Speed Sourcing: The New Outsourcing Trend

Outsourcing consultancies are offering new ways to accelerate the outsourcing selection process--no exhaustive vendor search, no RFP, and a signed contract in record time. The concept is called speed sourcing, but it isn't right for everyone. Here's why.

Desperate times call for desperate measures.

That's how outsourcing consultancy EquaTerra introduces the concept of "speed sourcing" on its web site.

As companies search for new ways to cut costs in challenging times, many are looking to third party IT services providers to trim expenses. Some are moving at a measured pace through the traditional process of selecting an outsourcer and negotiating a contract. But others, EquaTerra says, are jumpstarting their potential savings by "speed sourcing"—a new approach for choosing a service provider and sealing a deal in three months or less.

If you're an IT executive whose boss is demanding a 30 percent budget reduction—again—speed sourcing is a persuasive proposition.

The "speed sourcing" process involves several, critical short cuts:

  • Instead of conducting an exhaustive review of the vendor marketplace, the customer limits its search to Tier 1 providers, existing partners, or industry-specific specialists.
  • Instead of developing a comprehensive RFP, the customer puts together a streamlined "request for services," which may look like this: We're a financial institution in 10 countries with seven data centers in need of an outsourcing solution to reduce costs and capital expenditures.
  • Instead of a detailed response, providers come back with high-level pitches: We can consolidate your IT operations over a period of two years for an estimated savings of 30 to 40 percent. Based on that, the customer selects a partner.

During a series of "deep dive" negotiation sessions, outsourcer and customer hammer out a signed contract. But the resulting document is markedly less detailed than most; it focuses solely on select must-haves like pricing, statements of work, key terms and conditions, and a high-level transition timeline. Other time-consuming particulars, such as detailed service-level agreements, transitions plans, and ancillary schedules are handled as part of the "clean-up" after the ink is dry. Smaller, best-of-breed sourcing transactions can be completed particularly swiftly.

"In outsourcing, the contract process is like taking a piece of granite and carving a horse," EquaTerra explains on its web site. "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."

It's enough to break an outsourcing lawyer's heart.

EquaTerra says it used the process to enable a Fortune 500 apparel manufacturer (who declined to be named for this article) to go from outsourcing strategy to vendor selection in just six weeks. It took four months to get the contract signed, but traditional negotiations would have taken as long as nine months, says EquaTerra program manager Doug Fonseca who worked on the deal.

The only thing the customer gave up by taking the speed sourcing approach was, "in a word, bureaucracy," says Fonseca.

EquaTerra isn't the only consultancy expediting the provisioning process for IT outsourcing clients. TPI offers customers the opportunity to shorten the RFP process by narrowing down potential partners using its proprietary "center of expertise" data on the outsourcing marketplace.

Sometimes customers are comfortable assuming that providers with considerable market share are qualified, says TPI Partner and Managing Director Peter Allen. "There have been several occasions recently where we've helped clients select service providers without even using an RFP," Allen says. "We know enough about the market to help clients frame their needs in ways that are quite evident to the candidate providers. They know our language."

The Risks

But there can be significant drawbacks to an accelerated approach.

"I think that speed sourcing could have some real benefits under certain circumstances, if a client has a real deadline such as lease expiration, or other factors that require extreme speed," says Edward J. Hansen, a partner in Morgan, Lewis & Bockius's Business and Finance Practice.

"The danger in this is not in the technique or the offering, but in properly setting clients' expectations," Hansen adds. "A client who has difficult change management issues, or who may need the give and take of a more iterative sourcing process, may not be a good candidate for a process like this."

There is, indeed, a real need for speed in IT organizations under pressure to cut costs and increase efficiency today. "But under many circumstances," Hansen continues, "speed translates into unacceptably decreased value and unnecessarily increased risk. In many cases, particularly in more complex deals, the truthful answer is that the speed is not worth the trade-offs."

A traditional RFP approach, although more time consuming, can be enlightening for a client who doesn't sign an outsourcing deal every day. The process enables the customer to think through what the company is really trying to accomplish, consider potential change management and transition issues, and challenge assumptions.

But this more drawn-out deal-making process has been curtailed in recent years, notes Daniel A. Masur, a partner in the Washington, D.C. office of law firm Mayer Brown. "Like all external advisors, we are being pressed to do sourcing transactions more quickly and at lower cost," Masur says. "Nothing takes eight to twelve months anymore."

However, if you're starting from scratch, Masur notes, completing a sourcing transaction of any size in 60 to 90 days would be difficult.

Some more cautious, but forward-thinking, outsourcing customers have been able to speed up their sourcing deals by putting in place framework agreements with preferred providers. "The customer is able to avoid the time and expense of negotiating a new contract, and it is dealing with a proven provider, one that knows and is known by the customer," Masur explains. "They are focused principally on price, solution and exceptions to the established contract terms."

Using framework agreements, some customers can contract for a new project or scope of work in weeks.

Others reduce the time to contract by simply adding new scope to existing outsourcing agreements.

"It is important to note that [speed sourcing] is just one of many sourcing strategies that these firms have at their disposal, which should allow them to match the right sourcing technique to a client's individual circumstances," Hansen says.

Stephanie Overby is a Boston-based freelance writer.

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