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.
When a buyer really wants to transform an IT environment, they may not know what they want even though a detailed RFP implies that they do. An RFS can reveal options an outsourcing customer may not have thought of, says Young.
When Young first began offering the RFS option four years ago, only a few customers were willing to try it. Today, just under half of those he works take an RFS approach, at least for part of a deal.
The option provides valuable getting-to-know-you time. “An RFP is very formal. It’s doesn’t build trust,” says Young. With an RFS, “you’re jointly working together to solve the problem right from the start. And that time is better spent starting off the relationship on the right foot.” It can also shift the buyer’s focus from who has the lowest price to who they mesh with best.
One consumer products retailer who recently issued an RFS with Young ultimately chose a service provider based on soft benefits. “They liked them, they trusted them, they fit in culturally,” says Young. They shook hands and immediately began writing the statement of work and the contract exhibits. “But [the customer] also made it clear if [the provider] jerked them around, they’d put an RFP cover sheet on the solution and send it out for competitive bid,” says Young.”
Ideally, that’s the way it works. One of the solutions lights the buyer’s fancy and they fast forward to contract negotiations, cutting the typical four to six month provider selection process in half. But many still follow up with a traditional RFP, either because they think competitive bidding is the only way to get a good deal or because that’s the way they’ve always done it.
“It’s a little disappointing. They just don’t seem to get the fact that the perfect can be the enemy of the good. A good deal managed well is great. A perfect deal managed poorly is terrible,” says Young. “They think if they can create a 1,000-page contract through a competitive RFP process, they will be protected. But the more buttoned down the RFP and contracting process is, the more that take their foot off the pedal during the management phase.”
The kind of handshake agreement created by the RFS process actually encourages the parties to work out ambiguities early on and also leaves room for flexibility as the business and IT environment inevitably changes, says Young. But it requires a leap of faith. Client and provider must communicate, collaborate, and be transparent. “The client has to trust the provider to deliver on requirements rather than micro-manage pricing and service delivery,” says Young. They also have to be willing to change their own processes and deal with internal constraints and complexities in order to drive the desired end state.
An RFS approach requires the provider to shake up their traditional sales approach as well. Some of the big players who are doing just fine with the RFP-led process won’t go for it, says Young. But others—particularly tier-two, offshore providers, and business consulting-focused providers—welcome the opportunity. An outsourcing provider can spend two or three million on a proposal for a $100 million-plus deal and wind up winning the business less than half the time. The RFS has a lower cost of entry. “It gives them at least one swing at the deal,” Young says.
For customers trying an RFS for the first time, Young advises they start small. Pick a project where there’s a lack of consensus about to do—one faction arguing for offshoring, another for a cloud solution, and yet another for a re-engineering effort. And RFP process can bring those options to life. “The RFS can bring clarity and the credibility of the commercial markets to help focus the point of view internally on the proper direction to take,” says Young.
Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section.
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