During the past 20 years, ISG has worked as the buyer’s advocate to help clients define their sourcing requirements, select an external service provider and negotiate a workable contract. This has allowed clients, who may be sourcing for the first time or may go to the market only every few years, to match up with service providers who do this every day of the week. Over the approximately 2,000 engagements that TPI has been involved in, the negotiation dynamic has varied between “the market knows best” and “the client is always right.”
Today there is increasing recognition that both parties bring essential insights to the sourcing mix and that the best solutions are accomplished when buyers engage interactively with the market. ISG’s Mutual Value Discovery (MVD) is an interactive, collaborative process that is used before and after the issue of RFPs (as solution ”walkthroughs”) to tighten requirements, explore alternate approaches and better understand and refine service providers’ solutions. It was adapted in Australia to the Interactive Vendor Engagement (IVE) model used by the Victorian state government’s Registration and Licensing (RandL) program.
This interactive model is particularly useful on complex projects where precise specifications are not possible and innovative solutions are being sought — and where a ”blind tender” prepared by the client and thrown over the fence to service providers will not work. As the Victorian Government’s Auditor observes, “Understanding what the market can offer is nearly as important as understanding what you want from the market.”
Organizations seeking to obtain outsourced services should use these Top 5 guidelines to engage interactively with the market:
1. Choose the level of interaction to suit the project. A high level of interaction is not required when buying commodity products and services. However, when buying complex services (e.g. data center consolidation, server virtualization, Cloud Computing or new systems), or where the client’s specific requirements and the market’s solution are evolving, then interaction with the market is critical.
For example, the Olympic Delivery Authority for the 2012 Olympic Games needed to procure a delivery partner for all design, construction, testing and commissioning to deliver the necessary facilities for the London Games. While the deadline for delivery of the Olympic Games is fixed, at the procurement stage the actual requirements for delivery of facilities, infrastructure, services, etc., were not finalized to allow specification, and the funding and approvals processes were still in progress. Engaging with the market for ideas on requirements, solutions, and risk sharing was critical to allow progress. (See http://www.ogc.gov.uk/index.asp?id=1004559)
2. Make the bed you are going to lie in. The Interactive Vendor Engagement (IVE) journey entails collaboration and trust building. Understanding what the market can offer requires a safe environment for sharing ideas. Both the client and service provider must “open the kimono” to build trust and productive relationships. Breaching trust once the service provider has shared its market knowledge can create a bed of mistrust that can set up a lose/lose scenario.
3. Establish effective probity and protocols from day one. ”Opening the kimono” should be done in a way that maintains a level playing field and proper competitive tension. Regular reiteration of probity guidelines is essential to minimize reverting to old habits (e.g. corridor conversations). Set and enforce clear roles and communication boundaries in each mutual value discovery (MVD) session to ensure consistency of message and probity. Client teams should also be rigorous in not providing solution endorsements to vendors during MVDs .
4. Use interactions to assess cultural fit. Use every opportunity to meet the service provider sales and delivery teams to assess the capability fit, the cultural fit and the willingness to follow required processes. Realize that the service provider is also doing the same thing to qualify the opportunity so as to offer its best solution and mitigate bidding and delivery risk.
5. Trade off increased procurement costs with reduced delivery cost and risk. IVE may add time and cost to the procurement phase. However, working up front on refining requirements, tightening the fit of the solution and building effective working relationships is time and money well spent – especially because the procurement phase is typically only a small proportion of the total contract cost.
For example, the RandL program identified a marked reduction in questions during the Q&A period, substantially higher and consistent ratings during the RFP, and pricing that was "in the ballpark.“ As the business workstream leader noted, “I am far better informed regarding the solutions I choose.”
ISG has found that securing market input into the requirements definition and solutioning process leads to better sourcing outcomes in fit, performance, risk mitigation and relationships. The negotiation dynamic now becomes "the market and the client know what’s best” (for both parties).