As the market for contracting and procuring IT services has matured, the typical sourcing process has become standardized. It works well when buying commodity services and when EU tendering laws apply.
But what if organizations struggle to keep up with technological innovations or, perhaps even more challenging, business transformation? What if your customer experience is losing ground compared to the competition? What if regulations and compliance activities are cannibalizing your ability to drive change? What if your cost of doing business is increasing and cutting in on your margins as a result?
It’s not uncommon for this to become a circle of events that is difficult to turn around. This is when organizations turn to IT providers for resources, capabilities and technologies to help them increase competitive advantage.
In such situations, the traditional RFI/RFP process often does not suit and comes with specific challenges. Of course, if the organization has a clear view on how to turn things around and could get their hands on the resources, it would be different. But, in many cases, the degree of complexity is too much to handle on top of core business requirements and companies must collaborate closely with a third-party provider to figure out which solutions best meet their specific needs.
An Alternative to Traditional Procurement
An effective IT provider can supplement the already-compromised change capacity to push a transformation agenda.
A healthy partnership is based on mutual benefit with “skin in the game” for the IT provider. A sound contract will guarantee specific outcomes instead of procuring commodity services, an isolated transformational project or simply hiring resources.
This is where transformational sourcing comes in, an alternative approach to the more traditional procurement process, to help enterprises solve complex, often partially unspecified and challenging sourcing demands.
Success Factors for Transformational Sourcing Initiatives
1. Transformation Objectives
Get full transparency on the transformation objectives committed to by the future decision-makers. This will be key in selecting the best-fit IT provider to support the transformation agenda. Often, sourcing is not only about improving customer experience, or reducing the burden of keeping up with regulations compliance, or meeting ESG targets, or access to talent and combat attrition, or cost reduction in isolation. It’s the combination that creates a vicious cycle that’s hard to break through.
Achieving clarity on the objectives up front is an essential basis for vendors to qualify the deal potential and position themselves. After contracting, confirmed objectives serve as an important cornerstone to govern the partnership and share responsibilities toward maximizing return on the investment.
2. Market exploration
The market in which IT providers operate is diversified and mature. At the same time, it’s in constant motion with vendors adopting new services and turning them into core businesses at great speed, fuelled by mergers and acquisitions.
Analyst reports provide insights in strengths, weaknesses and core competencies for at least the major players. These make it tempting to jump to conclusions on which IT providers to engage with during the sourcing process.
However, before engaging in that process, it is highly recommended to conduct a market exploration phase. This is when you engage with a long list (typically at least five) IT providers to confirm their capabilities and allow them to validate “what’s in it for them.” Based on thorough understanding of the buyer’s needs.
A successful partnership that works for both parties will provide mutual benefit that cannot be underestimated. During this stage, the foundation of the future partnership is confirmed with potential candidates.
In lieu of a mostly-paper-based RFI/RFP process, the use of co-solutioning sessions is essential in transformational sourcing. ISG’s FutureSource™ methodology (see below) caters to this by means of solution preview and co-solutioning workshops. During co-solutioning, parties work intensively together to ensure the bidder sufficiently understands how to make their bid. Also, it serves as an opportunity for bidders to test their solution approaches.
In this way, IT providers and customers can co-create a foundation onto which providers can produce their bids. This stage is typically executed with two vendors and takes 8-12 weeks. After co-solutioning, vendors finalize their bids for evaluation, negotiations and down-selection.
Co-solutioning between the buyer and the IT provider(s) works when:
- The buyer lacks capabilities to define what transformational sourcing initiatives are most suitable to achieve the transformation objectives.
- The process benefits from the buyer to closely work and collaborate with the IT providers to better understand their capabilities, commitment and ways of working.
The business must be engaged in the co-solutioning and subsequent decision process to select the vendor of choice. This is because every transformation comes at a price before the benefits can be harvested. The price for the business might be in the form of budget, allocating resources to drive and support the initiative, or accepting consequences such as standardization, simplification or signing up for managed services.
Once the buyer has evaluated proposals, selected the partner and negotiated the deal, the contract can be signed. This contract will include transition as needed and transformation initiatives the parties have agreed will achieve the objectives.
This contract is distinct from a contract that would result from a standard RFI/RFP process. It contains less defined services, RUs, volume baselines and SLAs and is more focused on partnership in which parties are committed to achieve goals, provide resources, have skin in the game and share benefits.
As this is, to a certain extent, a leap of faith, it underwrites the need for the market exploration to validate the fit and define what’s in it for both parties.
Accelerating Solution Design and Jumpstarting Sourcing Transitions
ISG’s FutureSource™ methodology is specifically designed to engage with providers in an early stage and to co-solution the services to be procured and contracted. At its core are six types of Collaboration Alignment Sessions (also known as CAS workshops) of which the last five are executed together with the providers. While progressing through the sequence of workshops, the number of providers engaged in the process is typically reduced to two to be engaged in the final commercial negotiations.
Figure 1: A Collaborative Method for Accelerating Solution Design, Alignment and Stakeholder Acceptance
6 Key Collaboration Alignment Sessions for Clients and Providers
- Outcome & Scope: The goal of the first workshop is to define the sourcing objectives or “positive outcomes” as they are referred to in FutureSource™. In this workshop, the client and ISG define the scope of a successful contract, taking the client’s readiness for change into account.
- Provider Scan: in the second workshop, the providers capabilities are compared to the outcomes and scope as previously defined. For the providers, this is an opportunity to enhance the understanding of what the client is aiming at and helps prepare them for the next sessions.
- Solution Preview: the goal of the third workshop is to align on first ideas for the solution and services as well as transition and transformation plans. It enables both parties to work together and get a feel for cultural fit and ways of working.
- Co-solutioning: the fourth workshop dives deeper into the solutioning and is therefore performed with a smaller number of providers, typically two to four depending on the trade-off between scope and investments to be made as opposed to the benefit of multiple options and views. These sessions iterate until the parties reach comfort and confidence in a commercially binding proposal.
- Walkthrough: the fifth workshop allows parties to review proposals. This way, any misunderstandings can be eliminated, and parties can negotiate terms, conditions and pricing. This is typically performed with the two remaining providers.
- Operational alignment: the last workshop brings together the key players that will be responsible to lead a successful transition and transformation. They align on objectives, relevant history, expectations, respective roles and responsibilities. This way, the roadmap for success is defined and accepted by parties as the path forward, so the transition can get underway.
About the author
Ton Dohmen brings more than 25 years of experience in information technology (IT) to ISG’s clients. His experience includes sourcing of IT services, infrastructure, cloud technology and service integration. He has supported numerous clients through various stages of the sourcing lifecycle, and worked with leading IT service providers to shape the deals in the interest of clients.