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Accelerating the Outsourcing Transaction Process: The Engagement Package


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New concepts such as cloud services and mobile technology, increased client sophistication and maturity on the outsourcing spectrum and a real concern for affordability are changing the way organizations do business, and sourcing advisors are adapting with increased flexibility to meet client requirements. This white paper puts forward an alternative, more agile approach to the traditional RFP process – the Engagement Package (EP) – whereby advisory firms can move as quickly as their clients demand. As a variation of the more widely acknowledged Request for Solution (RFS) approach, the EP allows the client to place itself on a spectrum, pinpointing the right balance between risk, agility, scope, complexity and existing service provider relationships.

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Accelerating the Outsourcing Transaction Process: The Engagement Package

  1. 1. www.isg-one.comACCELERATING THE OUTSOURCINGTRANSACTION PROCESSThe Engagement Package Approach to Service Provider SelectionBy Owen Wheatley, Director
  2. 2. ACCELERATING THE OUTSOURCING TRANSACTION PROCESS ■ OWEN WHEATLEY 1INTRODUCTIONFor more than 20 years, the standard approach to contracting outsourcedservices has included a comprehensive Request for Proposal (RFP) documentand a lengthy competitive selection process. The typical RFP document can beseveral hundred pages of company artifacts, and the selection andcontracting process can take up to nine months. All told, the RFP approachrequires clients to allocate significant resources to bolster the sourcingadvisory team and ensure a successful outsourcing exercise.Since organizations have been traditionally immature with respect tosourcing, this lengthy document and detailed process have been entirelyappropriate; in many cases, it is still an organization’s best chance ofachieving the optimal sourcing outcome. But the outsourcing industry isevolving from long-term mega-deals with a single service provider covering abroad service scope of services to multi-transaction, multi-vendor modelswith shorter duration and increased flexibility. The traditional process andRFP document set have largely remained unchanged and can appearexcessive and costly for some organizations.New concepts such as cloud services and mobile technology, increased clientsophistication and maturity on the outsourcing spectrum and a real concernfor affordability are changing the way organizations do business, and sourcingadvisors are adapting with increased flexibility to meet client requirements.This white paper puts forward an alternative, more agile approach to thetraditional RFP process – the Engagement Package (EP) – whereby advisoryfirms can move as quickly as their clients demand. As a variation of the morewidely acknowledged Request for Solution (RFS) approach, the EP allows theclient to place itself on a spectrum, pinpointing the right balance betweenrisk, agility, scope, complexity and existing service provider relationships.
  3. 3. ACCELERATING THE OUTSOURCING TRANSACTION PROCESS ■ OWEN WHEATLEY 2WHAT DOES AN ENGAGEMENT PACKAGE LOOK LIKE?The EP is a slimmed-down RFP document set made up of only the essential artifacts required for a comparison of options inthe selection of a preferred service provider. Although the exact contents will vary by outsourcing transaction, the EPtypically contains the following sections:1. Introduction with terms of participation and process timelines2. Evaluation criteria to be used by the client in assessing the service provider responses3. Master Services Agreement/Term Sheet (if not already in place with shortlisted service providers)4. Scope of services (the Statement of Work)5. Service level requirements and service transition critical deliverables6. Pricing and commercial requirements7. GovernanceTHE EP PROCESSThe EP is created by tailoring schedule templates to fit the particular client situation with the emphasis on producing a leanand effective document set in a compressed timescale. While creation of this tailored document set still requires asignificant degree of input from client subject matter experts (SMEs) and the usual approvals from senior management, thereduced document volume has a markedly improved impact on the momentum of the sourcing program. In a challengingmacro-economic environment with most institutions seeking to reduce costs and deliver benefits as quickly as possible, afast and efficient process goes a long way to guarantee valuable early stakeholder support.When the shortlisted service providers receive a completed EP document set, they are often eager to participate in what isclearly a dynamic and collaborative process that allows them to showcase their differentiation and value-added services.The advisory team then leads an evaluation process that is aligned to the EP structure with emphasis on the priorityelements of the transaction – solution, service levels and commercials. A lighter set of documents and a more agileevaluation model allow for speedier selection decisions and preferred service provider recommendations, includingiterations of service provider proposals and due diligence.One of the perceived drawbacks in the EP approach is that it can actually take more time than the RFP process at thecontract negotiations phase. A key benefit of the weighty RFP document set is that service provider response can berelatively easily translated into a contractual style framework. The reduced number and detail of the schedules within an EPnecessitates additional thought from the client’s procurement and legal teams to ensure they have the contractual coverthey require across all aspects of the transaction. This is the main reason why the EP approach – despite being up to 30percent shorter in duration – nevertheless requires several months to complete (see Figure 1). However, with moreexperienced clients and the prevalence of multi-sourced environments, the existing framework agreements are oftenalready in place and can somewhat reduce the requirement for a comprehensive RFP document set.
  4. 4. ACCELERATING THE OUTSOURCING TRANSACTION PROCESS ■ OWEN WHEATLEY 3Figure 1 – A Typical Engagement Package TimelineWHEN MIGHT IT BE APPROPRIATE TO USE THE ENGAGEMENT PACKAGE APPROACH?For each engagement, the sourcing advisor assesses the most appropriate transaction model to use for a particular servicescope, ranging from a traditional competitive RFP process to simply ameliorating an existing service provider contract. TheEP approach can be thought of as part-way along this spectrum.Figure 2 – The Transaction Model Spectrum* The exact duration of these phases depends on client resource availability, quality of data, internal governance or other client-specific factors.5-7 weeks* 4-6 weeks*4-6 weeks* Agree initial suppliershortlist(s) Advise suppliers of theprocess and determinetheir appetite Finalise list of EPrecipients Prepare the EPincluding the keysections (SOWs, SLs,pricing structure etc) Release to suppliers Explanatory sessions with suppliers Suppliers prepare EP responses Review and evaluate supplier EPresponses Walkthrough sessions with suppliers Final scoring by stakeholders Recommend preferredsupplier to steering group Notify all suppliers Maintain competitivetension as long aspossible Negotiate terms Complete legaldrafting Contract signature Prepare for servicetransitionSupplier ListSelectionPrepare EPSupplier response& EvaluationContractNegotiations*ContractExecutionAvailable time for executionMoreLessFull RFP No Full RFPScopeandComplexityDegree of Solution StandardizationLess MoreMore Less1 - Traditional RFP3 - Existing contractrestructure/improvement2- AcceleratedRFP(“EngagementPackage” )
  5. 5. ACCELERATING THE OUTSOURCING TRANSACTION PROCESS ■ OWEN WHEATLEY 4Answers to the following key questions can determine the optimal approach: Is the scope relatively well-defined and understood by both the client and the prospective service provider(s)? Is the requirement for a relatively standard market offering that does not require a heavily bespoke solution? Does the client already have a framework agreement in place with the shortlisted service provider(s)? Is there a requirement to run multiple parallel transactions? Does the client have particular cost pressures that restrict the funding available for a sourcing program? Does the client have limited available resources to allocate to the sourcing process? Does the client have a compelling event which necessitates a compressed timeline?If the answer to some or all of these questions is “yes,” the EP approach may be the most appropriate. Reviewing eachdriver and each constraint with the client and agreeing where the potential sourcing transaction sits along that axis (asdenoted by the red circles marked “X” in Figure 3) enables the advisor and client to form a consensus as to whether theRFP, EP or a simple contract restructure is the most appropriate model to use.Figure 3 – Determining the most appropriate Transaction ModelTHE BENEFITS OF AN EP APPROACHThe EP option has a number of significant advantages:1. Focus – Because the EP includes only those documents which are of paramount importance, the client canconcentrate on defining the required service, service levels and commercial framework without spending time onless significant artifacts typically featured in a traditional RFP. Such prioritization allows the client to optimize thetime spent by key resources in producing the EP materials. If the client already has a framework agreement inplace with the preferred service provider, the EP approach becomes even more attractive.EVALUATION= Model 1 – Traditional RFP = Model 2 – EP = Model 3 – Contract Restructure= where the client sits on each axisXDriversConstraintsXXXXXXXCost Management*Scope not fully definedCustom SolutionLess Time PressureAvailable Initial Resources**Mature Market offeringLow satisfaction withIncumbentHigh satisfaction withIncumbentImmature Market OfferingLimited Initial ResourcesMore Time PressureStandard OfferingScope fully definedCapability AcquisitionAttributes / Characteristics*Represents Cost Reduction, Cost Transparency and Cost Variability**Represents whether or not there are sufficient (and sufficiently skilled) resources available to carry out the transaction
  6. 6. ACCELERATING THE OUTSOURCING TRANSACTION PROCESS ■ OWEN WHEATLEY 52. Collaboration – In stark contrast to the traditional RFP approach, which is often viewed as somewhat gladiatorial,creation of an EP is only possible in circumstances where the client and service provider(s) work closely togetherto refine and finesse the requirements to reach a mutually beneficial outcome. A collaborative approach not onlyenables the client to get to know the delivery teams with whom they will be working post-contract, it is usuallyalso appreciated by the service providers who might feel constrained and even subordinated during a formal RFPprocess. Additional differentiation between service providers and associated value-add will often follow.3. Cost – A compressed timescale (typically four to five months compared with six to nine months for a traditionalRFP) has significant cost advantages for the client, both in terms of internal and external program costs. Theopportunity costs of asking client SMEs to contribute to the creation of detailed schedules within a traditional RFPis often underestimated, so the reduced time requirement of an EP approach has even greater value.4. Discipline – Historically, the alternative to a traditional RFP was simply to ask the service provider(s) to propose asolution based on their experience in an attempt to reduce timescales and associated costs since no statement ofrequirements was being built. In some cases, this approach can leave organizations spending more time andmoney reviewing endless iterations of service provider proposals and fighting to retain control of the process.Although the EP model compresses the end-to-end time between project inception and contract signature, itretains the process discipline of the traditional RFP approach. By asking service providers to respond to clearlyarticulated requirements, the client remains in control of both the solution and the process.AN ALTERNATIVE APPROACHThe days of the traditional full RFP process are not over. In many cases, the complexity or magnitude of the services inscope will demand such an all-encompassing model. But the world of IT outsourcing is changing, and the advisorycommunity is evolving to meet the challenges posed by increasingly sophisticated clients with ever-shrinking consultancybudgets. The Engagement Package approach will not appeal to all organizations or be appropriate in all situations, but itoffers a proven and realistic alternative. The sourcing world is a very different place compared with the 1990s. The EP’stime has come.
  7. 7. 041813© Copyright 2013 Information Services Group – All Rights ReservedFor 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 FOR A STRATEGIC PARTNER?