In my previous article, I likened the complex sourcing of external IT services to different supermarket choices. To recap, there are four broad approaches to outsourcing:
1. The home delivery of one-size-fits all approach to outsourcing, which means engaging with a global outsourcer, taking the good with the bad for the sake of convenience
2. The low-cost international supermarket which is essentially engaging with a pure offshore provider for volume, and low cost commoditised, services.
3. The local supermarket approach of selecting best-of-breed products satisfying the majority of your requirements, whilst also retaining the option of shopping elsewhere
4. The corner shop approach with niche single-product providers.
In this second article, I’d like to discuss how to choose a selective sourcing shortlist and some of the key factors to consider before making a selection. The rules are largely the same as any sourcing operation - e.g. value for money, proven track record, reasonable to do business with etc. - with one or two additional criteria. I’ve used ERP as the technology example, but the same principles apply for decisions around other technologies.
o Matching your current – future – and aspirational capabilities?
o You may be considering the corner shop niche service provider who specialises in a particular ERP technology. Will they provide an un-biased view of the future state of ERP marketplace when you want to expand into CRM or Business Intelligence?
o Likewise, you may be considering taking services from the ERP vendor directly. Can they also provide you with services for other vendor’s products as part of your consolidated sourcing strategy? With the introduction of this new provider is there an opportunity to further consolidate the management of your legacy applications into the same agreement and recognise some immediate economies of scale? For example, a single supplier providing a number of services under a common delivery framework can show significant savings over three separate niche “corner shop” providers. It’s worth exploring whether the provider has a proven track record of delivering these others services then maybe so.
o Flexibility of their engagement model to change with your business?
o Is the service engagement model restricted to ERP solutions or does it follow globally acknowledged service management standards? The service framework may work perfectly well for the one solution but will it adapt for others?
o Could they also provide an “aggregation” service to help you consolidate multiple providers under their one service model – thus taking away the cost of you having to do this yourself whilst providing transparency of the overall supply chain?
o Can they retain the intimate knowledge of your business?
o As your business grows, and your business with the selected suppliers also grows, can they retain that intimate knowledge of your business that influenced your decision to choose them in the first place?
o How do they stop themselves from appearing as though they are multiple separate service providers to you?
o Are you important to the provider’s business?
o Striking a balance between being the only client that a provider has (risk for you and for them), and being lost in the noise of a gargantuan service provider organisation is a challenge.
o You may sit nicely in the middle of this range for now but how do you manage the risk of this changing over time? Large providers will often hunt in shallow waters, looking for potential growth clients. oWhat happens if you do not deliver the account growth which they expected? What happens if you select the corner shop and they themselves are unable to grow in line with your business?
The cost, risk and business disruption of moving providers can be significant. Selecting the most appropriate provider for your business is a major challenge and one which should be carefully looked at from all dimensions before making a selection.
Do not just consider the task at hand. Instead, think broader and think about your overall sourcing strategy as a whole. This way, you will spend less time window-shopping and ensure you select the right provider to support your goals, growth strategy and get the best value available.