrifice quality (but in current economic climate may be willing to do so). The difficulty the clients often have is in expressing this. Most clients believe they should not say "I want the lowest possible cost that does not eat into the muscle" but that is what they want - hence the clumsy English. Not Jekyll and Hyde just clumsy.
Second point is more problematic, they want Change - more, better, faster, but don't know what is possible, at what price and when. Here, the IT Service industry has been poor, innovation has been, and still is, lacking!
Thanks Bob - so take out the fat, leave the muscle but don't cut to the bone!
Interesting, on the one hand clients continue to have great expectations from IS/IT, but on the other there is so much failure to deliver that the cost-reduction lobby prevails. Is there any cause and effect here?
I think the real issue here is about expectations. The whole structure of most outsourcing agreements is adversarial and they state what "we" will do and what "they" will do. The reason there have been so many failures is that this tension has led to parties pulling in different directions and spending their time protecting their position. In this situation, and when maxmising profit is an objective, is it any wonder that suppliers dont add innovation etc etc.
Intellect are doing a lot on outout based agreements now which are a much better way forward. We need a new type of agreement that ties both parties into COMMON objectives. I am working on one deal at the moment where the supplier is being paid based on the achievement of the objectives in the clients business case!! Both will have common objectives.
2 comment from my IoD thread:
From Ross Garvey:
You need to ensure that you only outsource "commodity" skills and ensure that you keep hold of the Intellectual Property of the business. Working as a Programme/Project manager on a freelance basis I see many organisations who have thrown the baby out with the bath water.
The current model followed by many means that the innovation and flexibility required will not be available. Many of the outsources are large enterprises that also have their internal pressures on costs which can conflict with the customers.
We have a very skilled flexible workforce on our doorstep who can provide the flexibility to many organsiation, we may be small businesses but we can provide the re activeness required. Look to the freelance market for the skills and you will be delighted by the onshore resource pool.
and from Steve Burrows:
Hi Graham,
It seems that organisations outsource for two reasons - capability and cost. Most times the decision is based on one of these factors, only occasionally is it a combination of both, in that sense there is rarely a conflict.
In capability organisations are looking for a specialist to do for them that which they cannot (usually due to management weakness / incapacity) do effectively for themselves - the outsourcer brings a value add. There will always be considerations of cost, and price competition, but when outsourcing for capability these are clearly secondary - the decision is taken to outsource for business functionality, and then it's a matter of purchasing the service at the best price.
In cost the driver is always cost. Innovation is a value-add potentially brought by the outsourcer, but the organisation is outsourcing because it believes that this simple thing it already does competently can be done more cheaply through cheaper labour or greater economies of scale. The value add of innovation is a competitive force between rival outsourcers, the purchaser is just looking to do what it already does more cheaply, and no more.
Most outsourcers try to sell on both sides - we can do it better and cheaper (because we're cleverer than you). A lot of managers and directors believe them - hey, we can give part of our business to another company, they can make a profit from us, and we'll increase our upside! I guess they're the ones afraid of hard work.
At the end of it, outsourcing other than for cost must always be understood to reflect management failure - no one has a monopoly on best practice, efficiency or effectiveness, and there is no reason for any substantial organisation to outsource what they can do themselves other than the realisation that someone else does it better, and that they are not as good and cannot be bothered to fix their failings. Given the very high failure rate of outsourcing deals, especially when offshoring, it is rarely a risk worth taking, much better to address the internal weaknesses than outsource.
So outsourcing is about cost, whether opex or capex, or weak and greedy management who can't be bothered to fix their failings - which is cost again in another wrapper. There is no real conflict, from the buyers perspective innovation is not a motive, it's a delusion.
Flexibility and proactiveness are non-starters. The communication chain in managing outsourcers is always longer and less precise than managing internal functions, an outsourcer cannot match a well run internal function on these parameters.
And a private comment, so no names no pack-drill!
Hi Graham,
I went through your paper over the weekend and thought it rather biased / sympathetic towards the supply side of the industry. If 60%+ of IT outsourced clients intend to change supplier at the next re-tender, then the industry has clearly got something wrong in the value it delivers to its clients.
It strikes me that we have challenges around defining “value”, not least because there are dimensions to value specific to the client, beyond the service itself, its quality, its timeliness etc. Then we have the issue of defining “money”.
Personally, I feel it is better to talk about service price performance. IT services are quite specific and many are now commodity-like in their attributes and are most definitely benchmarkable. Once you’ve extracted that component, you can then set about defining the other components of value, as perceived by the client.
Finally, your comment in your conclusions about vfm being more effectively driven by best practice than to cost improvement – I’d be more inclined to agree if the industry could point to examples, or even a model, of best practice. But it appears not to. Indeed, in my experience many suppliers intentionally create confusion and lack of transparency, in order to minimise any pressure on their own profit margins.
To the previous comment I would respond that I do have sympathy with the supply side, though I prefer working for the client, with whom I often get into trouble for trying to see the supplier’s point of view!
I’d be interested to know where that 60%+ statistic comes from: what the sample was, whether it varies between first and second generation outsourcers, and whether they actually follow through. After all, “they would say that wouldn’t they?” It’s in clients’ interests to be seen to be serious about switching: a) to keep the incumbent on its toes and b) to have any hope of an alternative bidder, but it’s not my experience that 60%+ of deals actually do switch suppliers.
And surely - if 60%+ are switching they are all simply swapping their own failed supplier for someone else’s failed supplier.
My view is that established suppliers are all as bad (or as good) as each other and the difference can best be made by the client. My best practice refers to contract and relationship governance and I believe it’s pretty much the responsibility of the retained organisation to manage the supplier(s) effectively.
Interesting discussion!
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