As organizations approach contractual milestones they face complex decision process governing whether they renew, re-source or bring in-house the services that are currently outsourced.
The decisions are especially complex where outsourcing arrangements have been running for extended periods of time, often for more than 10 years. In these instances, the knowledge of the activities, processes and data that is required for service delivery often resides exclusively with the existing outsourcing service provider (the incumbent).
However, this knowledge is precisely what an organization requires to assess its current situation and make optimum sourcing decisions. Moreover, it is often the case that incumbent service providers are reluctant to give up such information for they deem it to offer them a competitive advantage. Such an uncompromising position by an incumbent leaves organizations in a position where they must resource or in-source services, which they do not fully understand. This institutional knowledge loss results in an outsourced service that resembles a “black box” in which an organization has minimal knowledge of what services are delivered and how work is done.
Firms can overcome these obstacles and make effective sourcing decisions despite the lack of incumbent knowledge, by defining the right scope, leveraging the market, starting early and filling the gaps in service delivery.
Define Right Scope by Engaging Key Stakeholders
Recognizing that the services delivered by the incumbent are typically only a part of a wider business process, an organization must ensure that the assessment of services to source does not just replicate services covered by the existing contract. All parties engaged, including the incumbent provider, other third parties and internal groups, can determine the scope of services necessary to support the end-to-end process. Identifying all the key stakeholders will assist in understanding how the incumbent delivers services and the boundaries of its solution. If scope is not effectively defined then there is a danger that existing service delivery issues will simply be perpetuated in any new arrangement. The output of the scope assessment is a clear baseline that defines the technical, organizational and financial boundaries of the services required.
Look Externally and Leverage Market
Once the baseline is known and accurately defined, an organization can shift its attention toward the marketplace of alternative service providers to leverage best practice and industry insight. This industry-based insight can be derived through a comprehensive market assessment that covers the services, the service providers and their customers, including existing new sourcing models that exist. Understanding what the marketplace can offer an organization provides clarity into its own situation, especially as the market is continually changing.
The financial base case includes the current, ongoing costs of providing the complete end-to-end service, contrasted against the pricing found in the marketplace, and can be used to plot the incumbent provider’s relative position in terms of cost, capability, maturity and service-level performance. It is this overall assessment that will justify whether there is realized value for money being derived from the current contract and highlight the potential savings of a new contractual arrangement.
