CIOs remain under pressure to choose their service providers wisely. Here are our tips for success in a COVID-19 world.
One year into a global pandemic, we know that choosing the right service provider is more important than ever. However, many companies stalled their outsourcing decisions for last year or extended poorly performing contracts because it seemed like a safe decision at the time. Hindsight is easy for reflecting—but discussions with CIOs and service providers in early 2021 indicate that they would have made decisions differently had they known 2021 would look a lot like 2020.
Wavestone has advised many clients through sourcing engagements before and during the pandemic. Fear not! Smart decisions can be made to advance your business imperatives, but the times have changed and so must your approach to the process. What have we learned so far?
First, expect sourcing transaction cycles to be longer, so manage calendars and stakeholders accordingly. While the steps to select a service provider remain the same as pre-COVID, they tend to take longer. In 2020, engaging with service providers, coordinating the evaluation process, and aligning consensus amongst internal constituents became more complex. For example, IT leaders need to consider how to incorporate remote stakeholders into decisions, or else entities may drop out altogether. On a recent deal, the CFO noted that an entire foreign entity dropped out of the outsourcing process, simply because they could not keep up with a selection schedule that would have been acceptable previously. While the contract was ultimately signed, the full financial benefits would not be realized.
Second, use this process as an opportunity to find a provider who will commit to helping your organization leapfrog competitors. Retailers are an excellent example of where CIOs challenged service providers during renegotiations to help them quickly pivot to new delivery models. As the pandemic took hold, service providers made commitments to CIOs and made investments to earn new business. As an example, one service provider integrated the required business processes and system changes to address “curbside pickup” into the ERP systems and offered to address inventory allocation issues that impacted customer omnichannel views of product availability. Now is the time to test service providers and identify where they will make commitments to address critical issues and grow the business.
Third, trust and cultural fit remain critical. New relationships are hard to establish over virtual calls. IT leaders need to place even more emphasis on ensuring personalities and cultures match than in years past. Decision criteria beyond pricing, commercial terms, and expected performance need to be added into the process and communicated timely to build a trusting relationship. We recommend being creative in this area: one idea is to set up virtual lunches with no business agenda other than taking time getting to know one other better. Experts do not expect travel to return quickly, so conducting opportunities to explore softer issues and sharing timely feedback can reveal how the organizations might work together during tough times.
Finally, agreeing to new situations in Terms and Conditions takes more time. Our experience over the past year indicates that “new” and “different” MSA language needs to be discussed and agreed to. For example, company leadership needs to ensure that business can be conducted in a work from home model. Legal needs to ensure that new risks, liabilities, and obligations are identified and that clear language is incorporated to address these new situations that did not exist prior to COVID-19. There are no industry standards for many of these questions, and many organizations are still working to formulate positions on these issues. Because these decisions will need to survive the entire length of the contract, we’re spending more time working with business and legal teams to address these items and incorporate language into master agreements, statements of work, and alignment with SLAs.
In summary, organizations need not delay sourcing transactions, as we have now moved into a new normal. However, to ensure a successful service provider selection process, organizations should consider seeking out guidance from entities who have helped companies adjust traditional procurement activities to deal with the realities of today’s business environment.
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