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| Saturday, February 12, 2005 | |
| Reinventing RFPs | |
| Poorly done RFPs are common, and are a major reason for dysfunctional outsourcing deals. The solution isn't touchy-feely corporate therapy—it’s going back to the drawing board to improve the RFP-development process. | |
| Michael Fitzgerald | |
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Rick Nathanson is an outsourcing consultant who knows
firsthand what happens when a project goes awry: It almost cost him a
night’s rest in a hotel on an overseas trip. Nathanson was traveling at
the request of a client, and slated to stay at a hotel that happened to
have outsourced its call center. The hotel could not give him his client’s
corporate rate, even though the clerk tried to get it for him. Nathanson
called the hotel’s customer-support number, which had been outsourced to a
center in Ireland. The woman at the call center did not have access to the
system she needed to help Nathanson with his problem. At least, Nathanson
suspects she didn’t have access—language and speech differences made it a
challenge for them to communicate.
“Getting the other person to
understand you is a big deal, and it’s part of the due diligence process,”
Nathanson says. It was apparent that the hotel had done a bad job of
checking out its outsourcer, but also had failed to make sure that its
systems were connected tightly to a process--something Nathanson says is
common when going offshore.
The point is not that outsourcing
consultants run into trouble, it’s that because of a poorly executed
outsourcing plan, a company had botched the job. And people in the
outsourcing business say that problem deals start with incomplete
RFPs.
Poorly done RFPs are common, and are a major reason for
dysfunctional outsourcing deals. The solution isn’t touchy-feely corporate
therapy—it’s going back to the drawing board to improve the
RFP-development process. That’s sensible, considering that RFPs constitute
nearly half of the sourcing process.
The obvious differences
between domestic and offshore-outsourcing RFPs stem from sharply different
time zones, cultures, and geographic regions—all of which require
substantial resource adjustments and tighter governance. Where
IT-outsourcing projects are generally familiar to IT professionals,
business-process outsourcing (BPO) deals often mean putting people in
charge of projects who have not dealt with outsourcing overseas. Also,
where outsourcing contracts in the U.S. often entail shifting
responsibility for an entire department or function to another company,
most offshore-outsourcing deals involve piecework—such as a set of
applications to build or maintain.
Yet, outsourcing a process,
rather than a discrete application, forces companies to adopt a more
complex sourcing strategy. Because BPO deals often combine multiple
departments, or involve customers and suppliers, a company outsourcing a
business process has to treat its provider as more of a partner than a
vendor. That means taking a more hands-on approach, and devoting more time
and personnel to establish and maintain a good, long-distance working
relationship. The RFP is a good place to begin establishing compatibility
with a potential partner.
In addition, even those companies that
have long-practiced offshore outsourcing must consider the impact of two
major changes in the offshore outsourcing market:
Intense pressure in the U.S. to move functions offshore (or at least
to explore it) has changed the market for offshore providers, especially
in India. They are fighting for talent, and that means both wage
increases and attrition issues. To protect their margins, and to just
plain get things done, Indian firms are increasingly subcontracting work,
sometimes to firms in China or the Philippines. So, U.S. firms must use
RFPs to wring out information such as hiring and attrition rates, which
can signal whether the work will be done well, or in a timely fashion, or
how a provider would scale its services to meet projected growth. RFPs
also have to spell out intellectual-property issues clearly—U.S
companies simply can’t afford to be unaware that their IP is being sent to
a place without good legal protections.
BPO deals require much more due diligence than traditional outsourcing
deals. For one thing, there’s the awkward adolescent problem: The BPO
market is immature, and both vendors and customers are still feeling
their way through these deals. Then there’s the snowflake problem:
Unlike IT deals, which tend to involve well-known tasks, each BPO deal is
unique. Even a company that has a successful BPO deal can’t count on
using the same RFP as a boilerplate for a different process. In fact,
companies may not understand a specific process well enough to clearly
explain what they need as part of their RFP. They need to do due diligence
on themselves, as well as potential vendors. In this environment, a good
RFP can make the difference between a smooth transition to offshoring and
a lengthy, frustrating, and quite possibly failed project.
So,
here’s the Managing Offshore corporate therapy session you need to
get ready for offshore outsourcing.Id,
Ego, and BPO
First, don’t look at offshore outsourcing as
business pixie dust. Such fantasies will cost you. That’s less obvious
than it sounds. Joel Carter, chief operating officer at Secova, Inc., a
human-resources outsourcing firm, says he’s amazed how often companies
send out an RFP because “the boss read an article on the plane last week
and said, ‘outsourcing is a good idea. We should be doing
it.’”
Secova specializes in BPO. But the same refrain sounds
familiar to companies engaged in IT outsourcing. IT outsourcing
engagements tend to have a performance element that can be measured. This
helps greatly in defining the project and helping vendors to set goals and
responses. It also generates a clear set of tasks that need to be
achieved. IT deals are often “siloed” in a specific department, which also
reduces the complexity of the task. BPO deals, as we shall see, are
inherently more troublesome, even when they involve measurable
transactions.
Still, there are plenty of mistakes besides “the boss
said so” that affect RFPs for both IT and BPO:
No statement of the work needed. It sounds laughable, but
Secova’s Carter says he’ll get RFPs that go for 100 pages and never say
what they’re for.
A muddled and scattered set of requirements. Niraj Deo, a relations
manager at Tata Consultancy Services, say it’s a “common” occurrence
for TCS to get lengthy RFPs with a poorly defined customer request. The
information may be in the document, scattered about throughout it. He
says, drily, that “it’s difficult for a vendor to do justice to
that.”
Unrealistic expectations. Dean Davison, an analyst at Meta
Group (soon to be Gartner Inc.) says corporations often aren’t honest
with themselves about what they should be able to get. “I can’t tell you
the number of times some company has told me that it’s totally screwed up
internally, but they want their vendor to provide world-class service and
have it cost the same. That’s impossible,” he says.
The result of such sloppiness:
Confused vendors generate responses that vary wildly on both service
and cost fronts. This makes it more difficult to compare them and see
which one is truly best for your company.
The best vendors may opt out of the bidding process entirely. A
poorly done RFP can signal that a company will be difficult to work with
and will wind up being a huge headache, unprofitable or both. Some vendors
may just opt out entirely.
Generally slower response times, and likely more time needed to
complete the project than you want.
An increased chance that the project will either fail or will not
deliver the hoped-for shot-in-the-arm.Some simple actions to avoid
these issues can be things like making sure the person in charge of the
RFP process is a sourcing expert or is savvy enough to hire an advisory
firm to validate the effort. Secova’s Carter says BPO RFPs put together
with help from an adviser are typically far better than even those put
together by large companies (he notes that they tend to be thicker, too,
since consultants will pad their documents with questions, so the client
feels like it got its money’s worth).
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Sourcing
For this report,
we examined request for proposal
(RFP) documents supplied to us by several sources, including Renodis
and Meta Group. We also looked at several requests for information
(RFIs) documents and an information checklist that Renodis uses to
help its corporate customers prepare for RFIs. A major factor to
consider is that RFPs for IT outsourcing contracts do not constitute
adequate discovery tools for business-process outsourcing deals.
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Carter,
who in a previous life was an
outsourcing consultant, recommends a four-step program to prepare for BPO
outsourcing (these work for ITO as well).
1) Define what it is you
need;
2) Develop the solution you’d like;
3) Determine your business
case for it;
4) Know how you will implement the program.
These
sound simple, and for many IT outsourcing deals, the answers might be
straightforward. But when it comes to BPO, think of these questions as a
kind of outsourcing Zen—simple doesn’t equal easy.
Each BPO deal
has its own reality. There are no templates for BPO deals. They
will vary from company to company, and within a company. Defining the
scope of the project and mapping the process most likely means co-opting
people from several groups across an organization, and not all may feel
outsourcing is a priority for them.
Ask questions like these to
help define the process:
Are you looking to an offshore outsourcer to save money? Then
understand why you can’t cut the costs on your own.
Are you looking to do a better job with a certain process? Understand
why it isn’t working.
Are you aiming to slough off functions in order to focus on other
parts of the business? Know how those functions affect the rest of your
operation.
Nathanson, the outsourcing adviser, recommends that
firms go through a detailed due-diligence process on their own operations
before they even begin discussion with vendors. They must understand what
elements of the process involve which other parts of their organization,
and where they involve companies outside of the organization. It may be
helpful to spend some time in India or elsewhere talking to potential
vendors about how they work.
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