If you’re a business or IT leader, your sourcing strategy is probably very different from what it was a year ago, in a pre-COVID-19 world. Whether you’re now focused on the need to drastically cut costs to survive the “dark winter” of the pandemic (think “travel industry”), a sudden windfall in your business driven by new consumer demand (think “work-from-home technologies”), or just the need to be more agile in navigating the uncertainties of the new normal (think “the rest of us”), sourcing technology and services supports all of these use cases. Clearly, there has never been as great a need for sourcing advisory services as there is today.
The benefits of outsourcing have been heavily documented: it allows for businesses to right-size their in-house operations, scale as needed, and leverage emerging technologies and innovative thinking quickly and efficiently. However, outsourcing transactions are complex and can cause hidden imbalances in the buyer-provider relationship and misaligned objectives, which often result in sub-optimal results and client dissatisfaction.
The best sourcing advisors guide you through the end-to-end outsourcing lifecycle, providing you with in-depth knowledge of the provider landscape, the IT services marketplace, contracting standards, and pricing benchmarks. While companies may be tempted to go it alone, working with a leading sourcing advisor will save you time and money in the long run.
Your expected results from a sourcing advisor should include:
- Delivery architecture: Designing an effective outsourcing relationship begins with determining how best to deliver IT services to your constituents. Outsourcing certain IT functions may be the right answer, but so might insourcing or building out an offshore captive center to provide shared services. A seasoned sourcing advisor can help you design a fit-for-purpose delivery architecture that supports your business objectives.
- Financial analysis: Building effective and defensible financial models that capture the true costs of delivering IT services are crucial to justify any sourcing initiative. An experienced sourcing advisor develops a complete base case that reflects the full TCO (staffing, third-party services, assets, licenses, etc.) and aligns it with provider pricing models to create a comprehensive business case for how to move forward.
- Solution alignment: Understanding your current technology footprint and where opportunities for transformation can be found are key to getting the best thinking and value out of industry-leading IT service providers. Poorly-conceived transactions too often result in “outsourcing the past,” whereas these efforts are, in fact, fertile ground for forward-thinking and strategic enablement. The best sourcing advisors bring deep technical acumen and business experience to help discover the full range of potential value for you and the service provider to jointly exploit.
- Risk management: Tracking, mitigating, and measuring risk should be an ongoing process in an outsourcing deal. These include risks associated with knowledge transfer, business continuity, liabilities, security, regulatory and compliance issues, privacy and data management, business process effectiveness, human resources, and so on.
- Market benchmarks: Studies show that the cost of IT services is still on a downward trajectory, fueled by providers replacing offshore workers with automation. What may seem like a good deal (cost savings) may in fact be a windfall for the provider. Sourcing advisors bring you up-to-the-minute knowledge of best-in-class pricing and help you incorporate market-competitive service levels and commercial terms into your agreement—helping you capture value you might otherwise miss.
- Provider knowledge and engagement: Top sourcing advisors have hands-on experience with leading IT service providers and their niche competitors, which means you won’t waste time and energy engaging providers that aren’t a good fit for your needs. Not only can sourcing advisors guide you to the right firms to include in the bidding process, but their reputation for running a fair process encourages bidders to put their best teams on your RFP because they believe the advisor will run an unbiased, objective competition.
- Transition and governance: Once an outsourcing contract is signed, most clients do not know how to manage the transition to a provider, nor do they have the ability to effectively manage the provider relationship going forward. All too often, the governance function is an afterthought and is under-invested in proportion to the potential for value-leakage within large IT deals. Sourcing advisors can assist your company in navigating the complexities of a services transition and implementing a supplier governance program to manage deal performance, financials, contract changes, and the strategic value of the relationship.
Values Drives Value
Considering the many important aspects of a sourcing initiative, choosing the right sourcing advisory partner may be the single most important decision you make—one that sets up your future relationship with an IT services provider for success or failure. There are plenty of sourcing advisors competing to give their advice, so how do you know which would be the best fit for you? The very best advisors are not only guardians of the clients’ interests, but are also excellent facilitators who understand both sides’ perspectives, risks, and interests and can work creatively and constructively to find solutions that permit both sides to succeed.
Below are three key values you should require from your sourcing advisor to ensure they can produce the best results for you. Wavestone delivers on all of them:
- Integrity: Clients trust Wavestone to recommend actions that are rooted solely in the client’s best interests. We analyze and evaluate each unique situation and provide honest advice on how you should best proceed. If we don’t think full-on outsourcing is the right answer for you, we’ll tell you. Wavestone’s sourcing advisors present fact-based findings, detail the pros and cons of the alternatives you should consider, and give you the recommended approach we believe will work best for you. We provide complete transparency throughout the sourcing advisory lifecycle, so you remain informed and in control. We’re here to help, not to sell more work.
- Impartiality: Leveraging outsourced resources to create value is a powerful option for many companies, but unless the right analysis has been done, the results can be value-destroying. Wavestone is agnostic about outsourcing and we are driven by our discipline to make recommendations based on rigorous fact-based analyses. While we maintain a service provider compendium based on their performance on Wavestone deals and in-depth capability reviews, we don’t offer rankings, badges, or any form of paid marketing promotion from the service provider community. Our recommendations are unbiased and based solely on the best fit for your situation.
- Field of vision: A common shortcoming in the way companies and even some consultants approach outsourcing transactions is to view them as procurement exercises. Clients can get so wound up in the commercials of a deal (Are we squeezing the last nickel out of the provider? Can we strong-arm them into accepting unreasonable terms and conditions?) that the strategic intent and larger benefits of outsourcing are lost. While commercials are one aspect in assessing the value of a deal (and the easiest to benchmark—which is why it’s so attractive to focus on them as a means of declaring victory), the real benefit from these service relationships lies in how well they enable successful business outcomes.
At Wavestone, our field of vision encompasses the broader impact of the deal on areas like technology transformation opportunities, retained organization design, integrated service management, provider governance, security and compliance, risk mitigation, and safe hands through the transition process. Only by taking a holistic view of the outsourcing event and working with clients to integrate with the larger business and IT ecosystem can we provide you sustainable long-term outcomes—not merely a good-looking deal on paper.
Why use a sourcing advisor
As you’re revisiting your outsourcing strategy, it’s clear that an outside sourcing advisor can bring perspectives, experience, and market knowledge that are difficult to replicate internally. However, deciding whether to seek help in managing these complex and important deals can be a tough choice. When considering whether a sourcing advisor can add value to your outsourcing process, ask yourself the following questions:
- Can we accurately articulate the outcomes we’d like to achieve through outsourcing and the value that can be created?
- Do we have a thorough understanding of the direct and hidden costs of IT today and what expectations to set for the business case?
- Have we determined how we’ll handle HR issues, including layoffs, severance, the rebadging of employees, retention of key staff, governance staffing, etc.?
- Do we understand the technology transformation opportunities that we should address through the outsourcing process?
- Can we track the risk associated with the outsourcing arrangement: risk to our customer relationships, business continuity, regulatory compliance, liabilities, security and privacy, data management, etc.?
- How good is our knowledge of the service provider world? Do we understand their off-shore/on-shore model? Strengths and weaknesses? Culture and compatibility? Ability to innovate?
- Can we calculate the trade-offs between pricing, service level performance, and commercial terms? Do we have access to market benchmarks? How will we know if we are getting a fair deal?
- Do we have the ability to compare (“normalize”) the RFP responses since they will all be different? Is the price really the price, or are there “gotchas” hidden in deal assumptions?
- Do we have the in-house skills and knowledge to negotiate the complex terms of an outsourcing contract?
- Do we understand how to successfully execute the transition of services, including safely winding down existing service providers? How will we govern the relationship so we realize the full value of the business deal?
If you’re uncomfortable going it alone on any/all of these issues, you owe it to yourself and your organization to at least consider working with an experienced sourcing advisor to guide you through the outsourcing process.
If you’re interested in Wavestone’s sourcing advisory services, or if you just have questions and would like to speak to an expert, feel free to schedule an appointment here.
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