Many times clients start outsourcing process before they are ready. Premature outsourcing decisions sometimes are driven by executive decision that the outsourcing function will need to be completed by certain deadlines. This can cause lots of problem. Effective negotiation of any outsourcing deals requires clients to perform proper due diligence and gather necessary internal data before the outsourcing process starts. Such data could include scope of services required, current mode of operation, desired future mode of operation, historical service level performance, extent of employees impacted, third party contracts and current cost base.
Defining service requirements based on client’s own internal need is critical to any successful outsourcing relationship. Without reliable data, it will be very difficult to structure an outsourcing deal that will last. Surprisingly, many clients rush to issuing the RFP without having gone through internal due diligence or to gather the necessary data. Some clients rely on the service requirements proposed by suppliers which may not necessarily meet client’s need. When the internal data is not available or the quality of which is questionable, suppliers will be unwilling to commit and very often, the parties will be left with an agreement to agree in the outsourcing agreement. While an agreement to agree may be able to satisfy the imminent need of both parties to get the contract done, it offers very little protection to either party. It is certainly a no win situation from the client perspective. The transition is underway and if the parties could not agree on the undefined items, the parties will be in a dispute situation. This usually means that the parties will invoke dispute resolution mechanism and engage in lengthy negotiation which usually translates into project overtime and over budget. This is also a no win situation from the supplier perspective because recasting the solution is a costly exercise. Engaging in a dispute at such early stage is also very damaging from the relationship standpoint.
Having comprehensive service requirements at the very start of the process will minimize the chances that the service requirements will need to be renegotiated or recast at the eleventh hour due to insufficient or questionable data. Recasting or revising the service requirements usually means there will be a revision to the bid price. In order to have a meaningful comparison of various bids from different suppliers, client will need to articulate its requirements so that suppliers can price its solution based on a defined set of service requirements.
It is not an easy task for clients to gather internal data because the IT or operational processes of many client organizations may not be at the same standard as the top tier IT suppliers. While the internal due diligence may require lots of time and effort for clients, the result of the due diligence provides more extensive and reliable data upon which both client and supplier can rely to structure an outsourcing deal that will meet the need of both parties and produce a deal that will last.