While the traditional process of putting IT or business services out for request for proposal (RFP) is still the most well-worn – and dreaded – path for companies looking to partner with third-party sourcing providers, it isn’t as bad as it once was. In fact, it has gotten significantly better.
Here are ten ways the RFP process has improved over the last decade:
- The process has gotten faster. From start to finish, the RFP process takes significantly less time today than it did ten years ago. Enterprise buyers, sourcing advisors and service providers have all fine-tuned their processes, tools and templates, and the results have cut almost in half the time from RFP formulation to contract signing (on average from 12 months to six months). Some of the factors impacting time to contract include:
- RFP documentation now comes in standard templates
- Outsourcing buyers are pre-qualifying providers and applying their past experiences to determine a short list
- More collaboration early in the process helps clients get better solution designs earlier in the process
- Buyers are engaging with the provider teams during the RFP process, so they can better assess their company’s cultural fit with the provider
- Lawyers on both sides have codified major outsourcing terms and conditions, leaving fewer items for protracted negotiations.
- We have much better data now. Sourcing clients and incumbent providers now have data more readily available to incorporate into outsourcing agreements. Many enterprises have adopted improved tools and systems to track and maintain essential details about their IT environments, including asset inventories, configuration items, ticket volumes and service level performance – all metrics that help the RFP process move more quickly
- Assets are no longer being transferred. Not that long ago, some outsourcing contracts included changes in IT asset ownership (e.g. data centers) and even physical migrations of IT assets. This asset transfer complicated the transaction and burdened the deal economics. Today, due in part to significant growth in the as-a-service (aaS) model, in which assets are bundled with services providing improved value and convenience, asset transfer is no longer the norm. If a change in asset ownership is desired, this is now timed with the client’s asset refresh schedule, simplifying the change.
- Employee rebadging is a thing of the past. Once a hallmark of the outsourcing industry, rebadging is now in decline – and removing sensitive HR concerns from the process of signing with a provider has simplified and accelerated the RFP process. Factors driving this change include:
- As remote infrastructure management (RIM) has become pervasive, much of the monitoring and management work has migrated to lower-cost delivery centers
- As more functions have become automated, providers no longer need to assume a significant number of the clients’ in-scope employees
- Knowledge-transfer processes and tools have improved, making it easier to transfer work from a client to a provider without transferring people
- Service delivery models and cost efficiencies from providers have continually progressed to leverage scale, expertise, technology and tools while reducing headcount and the need to rebadge employees.
- Multi-sourcing has growing appeal. Many clients now in their third generation of outsourcing have embraced the multi-sourcing model, optimizing their IT services portfolio by leveraging multiple providers to support different functions (e.g. the service desk) or related groups of functions (e.g. data center, compute and storage). In this model, enterprises award managed services contracts to providers that show market leadership, expertise, best practices and competitiveness in a single tower, while the enterprises themselves retain the IT service management (ITSM) functions. This allows them to exert some control across service management, service integration and the ITIL processes used by multiple providers to coordinate the delivery of services.
- As-a-Service models and cloud computing are changing everything. Service models that bundle software, hardware platforms and services have become attractive and convenient options for clients. In 2018, software-as-a-service (SaaS) and infrastructure-as-a-service (IaaS) offerings accounted for over 39 percent of the total outsourced market total contract value (TCV), representing a 40 percent increase over 2017 as reported by the ISG Index. The second quarter ISG Index reported a further increase to almost 47 percent of TCV, driven primarily by a 28 percent increase in IaaS over a one-year period. Similarly, public, private and hybrid cloud computing models are maturing and have been widely accepted as the future of the enterprise computing platform. Business unit leaders are increasingly purchasing these services directly, bypassing IT.
- The duration of deals has shortened. The last 10 years have seen a gradual reduction in outsourcing deal terms, going from an average length of 4.3 years to 3.2 years, roughly a 25 percent reduction. Full IT outsourcing (ITO) agreements (covering all ITO towers) are 25 percent shorter than they used to be, now averaging 3.9 years. This reduction has been made possible by many of the factors mentioned above, which have decreased the time and cost to complete a transaction and transition services. Enterprises have also learned that they can maintain competitive tension by re-competing their managed services contracts more frequently. Shorter terms also allow sourcing buyers to re-negotiate (or fix) terms, pricing and service issues that have proven to be obstacles to achieving their business objectives.
- The scope of deals has narrowed. As organizations migrate to a multi-sourced services delivery model, they rely on more third parties to provide services. This means the total outsourcing spend is now being shared by a larger number of providers, each with a smaller piece of work. From 2009 to 2018, the average size of commercial infrastructure deals fell by 56 percent and the average size of ADM deals fell by 58 percent. The average size of all commercial deals declined 52 percent during the same period. As enterprises work with increasing numbers of providers, they must apply more energy and resources to governing and managing their outsourcing agreements. This is a challenge, and many clients have opted to seek help with governance services.
- Security has become imperative. The growing implications of a security or data breach have driven increased demand for enterprise-level security investments, policies and practices, including an expanding set of security requirements in outsourcing agreements. While most organizations have an enterprise-level security organization with established policies, processes and operating procedures, IT outsourcing and any outsourced IT security functions, including cloud computing, now require significant scrutiny and due diligence to ensure a secure operating environment. When organizations prefer to push the responsibility for IT security to a provider, they should carefully document requirements in a stand-alone security statement of work (SOW).
- Towers and services have been redefined. As technology and services have evolved, new towers, sub-towers and services have forced a restructuring of the traditional RFP design. Historically, the taxonomy of the SOW requirements incorporated all IT functions that consisted of five major IT towers: 1) end-user services (including service desk) 2) managed network services 3) data center services (including compute and storage) 4) application development and maintenance and 5) cross functional services. Today, more than 60 separate service towers have their own Statements of Work (SOW). Some newer entrants include collaboration services, mobility services, ServiceNow administration, service integration and management services, cloud management services, Microsoft 365 support services, project management services and termination assistance services – just to name a few. Enterprises today are more likely to customize their scope of services by picking the services from this SOW menu that fit their objectives and address concerns about their current outsourced services agreements.
ISG FutureSource™ is a unique and comprehensive sourcing solution that helps enterprises and public sector organizations evaluate their business requirements, identify desired outcomes, fast-track the provider identification and selection process, collaborate with providers on developing the right solution, get to a signed contract and transition operations faster than ever before. Contact us to find out we can help you design and negotiate the RFP process, so it results in the best possible outcome.
About the author
Ms. Horner has over 15 years of experience providing financial advisory services to ISG’s clients.For the past 19 years, Cindy has provided financial consulting to clients across multiple industries. Cindy is recognized as a reliable results-oriented team player with a commitment to client success. She has the ability to quickly assess complex issues and has a reputation for developing practical and creative solutions. Her clear and candid communication instills confidence at all organizational levels.