The RFP Will Never Be The Same: Emerging Approaches to Innovative Sourcing

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This ISG white paper examines traditional approaches to outsourcing negotiation and their limitations in the context of current business challenges, as well as emerging solution-based strategies characterized by general objectives rather than specific requirements. A case study of an ongoing client engagement is included to illustrate key success factors in implementing such strategies.

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The RFP Will Never Be The Same: Emerging Approaches to Innovative Sourcing

  1. 1. THE RFP WILL NEVER BE THE SAMEEmerging Approaches to Innovative SourcingBy Thomas Young, Partner, ISGwww.isg-one.com
  2. 2. INTRODUCTIONClients today clamor for “innovation” from their service providers, yetfrequently complain that they don’t get the fresh ideas and new approachesneeded to drive ambitious transformative business agendas.One fundamental obstacle to innovation may be what clients are asking forand the manner in which they ask for it. Specifically, the highly prescriptivenature of the traditional Request for Proposal is by definition anathema totrue innovation and ill-suited to address the complex requirements faced bymany clients today. Increasingly, ISG sees clients turning to a more open-ended and flexible approach that gives sourcing organizations leeway to focuson the what of the desired end state, rather than on the how of servicedelivery.This ISG white paper examines traditional approaches to outsourcingnegotiation and their limitations in the context of current business challenges,as well as emerging solution-based strategies characterized by generalobjectives rather than specific requirements. A case study of an ongoing clientengagement is included to illustrate key success factors in implementing suchstrategies.THE RFP WILL NEVER BE THE SAME ■ THOMAS YOUNG 1
  3. 3. VACATION PLANS facilitate fresh thinking and the innovation that clients are seeking.Consider this scenario: A family asks a travel agent to findthe cheapest package for a family of four to fly from New With a traditional RFP, moreover, a few select providersYork to a hotel room within five miles of Disneyworld for invest significant time and resources to develop thoroughfive days at the end of June. Under the circumstances, responses; suppliers are either vetted or self-selectthe family can expect good rates and reasonable before undertaking the response. The RFS, meanwhile,accommodations, but their vacation experience will be opens the field to a broader pool of players – andlimited to the specific parameters they’ve defined. potentially to innovative solutions that the client had not considered. And by lowering the cost of entry, the RFS isAs an alternative, let’s say the family provides the travel attractive for tier-two, offshore providers, and businessagent with a set of broad criteria: a five-night vacation consulting-focused providers who may lack the resourcesthat includes a mix of activities for a budget of $4000 or to pursue major deals through the traditional RFPless. In this scenario, the agent has the leeway to be process.creative and offer a variety of solutions – a cruise, acamping trip, a European tour, or Disney. Here, thefamily assesses the alternatives and chooses the one that BENEFITSbest matches their objectives for the vacation, and One key benefit of the RFS model is to allow clients tobenefits from the agent’s creativity, expertise and better communicate complex outsourcing requirementsexperience in the travel industry. And, if they’ve to vendors. Clients today increasingly aim to transformcommunicated those objectives to the agent (quiet get- and standardize existing IT environments that areaway or big-city excitement), then the travel agent will constrained by legacy systems and unnecessary custombe in a better position to deliver on expectations. requirements. These complex agendas often raiseThe first scenario is analogous to a traditional RFP questions that don’t have a single right answer; indeed,process, under which service providers compete to clients often don’t know what many of the questionsdeliver an optimal solution within a narrowly defined should be. In such instances, the RFS can reveal new andcontext. The process is designed to enable apples-to- innovative options and address the ambiguity of theapples comparison to determine which proposal best fits initiative.the specific criteria defined. By default, this approach The RFS approach may also be a significantly more cost-constrains innovation since the client has dictated the efficient way to approach a transformative orterms of the solution and is asking for the best tactical standardized sourcing initiative. An ISG survey of serviceapproach to achieve an already prescribed end state. providers found that prices are at least 10 percent higherThe second scenario reflects the dynamics of an when responding to complex RFPs. By simplifying theemerging trend in outsourcing – termed the “Request for sales process up front, the RFS therefore potentiallySolution (RFS).” Designed to address complex eliminates a key cost driver of the provider’s solution.requirements and problems, the RFS is a collaborativeprocess characterized by broad criteria, assessment of CHALLENGES AND SUCCESS FACTORSmultiple options and open-ended dialogue rather thanspecific checklists that require precise answers. These benefits notwithstanding, the RFS model poses significant challenges – challenges that require a change in mindset on the part of clients. One fundamental issueCHARACTERISTICS OF THE RFS is assessing proposals. The traditional RFP model isUnder an RFS sourcing model, the customer describes geared to enable apples-to-apples comparison of servicethe general characteristics of their IT or operational provider offerings. While this quantifies the review andenvironment, overriding objectives, major concerns, and selection process, it limits innovation by prescribing thevision of the desired future state. Rather than dictate the offered solution. Under an RFS model, each proposal willspecific terms to be adhered to, clients provide potential likely be dramatically different, thereby widening thesuppliers the flexibility to propose unique solutions. range of options. This means that clients need to view the selection process differently. Since the RFS involvesThis shift fundamentally alters the dynamics of the selection criteria that are more qualitative and right-process. First off, by asking providers for a solution brain focused, soft benefits such as “cultural fit” canrather than telling them what’s required, clients trump traditional quantitative measures.encourage a different set of behaviors – behaviors thatTHE RFP WILL NEVER BE THE SAME ■ THOMAS YOUNG 2
  4. 4. Another potential obstacle is the desire – ingrained GETTING STARTEDthrough the traditional RFP process – to get the bestpossible deal. Clients negotiate service levels and price Organizations interested in piloting an RFS approachpoints in excruciating detail, aiming for perfection. This would be well-advised to start with a discrete projectapproach is not only time-consuming, but it also often that has no clear-cut solution. For example, if one factionleads clients to lose sight of the initiative’s broader favors offshoring, while another argues for a cloudobjectives. An inordinate focus on contract details, solution, and a third wants re-engineering, an RFS canmoreover, can create the illusion of protection, and define the options and clarify the implications – positivetempt a client into neglecting governance after the and negative – of each course of action.contract signing. The basic process of preparing for an RFS initiativeWith an RFS, the “perfect is the enemy of the good,” and typically begins with a data gathering exerciseclients must convince themselves that “good is good characterized by “Environmental Triage.” The outcome isenough.” While seemingly counterintuitive, this attitude a broad scope description of the business landscape, oneis essential in order to tackle the substantive big-picture that encompasses financial information (includingissues that need to be addressed. Ultimately, the focus resource units and consumption levels), service level andhas to be on managing the relationship, not on writing quality measurements, business terms and legalthe contract. requirements.An effective RFS requires communication, collaboration Clients can, and should, begin the data collection phaseand transparency, and, to an extent, a leap of faith. on their own. There are no templates per se, justSpecifically, the client has to trust that the provider won’t categories of information needed to communicate whatgouge on pricing, and to have confidence in the process is to be considered. By asking yourself, “What would Iand be willing to change internal processes and need to develop a solution for this environment?” youconstraints in order to drive the desired end state. The define the breadth and depth of information required.provider, meanwhile has to believe that the client will be However, don’t get lost in the weeds – the Servicereasonable in defining the scope of the agreement. Providers are developing indicative solutions and indicative economics.The nature of the RFS can by definition facilitate trust byforcing both parties to work together to solve problems, The next step is to define business goals and objectivesrather than micro-managing or haggling over pricing or and articulate the desired end state in the context ofservice level details. Shared goals can also enhance perceived and real constraints. At this point, theflexibility and adaptability as requirements change. involvement of a third-party advisor is essential. First off, service providers will take the process more seriously if the client has taken the time to get professional processTHE RIGHT FIT support. Absent a third party advisor, potential vendorsWhile the potential benefits are significant, the RFS isn’t may interpret the exercise as a tire kicking exercise.optimal or even applicable in all circumstances. Moreover, the third-party advisor plays a role inGenerally, the approach is better suited to solutions providing market context and insight, structuring datarequiring innovation and transformation, or to situations collection, communicating instructions to servicethat raise questions that have more than one right providers and helping the client to separate fiction fromanswer. reality when assessing the RFS presentations.By way of contrast, the agenda of a straightforwardoptimization project would likely not includetransformation and innovation, and would be bettersuited to a traditional RFP approach that includedcomponents such as benchmarking against marketstandards and implementation of process improvementand best practices.THE RFP WILL NEVER BE THE SAME ■ THOMAS YOUNG 3
  5. 5. CASE STUDY Since an RFS initiative is likely to be a business ratherISG recently helped a client select an ERP solution for a than a commodity IT solution, vertical specialization isnewly formed business unit. The initiative was ideal for also essential. ISG leveraged its human resourcesan RFS approach: Since no existing systems or solutions outsourcing expertise, and supply chain management,were in place, potential suppliers had a truly “green product life cycle management and materials resourcefield” opportunity and could address a broadly defined planning experience was similarly critical.need, rather than respond to specific requirements that An aggressive schedule presented a challenge.constrained innovation. Nonetheless, the entire process – from helping the clientISG utilized its offshore market research resources to define their requirements, to investigating potentialidentify potential suppliers that were a good match for suppliers, to writing the RFS, to down-selecting to twothe client’s industry (heavy construction and finalists – was completed in ten weeks.manufacturing) and business system needs, whichincluded human resources, finance and accounting, CONCLUSIONsupply chain management, and materials resourceplanning. ISG was also able to leverage templates and Sourcing strategies continue to evolve in response tointellectual property from an earlier RFS project. changing business requirements. The traditional RFP has been an effective tool in enabling competitive pricing andThe RFS enabled vendors to propose innovative solutions efficient oversight of service delivery. But as clientand indicative investments designed to help the client organizations mature and their approaches to sourcingassess options and costs of implementing new business become increasingly sophisticated and ambitious, newsystems for the new unit. ISG is also assisted the existing models are needed to allow for innovation and creativity.IT team in defining and managing the rapid selection The Request for Solution offers a promising approach toprocess. enable service providers to leverage their expertise andISG’s experience in this engagement identified several capabilities to address the business challenges of theirkey success factors for an effective RFS response. One is clients.the ability to act quickly – several suppliers dropped outof the running because they were unable to meetaggressive response schedules.The process also revealed that flexibility to be creativeand innovative does not preclude the need for detailedand relevant pricing. While ISG provided a pricingtemplate that enabled comparison and normalization,the RFS did not provide the detailed pricing matrixtypically found in a standard RFP, but instead called forvendors to apply their own commercial pricingconstructs. Several vendors struggled with thisrequirement and their responses were found to belacking in terms of rigor and formal pricing structures.THE RFP WILL NEVER BE THE SAME ■ THOMAS YOUNG 4
  6. 6. LOOKING FOR A STRATEGIC PARTNER?Thomas Young is a Partner with ISG. Thomas Kenyon, an ISG Director, contributed to this report.For further information, please contact Alex Kozlov, Director of Marketing, Americas, at alex.kozlov@isg-one.comor +1 617 558 3377Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory servicescompany, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private andpublic sector organizations to transform and optimize their operational environments through research, benchmarking, consultingand managed services, with a focus on information technology, business process transformation, program management servicesand enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, thedeepest data source in the industry, and more than five decades of experience of global leadership in information and advisoryservices. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries. For additionalinformation, visit www.isg-one.com. 032713 © Copyright 2013 Information Services Group – All Rights Reserved

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