Do sourcing advisors add value? This was a question posed to a panel of service provider executives at the IQPC Shared Services Outsourcing Week (SSOW) conference in Orlando this week.
The panelists from Accenture, Genpact, Infosys, CSC and TCS offered their candid and sometime pointed perspectives on whether advisors enhanced or stifled innovation and accelerated or delayed reaching a deal. Several of the providers expressed their preference for unadvised deals.
Granted that there are some advisors who fit all of these descriptions; but the fact is that service providers have always been motivated to prefer unadvised deals to advised deals. This is rational self-interest on the part of the providers, as unadvised deals often can tip the scales in favor of the providers. Service providers are in the market doing deals all the time and thus better understand the economics and risks of a transaction than a client who has much more limited knowledge of the market. Additionally, the involvement of an advisor increases the probability that an outsourcing relationship will be sourced competitively.
All service providers prefer a single source transaction. Sometimes this is okay, and an unadvised deal can turn out well. However, the majority of failed deals are either unadvised or have been negotiated with advisors who are willing to short-cut appropriate deal discipline to get a “strategic” deal signed in an unrealistically short timeframe. Regular industry watchers can all rattle off a list of deals that fit these characteristics.
The fact is that good advisors create value by ensuring that the deal economics are sound to both the client and the service provider and are priced competitively with the market; that service levels are aligned with client outcomes; and that financial structures and incentives are designed to achieve the client’s objectives for the relationship. The best deals also are structured to foster innovation and transformation, but such structures must ensure measurable outcomes — not merely reflect promises or good intentions.
Lastly, the best advisors also serve to educate and guide their clients on the art of the possible in terms of strategy and transformation; the real (vs. advertised) capabilities of the service providers; and the risks and pitfalls that are present even in good deals and how best to mitigate them through effective change management, transition and governance.
One panelist, a high-level executive of a multinational service provider, affirmed this, pointing out that good advisory services are not merely about tools and templates but about the softer elements that need to be considered when guiding a customer through the complex dynamics of outsourcing, all of which help clients to achieve more predictable outcomes. Another executive of a well-known provider pointed out that, similar to any industry, sourcing advisors need to continually innovate, and as the best advisors help their clients to build their internal sourcing capabilities, they are able to build on this internal expertise to help take their clients to the next level of strategy. A third panelist underscored this, pointing out that with a strong advisor, the probability of a deal coming to fruition was greatly increased.
The bottom line is that a smart client should select its sourcing advisor not only by the reputation of the advisory firm, but by the proven ability of the individual advisors who will be guiding them on the path to transformation.