Why Your IT Outsourcing RFP Is Holding You Back

CIO — If you're looking for transformation or innovation from an outsourcing engagement, you might want to ditch the traditional request-for-proposal (RFP) process. That's right—that decades-old, time-tested process used to gather bids from potential providers may be doing your IT outsourcing relationships a disservice, according to Tom Young, partner with outsourcing consultancy ISG. "RFPs by their very nature are prescriptive in their requirements," Young says. "Prescription is almost antithetical to innovation."

The methods the RFP process employs to "normalize" the proposals of various vendors and create apples-to-apples comparisons virtually locks out any attempts by a provider to bring something creative to the table. The more detailed the buyer gets in the RFP, the less room there is for innovation or flexibility—which outsourcing customers claim to want. And outsourcing customers often take an everything-but-the-kitchen sink approach to their RFP requirements, including not only need-to-have requirement, but nice-to-have services.

[Related: 9 IT Outsourcing RFP Response Red Flags]

Those optional add-ons add up. But they "don't get revealed in the RFP process," says Young. "It's you did an RFP to buy a car, you might list a lot of options—moon roof, rear bumper camera, floor mats—and end up getting a much higher price than you expected. If you saw that the floor mats cost $1,000, you'd say, 'Forget it.' But they get priced in and it becomes invisible."

In response to a recent ISG survey, service providers said their pricing was at least 10 percent higher when responding to complex RFPs An alternative is what Young calls a request for solution (RFS). In contrast to a detailed, buyer-led RFP, the RFS is an open-ended, collaborative process. The customer describes its IT environment, objectives, concerns, and risk tolerance and the potential suppliers come back with unique solutions that meet those general requirements.

"In buyer-led commerce—like an RFP or RFQ—the buyer dictates the terms and scope of the commerce. In seller-led commerce, the seller makes—often unsolicited—offers to the buyer on the seller terms," says Young. "The RFS is meant to bridge these approaches—getting the best aspects of both."

Young likes to use a vacation-planning analogy. With a traditional RFP process, you'd ask a travel agent find the cheapest package for a family of four to fly from New York to a hotel room within five miles of Disneyworld for five days in June. Taking the RFS approach, you'd say you want to take a family of four on a five night vacation and spend $4000 or less and then select from the variety of options the agent provides that meets those criteria—a cruise, a camping trip, a European tour, or Disney.

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