When it comes to the outsourcing process, going it alone is one way to cut costs. But working with an experienced outsourcing advisor may save you money during the procurement process and down the road.
It doesn't have to be a huge investment. While the biggest outsourcing advisors still charge a pretty penny, you don't have to sign up for traditional soup-to-nuts service. Although some of the bigger firms will only work on end-to-end engagements, many advisors offer à la carte menus of targeted services to reduce the upfront investment for customers with beleaguered budgets.
"Good consultants pay for themselves—often many times over, whether the customer engages consultants throughout or selectively," says George Kimball, an outsourcing attorney in the San Diego office of Baker & McKenzie. "The best consultants' principal value is not so much their forms and methods as their judgment, experience and knowledge of the marketplace."
Hiring the right sourcing advisor "virtually guarantees that you get the job done in a fraction of the time that it would normally take," to select and sign on an outsourcing partner, says Paul Pinto, co-founder of niche sourcing consultancy Sylvan VI. "In an environment where time is money, there are clear cost savings associated with implementing your outsourcing strategy sooner rather than later."
Here are seven ways an advisor can save you money during the outsourcing selection process and down the road:
1. Rigorous and relevant RFPs. There's nothing more costly in the sourcing procurement process than an incomplete or impractical RFP. "Creating a thorough RFP that encourages complete and relevant responses is what these guys do best," says Adam Strichman, an independent sourcing consultant based in Mechanicsville, Va.
It's not the outsourcing of RFP writing that saves you money; it will cost you considerably more to have an advisor draft these documents than it will to do it yourself. It's the reduction in cycle time that comes from getting an accurate RFP out the door and expert evaluation of responses that reaps big benefits. "Customers have limited time to sort through an avalanche of information, evaluate competing proposals, then make decisions with lasting consequences," says Kimball.
2. Pricing intelligence. Outsourcing advisors' pricing professionals should have access to up-to-date benchmarking data. Not only can they perform a "sanity check on fees," they also "understand the connection between the fees and services schedules," says Edward J. Hansen, a partner in the New York office of Morgan, Lewis & Brockius, who represents clients in outsourcing transactions.
A professional benchmarker can pinpoint pricing that's out of line with the market. "This doesn't just mean 'high prices,' but rather a price that is [ir]relevant for the services being requested," says Strichman. "Pricing can be off by more than 200 percent, and this is usually caused by a gap in service expectations or misunderstood requirements."
Thus, the sourcing advisor can save clients money by getting the right price and insuring that the bids are relevant, Strichman adds.
3. Access to innovation. The traditional approach to outsourcing—develop a business case, issue an RFP, select a vendor, negotiate the contract, begin the transition—is tried and true. But "there are a series of innovative methods and techniques that can be applied to accomplish the same results with less of an investment in time and money," says Pinto. A seasoned advisor can provide access to new methods and tools, like collaborative vendor selection, online RFP builders and business case templates.
4. Vendor knowledge. You know all the big names in outsourcing. But an advisor can bring to the table lesser-known but highly capable vendors to consider. Advisors' knowledge of the marketplace saves you from having to research and create long- and short-lists of service providers. One caveat: some consultants can get a little too cozy with certain vendors. Review the deals the advisor has worked on; if the same provider pops up again and again, that consultant may not be able or willing to provide a broad view of the marketplace.
5. Focus. Establishing an outsourcing deal is one of many things on your plate. Heck, it may not even make the top of the list. When you can't devote adequate time to researching vendors and negotiating an outsourcing deal, you start out at a disadvantage and set your organization up for outsourcing problems later on. For that reason, bringing in someone who is paid to give proper attention to the outsourcing deal early on can save you trouble later on.
"Outsourcing projects are time consuming and many times customers do not have the ability to dedicate sufficient subject matter expertise to the project," says Hansen. "If a client is either under-resourced or inexperienced in outsourcing transactions, the process methodologies that sourcing advisors bring can pay for their fees many times over in avoiding the pitfalls that add unforeseen costs."
6. An upper hand in negotiations. You may
7. Transition and governance preparedness. These are "crucial subjects, often neglected" in the sourcing process, says Kimball. What can go wrong may not go wrong in your outsourcing relationship, but at least you'll know what pitfalls to look out for if you work with a practiced outsourcing professional. An advisor will help you prepare to hand-off your IT services to the vendor and will assist with the ongoing management of the service provider.
"The vendor's sales team has completed their job, the agreement has been signed, and the hard-part begins," says Pinto. "While there are a number of vendors who are good at leading the transition phase, there is a vast majority that struggle their way through it." A skilled advisor can help to smooth over the rough patches.
Follow all of CIO.com's stories on Twitter at @CIOonline.