What to look for in a sourcing advisor

Looking_into_the_sourcing_advisorsI’ve been deluged with many private emails and comments since I posted "The low-cost outsourcing advisors are on the march".  Some passionate views out there,  but one thing’s for certain, there has never been as great a need for sourcing advice as there is today… and there has never been such a plethora of advisors competing to give their advice.  And whether you are a highly-sophisticated enterprise with your sourcing experience, or a complete novice in this domain, you will most likely have to engage a third-party, whether it’s simply to administer and negotiate a complex contract, or to hold your hand through the entire evaluation process, contract signing and beyond.  At the end of the day, it’s "horses for courses" with every firm… you should know best what help you need, so make sure you engage an advisor with experience in those areas who will give you value for money.  If your enterprise has been through complex outsourcing in the recent past, the chances are you will need a lighter-touch approach, but if this is a first-time experience, my recommendation is to seek expert help throughout the whole process.

My view? 

On the whole, you get what you pay for.  However, I have seen situations where enterprises paid top-dollar for third-rate advice, and others which received great service from one of the smaller, cheaper firms.  Buyers are also getting smarter and better educated with sourcing issues, and I am also seeing more firms (mainly FORTUNE 500) trying to do more themselves and rely less on advisors. This is a natural control mechanism when companies take themselves through such sensitive change.

I am getting questions almost daily from buyers asking who/how they should approach selecting a third-party.  It’s becoming almost as important as which vendor to select.  I’ll be expanding more in a forthcoming research article on sourcing advisors, which will focus on the core competencies enterprises must look for in a sourcing advisor firms. 

An advisory firm’s competences, in my experience, must include the following:

1) The ability to share IP internally to leverage for its client engagements;

2) The depth of experience of its advisors within the firm.  Harvard MBAs are a nice-to-have, but this is largely deep operational work conducted at a level below the ivory tower;

3) The advisory firm’s mix of experience – this should be include talent which has come from operational backgrounds who have experienced sourcing from the receiving end, not simply staff with outsourcing provider and previous sourcing advisory experience;

4) The firm’s ability to "advise" and not just "consult".  I’ll expand more on this in the forthcoming article;

5) True "independence" in achiving the optimum outcome for its clients.  They must be focused on YOUR best interests, and not their’s;

6) A deep focus on IP, benchmarking data and research – their own and from reputable research firms.  An advisory team of 3 or 4 people will never know everything… they need additional knowledge and support;

7) The operational business focus and experience of its advisors beyond simply negotiating contracts: i.e. post-transaction support, retained org design, vendor governance support

8) A sensible, proven and flexible process for business case evaluation and vendor selection

9) Having the respect of vendors – vendors will work well with advisors when they know they will get a fair crack of the whip.  The last thing you want is an advisor who can’t rally vendors to propose on your business;

10) Multiple client references with whom you can talk to directly and discreetly.

Let’s keep the conversation rolling

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10 Comments

  1. Posted March 9, 2008 at 5:26 pm | Permalink

    Good points. I wouldn’t underestimate the value of domain expertise.

    A tremendous amount of effort in the advisory area focuses on relationship structure, economics, and measurements of success. Most advisory firms are good at this, though they may have different approaches.

    There are a tremendous number of advisory firms that have cut their teeth on IT outsourcing deals that want to move into the BPO area. Most lack the experience necessary to do much more than facilitate the deal. Application management business processes are complete different than operation management business processes and you need the domain expertise to help get clients thinking outside of the box – to get into the creative mindset that drives a long term, value creating deal.

    BPO transactions are usually far more visible to clients’ customers and the decisions can be more strategic in nature. Clients are probably best served by selecting specialists in the domain of the deal under consideration…

    At least that’s my opinion.

    Tony
    http://360vendormanagement.com/

  2. Posted March 9, 2008 at 8:31 pm | Permalink

    Phil;

    I recommend the following attributes;

    1. The Advisors Agenda has to be client focused. Anything else becomes a conflict of interest for adding more, billable work.

    2. Experience from both a domain perspective as necessary and successful outsourcing projects where the assessment/answer may not always be to outsource.

    3. References in other outsourcing projects where the client and the vendors/suppliers have respect for the consultant and the company.

    4. Advisor company oversight and QA at a high level at criticalpoints of the process.

    5. Advisory firm interaction with the vendor and its programs to keep an up to date perspective of offerings.

    6. A flexible process that allows the vendors to creatively present value propositions to provide quality as well as efficiency in the deal.

    Mostly, evaluate and reference check from the clients as well as vendors community.

    Gary Claytor
    Vice President
    TBI, Inc.

    Links:
    https://www.tbicentral.com

  3. Posted March 10, 2008 at 5:21 am | Permalink

    Hi Phil

    The important point is that we need advisors who can form a bridge between the two areas, on-site and off shore. A good advisor should be someone who understand these processes rather than being a Ivy league grad.

  4. Chuck Snodgrass
    Posted March 10, 2008 at 7:43 am | Permalink

    Phil,

    While I agree with all of your points, I think that it is also vital that your outsourcing advisor is a “Top Gun” outsourcing negotiator.

    The best benchmark data in the world is of little value if the advisor cannot negotiate superbly.

    I also think that the best “benchmark” is a competitive procurement. A competitive procurement is far superior to a benchmark in driving Value for Money in an outsourcing negotiation.

    Every outsourcing situation is unique and benchmark data may not be easily applied to a particular deal.

    I try to run what I call “learning procurements” in outsourcing.

    By having at least two and ideally three qualified competitors, I can negotiate a far better outsourcing deal for my client than if I have benchmark data which is not applicable.

    I think that benchmarking is way overrated in outsourcing negotiations and negotiating skills in a competitive situation are underrated.

    I would far rather have a skilled outsourcing negotiator without benchmark data but with three good competitors than great benchmarking data with a lousy negotiator and limited competition.

    Chuck Snodgrass
    Managing Director
    Outsourcing Advisors Ltd.

  5. Posted March 10, 2008 at 9:12 am | Permalink

    Outsourcing Advisors can definitely aid in avoiding failures. You need to be certain that the advisor has considerable knowledge that can be brought to bear. They should have seen diverse situations first hand and can help the client avoid the same pitfalls. Lack of preparation, lack of follow up in execution, miscommunication, not understanding cultural dissimilarity, poor procedure, etc. Advisors who have people with a good understanding of the outsourcer’s national culture can explain cultural differences and commonalities. Clients would be more tending to ask cultural questions that they may otherwise not want to ask for fear stepping over a cultural line that they aren’t conscious of. As some offshore companies have maintained a considerable buffer between cross cultures to make the communication and understanding easy.

    In addition to all the points you’ve mentioned, the outsourcing advisor:

    1. Should have in depth knowledge of dealing with people from your culture and the outsourcers’ culture.
    2. Should have understanding of your organizational culture and ethical standards.
    3. Must have a panel of staff that is analytically strong and have business knowledge.
    4. Must be very well aware and updated with latest trends and technologies.
    5. Must have employees with strong Engineering and Business backgrounds – Not MBAs alone or Engineers alone.
    6. Have a strong sense of economic trends.
    7. Have available references to be presented on your demand. And also allow you to personally call his client and have an open discussion.
    8. Must be ready to take responsibility in case of a failure and provide you some sort of insurance or guarantee.
    9. Preferably has a good mix of experience and young graduates to provide managed innovation (younger members abreast with latest developments and skills and experienced ones honing their skills towards your success)
    10. Should be aware of multi-sourcing types and practices
    11. Be well aware of your budget and time constraints.
    12. The advisory panel having individuals from different organizations. This will decrease the probability of biasness

    The bottom line is there are no real alternates for direct experience. Often small problem s or misunderstandings become big issues that create significant problems in outsourcing/off shoring relationships.

  6. Posted March 10, 2008 at 2:12 pm | Permalink

    My name is Tony Greenberg and I am CEO of a next generation sourcing advisor RampRate. Our perspective is working mostly with Fortune 500 firms and large Internet/technology companies solely for infrastructure(ITO) and managed applications.

    The primary drivers of purchasing decisions in today’s services-driven IT environment are cost, risk, and time. The first two have been extensively analyzed and understood to arrive at a not-surprising conclusion that a balanced strategy is essential to driving business value. However, time is the hidden override turning best practices into “good enough,” maximum savings into marginal gains, and risk management into risk aversion.

    While many sourcing advisory organizations have succeeded in improving time and cost tradeoffs, only a select few have done so while drastically cutting time to market.

    The Sourcing Advisory Value

    As increasingly deep and technical outsourcing decisions become a non-core competency for organizations seeking to streamline operations, several sourcing advisors and market-makers have established strong value in balancing risk-reward ratios and providing valuable external validation and bulwarks against groupthink.

    Large sourcing advisors have established leading roles in advising enterprises contemplating large deals on competitive metrics, best practices, and vendor due diligence, drastically impacting the long-term risk and cost profiles of ITO and BPO expenditures. Their multi-month, deeply consultative engagements ensure that no stone is left unturned in building the optimal deal.

    Managing Time to Market as a Key Variable
    For enterprises with a long view into outsourcing activities, this type of measured contemplation of alternatives can be advisable. But for dynamic businesses whose buying strategy is guided by month-to-month planning rather than multi-year budget cycles, the time value of prolonged decision making can exceed the benefit.

    Most prominent among these are buyers in the rapidly evolving industries of online media, entertainment, and retail, whose outsourcing contracts enable new business launches or reflect a response to new demand.

    Within this niche where speed matters, a purely consultative engagement is less valuable. Rather, purchases are made with the assistance of dynamic marketplaces and master agents, whose deep specialization and historical data enable speed as well as improved decision making.

    Some, are specialized within a specific discipline (e.g. Band-X for voice services) or affiliated with one or more carriers. Others, like RampRate, cover a wider swath of ITO services ranging from simple bandwidth to full IT outsourcing.

    The time difference for this marketplace-based approach to sourcing advisory comes from two areas:

    1. Highly structured procurement processes that resolve needs analysis into vendor-neutral RFQ specifications

    2. Established vendor relationships that allow market-makers access to pre-packaged cost and service terms not available in the general market

    While some of the more sophisticated marketplace approaches are making their way upstream to high complexity of $50M+ ITO deals, the majority of transactions managed are smaller.

    We are excited of the emerging interest in a broader range of transactions be manged by sourcing advisors.

  7. Posted March 12, 2008 at 12:48 pm | Permalink

    Tony,

    You make some interesting points on the attributes of sourcing advisers. Aspects like “depth” and “breadth” (a contradiction?) come to mind. There again, a contradiction like this is what the adviser is supposed to help you with.

    The advice from an adviser could be unbiased (though an element of bias is perhaps acceptable). It is interesting to see a trend of approaching consultants from service firms for advice on sourcing. Clients perhaps expect that Chinese Walls will make them totally unbiased consultants. But there again, if they are able to bring in the breath and depth required for that engagement; why not? The advice is for you (the client) to take or leave. Another similar example: in my avatar as a corporate blogger (Managing Offshore IT), I delve into issues that I think appeal to a broader audience. There again, as I own a corporate blog supported by my employer, my leaning towards the official viewpoint may also surface.

    Blog: Managing Offshore IT http://www.infosysblogs.com/managing-offshore-it

  8. Posted March 14, 2008 at 12:22 pm | Permalink

    Phil,

    Certainly the points you have mentioned are all essential attributes for an outsourcing adviser. The adviser must possess the hard skills required for business analysis, program and project management for geographically distributed operations, and objective vendor/partner selection. However outsourcing is a relationship oriented business in essence.

    Many advisers fall short on the soft skills of outsourcing. For example a) how to build a Winning Team across companies that do not see each other on a daily basis, b) how to troubleshoot problems without pointing a finger at each other. Several of these situations, require the adviser to have hands on experience on both client and provider sides of outsourcing, to bring a dual perspective to the engagement.

    The other major area of competency for an adviser is in the development and tracking of robust metrics. I call this both input and output metrics. Input is what the client invests in the relationship such as training, team building, business exposure, process/product orientation, diligent reviews of designs/documents, trips etc. etc. Output is what is commonly measured such as quality of products and services, productivity etc. delivered by the provider. Needless to say, the outputs will only be as good as the inputs, and this is what an outsourcing adviser should facilitate.

    Thanks

    Uttiya Dasgupta
    http://www.sourcingmag.com/content/c060816a.asp

  9. Naomi Bloom
    Posted March 23, 2008 at 5:45 pm | Permalink

    Phil,

    Well thought out and well-written, but I expect nothing less from you. A couple of other points. I think that it really matters that the BPO sourcing advisor (I’m not sufficiently experienced in ITO to offer an opinion that covers ITO) selected for a specific engagement should:

    1) Have deep knowledge of the subject matter, experience with good practice in that subject matter (not just in the supporting operations), and an experienced understanding of what changes are needed/happening in that subject matter’s policies/regulations/practices/etc. and in its operations. Don’t send in the A/R or procurement guru to do HR or payroll. And absolutely don’t send in the ITO guru to do BPO.

    2) Really understand the cost, quality and business outcome drivers of the customer’s subject matter domain and the same for the relevant providers of BPO in this space. Le’s not hire poor fit candidates faster and at lower cost (bad for customer) or expect to handle via our call center in Sri Lanka the complexities of US overtime or workman’s comp rules which have never been clearly documented (and which should have been automated in the first place).

    3) Know the good/bad/ugly about the role that software plays in BPO costs/quality/business outcomes for both the buyer and the provider and, very specifically, for the software that the buyer wants or specific providers offer. There are reasons why ADP’s GlobalView constrains their scope of service and buyer-specific configurations — they couldn’t otherwise run SAP in a sufficiently multi-tenant way to achieve the needed degree of profitability as they scale.

    4) Have skin in the game. While the very upfront work may be a discovery process done on a T&M basis, the rest really should be outcomes-based. This would move advisors to assess the capabilities and viability of providers in a much more aggressive way, incent advisors to leverage their experience across client engagements and institutionalize that experience as intellectual property, and move sourcing advisory toward a one firm rather than a collection of entrepreneurs business model. If this sounds too hard ass, tone it down. Put some of the work on a T&M basis with lower multiples and put a % at risk based on results.

    Let me add one other thought. One of the biggest challenges to any successful BPO engagement is the implementation or transition to the BPO provider’s delivery system, and this just can’t proceed in the same way as the zillion dollar in-house ERP implementations. BPO implementations/migrations must come to sanity very quickly and inexpensively around what can and should be done according to the BPO provider’s good practices and what really must be done according to a specific client’s way of doing business. The change management challenges here are enormous, and there’s little relevant experience gained by having one of the biggest dollar ever in-house ERP implementation practices where profits are achieved via T&M (at VERY high multiples) “consulting.” Sourcing advisors who have led successful implementations under tight budgets and tight time frames, where data and process rationalization were core values, would be high on my list for inclusion in a BPO advisory team.

    Naomi

  10. Posted March 24, 2008 at 4:55 pm | Permalink

    Phil,

    It’s a nice article. But, as for “What to Look for in an Outsourcing Advisor,” I would add two items:

    (1) An advisory firm which is not pre-disposed to a solution. Who’s to say that outsourcing is right for a client? And, even if it is, is it all or nothing? I’d much prefer having an advisor by my side that took the time to know my organization and could judge for him/herself whether the socio-economic and political conditions were appropriate for outsourcing or some alternative service delivery model.

    (2) An advisory firm which is steeped in knowledge about and has a great deal of experience in the private or public sector vertical within which you, as an organization, operate. Not only is the learning curve of such a firm reduced, the advisory firm is also sensitive to the nuances of operating within such a sector.

    Glenn

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