by Esteban Herrera

Getting a second opinion before making outsourcing decisions

Jun 09, 2015

How benchmarking and validation from a third-party expert can help you save money and achieve your sourcing goals.

EMC Virtustream cloud
Credit: Thinkstock

Recently, I took my car into my local dealer for what I thought was the simple repair of a bent rim. A day later, instead of a call to pick it up, I got a repair estimate for over $11,000! After the shock subsided, I decided to call the dealer where I bought the car, an inconvenient 40 miles away. I read them the detailed list of recommended repairs from the first dealer, reminded them that I’ve bought over 20 cars from them over the years, and promptly received a quote for $4,000.

Still not ready to accept that hit to my wallet, I drove over to a smaller repair shop I use when my cars are out of warranty. They asked to keep the car overnight to double check the diagnosis, believing, like me, the problem was a bent rim. The next day I picked up the car, good as new, with a total bill for under $400. I felt wealthy.

What does any of this have to do with outsourcing? It occurred to me during this minor personal ordeal that very few companies are getting second opinions or leveraging their relationships when it comes to outsourcing. Even fewer are contemplating the motivations of their service providers when making sourcing decisions.

If you have a decent contract with your service provider, it has a benchmarking clause. There is no better way to activate the benefits of the free market than to have a third-party validate it. Most outsourcing services are fairly standard and are not that difficult to compare. Prices in some towers declined by as much as 20 percent over the last 18 months; if you are not benchmarking, there is a good chance you are leaving money on the table.

Suppose you have an inadequate contract or you can’t afford a benchmark. Nothing is stopping you from issuing a Request for Information/Proposal/Solution (RFI / RFP / RFS). Even requesting a rate card from a new provider can put your current partner on notice that you mean business and you are not willing to pay above-market prices. If you are a mature leader who happens to also be an outsourcing buyer, you’ve also cultivated at least a few good relationships. Use them.

If one provider’s solution smells fishy, go to someone with whom you have a strong business relationship and ask for a second opinion. For me, a quick call to a trusted source yielded 96 percent savings.

Of course, pricing like-services is one thing. Diagnosing the problem correctly is another altogether. Do you truly understand the motivations of your service provider? If the only way they make money is to sell you bodies, then you shouldn’t be surprised when they try to sell you lots of them. Is the system rigged for them to take advantage of incumbency? And do they know you well enough to solve your specific problem?

In my example, I needed to find a small, specialist provider who was willing to play the long game. They would never let me drive an unsafe vehicle, but they know that my car’s warranty will inevitably expire and they have a unique chance to establish a relationship with me. Their service yielded big savings for me and the guarantee of referrals and my repeat business for them.

If you’ve ever taken a car into a dealer for service, you are familiar with that pesky survey asking you to rate your experience. Needless to say, I was salivating at the opportunity to get that survey and score the first dealer a zero on every category. It never came.

The lesson for CIOs and other buyers of outsourced services is clear: if the service provider doesn’t care about your satisfaction, they probably know they are underserving or overcharging you, and it’s time to get a second opinion. Human nature and the rules of business apply perfectly to outsourcing. Don’t let the comfortable and the convenient get in the way of the fair and the valuable.

And if you need repair shop recommendations in Dallas, look me up!