What really happens when a client organization issues an RFP?
Ian Watt puts it this way: “You’re signaling that you are willing to pay for certain services. Lots of service providers will be interested, especially in the payment part. You’re interested in the services part. A good RFP lets both parties align their interests.”
Watt, a Director at sourcing advisory TPI (owned by the same parent company as Compass), recently authored a set of five guidelines for client organizations starting the RFP process.
Here’s a quick summary:
- Have a rigorous discussion to define specifically what services are required. Don’t delegate down the organization, and include all parties potentially affected by the services to be delivered.
- Define and stick to a clear and specific schedule for the entire process. This allows you to stay in control of the negotiation process and shows that you’re serious and organized.
- In evaluating pricing, use reliable and detailed data to specify what’s being delivered and to avoid unpleasant surprises after contract signature.
- If the service provider doesn’t satisfy your requirements, be prepared to walk away. As Watt puts it, “If they can’t work as a partner during the courtship phase, what chance do you have for a long-term relationship?”
- Establish a structured decision process that deeply involves the business, procurement, and legal counsel throughout. Don’t allow what Watt calls “tourists” to casually stop by a meeting, offer criticism, and walk away.
Watt’s observations were of particular interest to me because I, along with another TPI colleague, had recently outlined a similar set of recommendations to clients reaching the end of an outsourcing contract:
- First and foremost, baseline existing operations to understand prices and service levels in the context of market standards. Once you understand if pricing is competitive, you can define priorities and next steps for renegotiation (with incumbent or new partners) or repatriation.
- Be specific in defining objectives and expectations.
- Involve senior management and demonstrate that the sourcing strategy addresses critical business needs.
- Be prepared to rebid or repatriate individual service towers or, in extreme cases, replace the incumbent vendor entirely.
- Don’t put the onus of improvement solely on the service provider. Rather, assess your internal operations and processes to identify how you can drive standard delivery and help your service provider leverage efficiencies and economies of scale.
It’s probably not surprising that the keys to successfully beginning an outsourcing relationship bear a striking resemblance to those needed to optimize the end-of-contract negotiation. While the details and language may vary, the common themes can be defined as:
- Rigorous and quantitative analysis of what is being delivered at what price.
- Commitment and involvement from all stakeholders, including senior executives.
- Preparation and willingness (and ability) to seek alternatives if your requirements aren’t met.
Bob Mathers is a Compass Principal Consultant specializing in sourcing relationship and governance issues. Read his other piece for Nearshore Americas on End-of-Contract strategies here.