Lean RFP

I get asked quite often how lean and/or agile practices apply to the area of sourcing within an enterprise. My answer, not meaning to be sarcastic, is usually to say “as lean and agile as possible”.

In other words, many of the same disciplines and practices that make great teams also make traditional sourcing processes much better. One of my favorite examples involves a global telco that historically took 90 days on average to generate an RFP for a large project and get it to their select group of service providers.

While this may sound like a long time I believe if you inspected the process for many large enterprises you would find something similar. The process involves requirements gathering, legal/procurement input, vendor selection and budgeting. Most companies use an RFP template that contains sections that have not been changed or updated in years.

Many of the questions relate to the operational and technical depth of the service provider including customer experience and case studies.

Few of the questions are meant to draw out the service provider’s business value as it relates to performing the work or whether their understanding of the business objectives are as good as the customer’s. This is not entirely the fault of the service provider.

It stems back to how traditional RFP processes work. To put it simply, most organizations that issue an RFP don’t view the service provider as a partner, someone with vested interest but rather as a vendor, someone to perform the work, therefore the effort to draw out the real value of the engagement and to the business is often neglected and there is more focus on “ticking the box” for the right technical skills, geographies and other sourcing characteristics.

So where does the lean and agile thing come in? Applying CVA (Customer Value Analysis, discussed in an earlier post) at the forefront of the project definition and RFP in order to extract the right set of priorities and what they are really worth is something that allows for good planning.

Additionally this client example employed user stories as a tool to bring specific definition around the actual needs and acceptance criteria for the engagement. This approach coupled with the CVA exercise brought out prioritization and value aligned between business and IT and more importantly, forced the vendors to consider their response much differently and have to address how they would bring value, competitive advantage, address key drivers, measure value in a quantitative way and prove that the engagement would be successful along it’s journey.

This Lean RFP approach shortened the lifecycle of the RFP production but it also shortened the list of possible vendors capable to respond. It also shortened the time it took to review and makes decisions on which vendors to consider. Therefore the entire process proved to shorten the cycle of selection and initiation all while bringing a greater level of understanding on value that was previously missing.

By the way, the calculated cost savings in this example represented nearly 15% of the project cost proving economic value just in the RFP process alone.

The Optimum Sourcing Model

Organizations turn to outsourcing their IT related needs for various reasons but few understand the different models available to them and typically arrive at their strategy through the recommendation of an employee, some analyst research or a previous experience. This is not to infer that any of those vehicles are the wrong way to decide but they are usually only a part of the whole evaluation process.

Recently a large global enterprise looking to “save money” turned to an outsourcing strategy and decided that establishing what is known as a Captive would be the best option. This decision was made solely on the desire to own the resources vs. leveraging a relationship with a service provider. The company believed that the Captive would offer them more control, better cost management and the ability to embed their “way of doing things” into this offshore center.

Once the decision was made the execution became the challenge. How do you best source the people and from whom? Which geography makes the most sense from a scale and skills perspective? How do you best identify the right facility and coordinate with local government and business organizations? There are lots of questions to answer and even with the answers in hand, validating the right model is still a necessary task.

There are five outsourcing models that organizations need to consider and when they believe they have selected the right one they then need the right organization to help them pull it together seamlessly. While you might be familiar with these models, a refresh is always a good idea even if it is just for the sanity check to ensure you’ve “ticked the box”. These models include:

1. Captive: a company’s owned shared service center which involves:
   • Large investment of time, money and effort
   • Large management commitment
   • High risk without local relationships, knowledge
   • High reward possible to maximize value
   • Opportunistic to build internal sourcing model
2. Joint Venture: an offshore center co-owned by you and another partner involving:
   • Shared costs and complexity to setup and maintain
   • Leverage of extended skills, domain experience, relationships
   • High risk/reward model that is shared, lessening the burden
   • Opportunity to leverage partners knowledge
3. BOT (Build, Operate, Transfer): an offshore center managed by a partner that includes an option to buy the team:
   • Opportunistic when a firm wants to retain control but lacks local knowledge, relationships
   • Good option to “buy-in” at a good pace to prove the relationship while maintaining commitment
   • Pre-cursor to a Captive facility
   • Good option when the vendor lacks domain experience and there is a need to build that into the relationship
4. Facilities Management: an offshore center owned by you but all facilities operated by a third party:
   • Similar to BOT model but includes upfront investment to fund and operate the center and all related costs
   • Good option is there is a viable business case completed to validate the need for a Captive
   • High risk involving third party selected to manage facilities
5. Outsourced: perhaps the best known model and most used:
   • Excellent sourcing strategy/capabilities needed
   • Vendor and Contract management skills, tools and processes must be present
   • High risk due to lack of ultimate control of vendor
   • High reward by leveraging multiple vendors, geographies

With all of these models we could argue pros and cons but what often goes undone is the right level of business case analysis, risk assessment and value prioritization in selecting the right model. Choose a model then choose to plan well and if you have selected a model that you are deep into then investment in getting external validation on how it is actually performing both for your organization and as a benchmark with peer companies.