This video is a humorous poke at the Customer-Vendor relationship in outsourcing deals... does it remind you of any of your relationships?

I just wish there was another one from the other point of view that highlighted margin-increasing behavior and the customers' reaction to it - but this will have to do for now!

Enjoy.

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I don't usually quote press releases - they tend to be speculative, at best, and over-hyped, at worst. However, the process offered here is interesting - not so much for its actual presence in the market, but because of the underlying concept of reverse project auctions.

I have long thought that outsourcing projects could be susceptible to reverse auctions. In commodity-level sourcing, a project can be positioned in the marketplace and prospective bidders can bid price, quality and turnaround. A customer could choose the best bid, send the work out and receive turnaround in a very price-efficient manner.

Even in higher-order outsourcing, this approach could work. If a company maintains a multi-supplier environment - where each is familiar with the baseline requirements - projects can be opened for formal bid by each supplier and select the one that offers the best price and terms.

There are some real potential benefits for both suppliers and customers. First, customers could take comfort in the fact that they're getting the best price for their requirements. Suppliers, too, can bid to fill gaps, for example, turning previously underutilized bench time into a revenue generator.

Unfortunately, this approach does wreak havoc on relationship-oriented suppliers - it is unlikely that the relationship will be well factored into the auction. Still, as a way to ensure best-price sourcing, it may have promise. Stay tuned!

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In a recent Computerworld article, EquaTerra highlighted its "Speed Sourcing" concept - an accelerated process to complete outsourcing deals. The practice, whereby the entire procurement and negotiation process is compressed - with key features eliminated - promises faster time-to-savings, a critical factor in these difficult times.

However, the practice has a number of apparent faults - none of which were highlighted by the article. EquaTerra also fails to recognize the reasons why outsourcing procurement cycles are so long to begin with, including the process discipline instilled by corporate procurement departments, a clear need for thoroughly fleshed-out agreements, and the importance of retaining deal-making leverage throughout the deal making process.

That is not to say that efficiencies in the deal-making process cannot be found and exploited. However, I believe that the approach proffered by EquaTerra "throws the baby out with the bath water," and creates deal risks that exceed the benefits offered by this concept.

First, it is important to remember that deal cycles have increased in a large part due to the competitive bidding process required by corporate procurement departments. Sure, these can be frustrating and bureaucratic, however they also do instill a large amount of discipline into the deal-making process. And anyone who has seen a "favorite son" selection process - where an executive chooses a vendor for "personal" reasons - will recognize the value of this discipline. The procurement process also allows the company time to socialize the decision-making process, leaving the deal less open to further internal criticism.

Second, EquaTerra short-circuits the deal process, calling for "general" agreements instead of detailed SOWs and risk-sharing. No doubt, SOWs can get too detailed, and can be a major bog-down point for outsourcing agreements, but I believe a more nuanced approach would be better. For example, instead of detailing every responsibility down to the "fine print," it may be sufficient to, in the main, thoroughly draw the responsibility borders between the company and supplier, providing thorough guidance to both parties without the need to detail every step of every process.

Finally, EquaTerra's process ignores the simple fact that the customer looses much of its leverage once vendor selection is complete. Upon selection, it becomes strategically in the supplier's benefit to "give less" during negotiations. At that point, the supplier knows, with relative certainty, that the deal will be done and it will get the business, and that failing to close will create more "face loosing" on the customer side. Keeping multiple suppliers in the deal process - as legitimate bidders - as long as possible can prevent this shift of strategic advantage. Counterintuitively, it may be more efficient to negotiate with two vendors fairly completely prior to final selection - doing so can instill within the supplier community the need for process discipline.

So why is the dealmaking process so inefficient? Where can efficiencies be found within the process? First, while submitting the bid to one supplier, as suggested by EquaTerra, is troublesome, so is submitting the bid to ten suppliers. Instead, I would suggest strategically offering the RFP to no more than four suppliers, including a couple of broad "industry leaders" and a couple of "specialty" suppliers. This limits the amount of information necessary to review prior to initial down-selection. By including specialty suppliers, companies can leave open the ability to find greater value through specific expertise.

Second, it is important to create a clear decision-making team and make sure that they have the time and skills necessary to quickly move through the process. Frankly, coordinating schedules can be one of the key issues that slow down the deal-making process. This problem can be reduced or eliminated by assigning and dedicated cross-functional team to the project, and by providing them with management support to complete the process efficiently.

Third, get the lawyers talking early. A lot of the issues in the boilerplate can be addressed without the entire team in the room (and yes, I have done this successfully in a billion-dollar, multi-vendor procurement). Without the need for "legal theatre," the legal process can finish 80% of the deal quickly and efficiently, usually before the services are defined completely. In this instance, a strategic use of additional legal resources can reduce the overall transaction cost of the deal.

Frankly, there is no reason that an accelerated, multi-supplier procurement effort cannot be completed within 60-120 days - from RFP to signature. It just requires a management commitment, reasonable requirements, foresight, and a "well oiled" customer machine. While I understand frustration that corporate bureaucracy can create, particularly for IT managers used to immediate turnaround, and can see the attractiveness of the "solution" proposed by EquaTerra, I believe that "speed sourcing" represents a step backwards when it comes to the critical need to maintain organizational integration around fundamental business decisions.

Even in tough times - no - especially in tough times, that old adage "haste makes waste" continues to ring true.

I recently became interested in the issues that arise when selling to corporate procurement departments. A legal process outsourcing company that I'm associated with is cracking this nut, and the differences between the sales processes are night-and-day.

Like any good writer, my first step was the internet, where I saw several back-and-forth postings expressing lots of frustration from each side of that relationship. From the sales side, there were articles pointing out how a procurement department can, in the blink of an eye, render useless years of relationship-building and good customer service. The articles assert that the personal touch that many sales folks strive gets reduced to a spreadsheet - and "quality relationship" generally isn't measured - or at least doesn't count for near as much as a penny here or there.

From the procurement side, a different frustration is echoed. Here, good people with solid processes and procedures are subverted constantly, as sales people continue to go around them to their corporate "champions," seeking to curry influence and gain powerful allies. When this happens, the procurement manager often finds herself in negotations with her own clients about why BigCo's product or service isn't as good as GiantCo's, even if their box seats at the game were better.

Interestingly, short of the whining, there was little in the way of useful information. No suggestions on relationship building across company lines, no suggestions as to how to improve the RFP responses, no suggestions on how to work with each group of customers to improve the overall deal. Just a good bit of ranting.

My favorite read was Tibor Shanto's blog, "The Pipeline," where he used the word "chumpion" to describe the business-side person who wants to champion a product, but doesn't have the political clout to "get past procurement." Look at those words - "chumpion" - the chump, and "get past procurement" - as if the procurement department is an internal roadblock (which many think it is).

Anyhow, the information (or lack thereof) available in the marketplace tells a story - one of mistrust and, dare I say, contempt for the very people that one must deal with. After all, sales people aren't going away anytime soon. And procurement departments will continue to reach up the value chain and seek to control the purchasing of items once seen as discretionary. The question is how to get these two groups with diametrically-opposed interests on the same page.

Robert Jaques, in an article posted on WhatPC yesterday, talked about the difficulties involved in exiting outsourcing arrangements.

Mr. Jaques rightfully points out that offshoring and outsourcing relationships have clearly migrated from "non-core" business functions to "core" functions, making both poor service and disruptions far less tolerable. The services receive far more scrutiny and have gotten more expensive, leading clients to look for exits, either due to business strategy or as a bargaining "chip" to lower prices.

That being said, there can be significant contractual, economic and political roadblocks that can make exit a far more difficult process. It is critical for companies that are thinking about exit to (a) build a plan that allows for orderly transition, (b) look at the contract carefully, and (c) prepare for disruptions.

Of these, (c) is the most interesting, as I'm sure that many will say "we have service levels for termination!" However, it is important to remember that service levels are often capped at levels that are at or below supplier margins, and the normal threat that can be levied - termination - will likely fall on deaf ears.

Mr. Jaques quotes Forrester as suggesting clients "... use money owed as leverage" to get cheap termination for convenience exits. Unfortunately, this approach further encourages a long-standing trend of short-paying vendors - a practice that I have seen first-hand. Frankly, I find this practice to be both ethically and economically unsound. Furthermore, I can also see outsourcers saying that services will be halted until payment is made - giving the leverage to the outsourcer, particularly for core services.

Without question, the best exit strategy is one that is well considered at the outset. However, easy-exit provisions are often traded at the last minute as deal closers, creating potential future problems should a company wish to move.

So, in the spirit of the Paul Simon song...

"Don't pay the bill, Will"
"Threaten to sue, Lew"
"Benchmark the fee, Lee"
"it will set yourself free...

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Proving once again that the outsourcing marketplace is not immune to the recession, IT outsourcing giant, Infosys, has seen a downturn in its business - its first since 1981. (See article here)

Rivals Wipro and Tata Consulting are also expected to show weaker results. Analysts suggest that downward price pressure from both Europe and the U.S. are a main reason for the disappointing results.

Unlike it's U.S. counterparts, InfoSys is still suggesting that it will grow rather than layoff workers, although that growth rate may slow a bit.

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In these days of doom and gloom, sometimes we need to take a minute and laugh. To that end, take a look at this clip on outsourcing from The Onion.

Enjoy!

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In a recent Huffington Post article, Fritz Hollings, former senator from South Carolina. The article calls for broad, sweeping changes in tax and trade policies, changes that would, no doubt, make many of the readers of this site uncomfortable. However, he also makes a very interesting point about the way that the U.S. funds its own social safety net, and how that funding creates additional pressure for outsourcing/offshoring.

Unlike most of the industrialized world, the U.S. does not fund the bulk of health care and social security programs through value added taxes or other consumption or income oriented taxes. Instead, it suggests (with health care) or mandates (with social security and medicare) that employers become responsible for all or a part of these costs.

This approach was fine in a non-globalized economy, where production was difficult to move and where there was a great disparity between skill sets and raw material availability. These costs could not be avoided. However, in our current world, this approach (according to Mr. Hollings) has killed U.S. jobs by encouraging offshoring to markets where individuals bear the bulk of the costs of the social safety net. This argument makes some economic sense.

It also create a critical question - will a move away from employer-funded health care and retirement adversely affect offshoring? It certainly cannot erase wage disparity (in fact, it will probably increase it), but it may reduce the overhead costs of keeping work within the country. If so, it may have an even greater effect than the proposed tax policy changes.

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While an article like this shows up in the outsourcing press on a regular basis, this one, in GlobalServices, is a good, succinct summary of eight of the mistakes that are often made in outsourcing deals.

While it talks about "evaluation of Outsourcing Service Providers," I'd like to see a more pointed statement regarding due diligence - something that has become more important during recent years. Still, the article is a useful set of guidelines.

In this article in IndustryWeek, one of the key problems in outsourcing relationships is explored. While this article focuses on manufacturing, it also applies to any outsourcing relationship, from HR and finance to IT to recruiting.

The "Outsourcing Paradox" is described as the sourcing to experts, but not allowing the experts to design the processes. Instead, detailed specifications with lockstep procedures are put in place, leaving the outsourcing supplier with little room to apply the expertise they've gained from their broad experience.