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Page 1Confidential - Not For Distribution
Strategic Advisorsfor the Global Economy
Outsourcing Vendor Selection Best Practices
April 21, 2011
Page 2Confidential - Not For Distribution
Topics
• Avasant Background
• Vendor Selection - Avasant Key Lessons Learned
• Sourcing Lifecycle Overview
• Overview of Sourcing Strategy and Its Impact on the Vendor Selection Process
• Outsourcing Vendor Selection Steps and Best Practices
• Q&A
Page 3Confidential - Not For Distribution
Avasant Background
Based in Los Angeles, California, Avasant experts have performed over 1,000 engagements since 2001 across 40+ countries within three primary disciplines: Enterprise Optimization, Sourcing Advisory and Globalization Advisory services
Avasant Headquarters
Avasant Offices & Client Locations
• Enterprise Optimization – Avasant assists organizations with managing critical internal IT and Operations initiatives to drive efficiency and effectiveness of service delivery, capabilities acquisition and optimal cost savings
• Sourcing Advisory – Avasant assists public and private sector clients with navigating the complex transaction lifecycle of securing critical IT , Operations and Analytics managed services from global Tier 1 – 3 service providers by leveraging best practice contracts, service level frameworks and financial analysis
• Globalization Advisory – Avasant assists the governments and the supporting provider ecosystem of emerging markets with targeted economic development solutions designed to foster job growth, education, policy optimization, infrastructure development and global market awareness
Enterprise OptimizationServices
Sourcing Advisory Services
Globalization Advisory Services
Page 4Confidential - Not For Distribution
IAOP World’s Best - Avasant has also been the recipient of several awards for excellence in Management Consulting and Sourcing Advisory. Avasant has been designated among the “World’s Best Outsourcing Advisors” by the International Association of Outsourcing Professionals (IAOP) in 2009, 2010 and for 2011.
Avasant Background (cont’d)
Within Avasant’s primary disciplines: Enterprise Optimization, Sourcing Advisory and Globalization Advisory; are comprehensive solutions sets which have been hailed across the industry in recent years
Avasant Ranks as the #1 Global
Sourcing Advisor for BPO and as a
TOP Ranked ITO Advisor . . .
1. Avasant
2. Hackett Group
3. Nelson Hall
4. Everest Group
5. Gartner
6. PricewaterhouseCoopers
7. TPI
8. PA Consulting
9. KPMG
10. McKinsey
1. Avasant 1. Avasant
2. neoIT
3. TBI
4. Equaterra
5. TPI
6. NelsonHall
7. PA Consulting
8. PricewaterhouseCoopers
9. AT Kearney
10. Global Equations
1. Avasant
20092008
Page 5Confidential - Not For Distribution
Avasant Background (cont’d)
Underlying comprehensive Avasant Solutions are industry-facing experts, proprietary tools and best practices methodologies steeped in requisite IT, Operations & Analytics domain knowledge
Sourcing Advisory Services
IT Operations & Business Processes Research & Analytics
o IT Help Desk
o Desktop
Support
o Data Center
Operations
o Server &
Storage
Management
o Network Ops
o Voice Services
o Application
Development
o Application
Maintenance
o ERP Systems
o Co-Location
o Source to Pay
o Sourcing
Support
o Supplier
Research
o Supplier
Training
o Contract Mgt.
o Market
Intelligence
o Procurement
Analytics
o Spend
Analysis
o Performance
Reporting
o Procure to Pay
o Order to Cash
o Record to
Report
o AP/AR
o Collections
o Fixed Assets
o Treasury
o Cash Mgt.
o Financial
Planning
o Analytics
o Tax &
Compliance
o Expense Mgt.
o Recruitment
o Compensation
o Performance
Evaluation
Management
o Workforce
Management
o Benef its
Administration
o Training
o Payroll
o Employee Data
Management
o Travel
Management
o Customer
Service
o Customer
Relations
o Customer
Acquisition
o Operations
Support
o CRM Support
o Outbound
Telemarketing
o Specialty Help
Desk
o eCommerce
o Forecasting
o Sales &
Operations
Planning
o Capacity &
Demand
Planning
o Sequencing
& Scheduling
o Distribution
Planning
o Logistics &
Transport
o Data
Management
o Business
Intelligence
o Market
Research
o Insurance
o Financial
Services
o Industry
Analytics
o Consumer
Goods
Analytics
o Marketing
Support
o Law Firm Back
Off ice
o Corporate
Legal
o Document
Review
o Intellectual
Property
o Contract
Management
o Compliance &
Regulatory
Management
Finance &Accounting
HRCustomer
ManagementSupply Chain & Logistics
ITKnowledgeProcessing
LegalProcessing
Procurement
End-to-End Solution Lifecycle Management
Strategy Development
Transition & Transformation Management
Transaction Management
Risk Management
ChangeManagement
Enterprise Optimization Services
EnergyEngineering & Construction
Financial Services
Life Sciences Manufacturing High Technology RetailPublic Sector
Industry Focus & Expertise
Page 6Confidential - Not For Distribution
Vendor Selection - Avasant Key Lessons Learned
• The sourcing lifecycle phases of strategy, vendor selection, transition and ongoing management must be tightly integrated
• The vendor selection process begins with a well defined sourcing strategy
• The vendor selection process must address all expectations of the future client/vendor relationship (services, SLAs, legal and regulatory requirements, level of scope flexibility etc.)
• The vendor selection process should be as interactive as possible
• There is an increasing number of vendors and services solutions but the fundamentals of vendor selection remain the same
Page 7Confidential - Not For Distribution
The recommendations and best practices covered in this Webinar are based on Avasant’scomprehensive sourcing methodology that has supported cross-industry operations and IT initiatives such as Shared Services, Consolidation, Transformation or Managed Services. An outsourcing approach that is comprehensive and that addresses the full sourcing lifecycle in an integrated way helps to ensure long-term successful vendor/client relationships.
Sourcing Advisory ServicesFull Lifecycle Methodology
SHARED SERVICES &
CONSOLIDATIONPLANNING
DEVELOPCHARTER &
ORG MODEL
INITIATE MANDATE &
PROGRAM FRAMEWORK
DETERMINE TARGET
PROCESSES & ACTIVITIES
DEFINE STAFFING
MODEL & POSITIONS
IDENTIFY TECHNOLOGY
ENABLEMENT REQS
VERIFY FUNDING &
FINANCIAL DISCIPLINE
CREATE METRICS &
PERF MGMT DISCIPLINE
RATIFY MODEL &
EXECUTION ROADMAP
PHASE 2: PREPARATION
PHASE 3: IMPLEMENTATION AND MANAGEMENT
GATHER INFORMATION
& STRATEGY DRIVERS
CONFIRM TARGET
SCENARIOS &
OPPORTUNITIES
ANALYZE OPERATIONS,
MANAGEMENT &
TECHNOLOGY
DEVELOP COMPARATIVE
FINANCIAL MODEL
COMPARE TARGET
SCENARIOS & ANALYZE
RISKS
FINALIZE SERVICE
DELIVERY STRATEGY
DEVELOP SERVICE
STRATEGY ROADMAP
PHASE 1: STRATEGY
ASSESS MARKET
MATURITY & SERVICES
FIT
SOURCING TRANSACTION
EXECUTION
CONDUCT PROVIDER
MARKET SCAN
CONFIRM STRATEGY &
COLLECT BASELINE
REQS
PREPARE SOWs,
CONTRACT TERMS & KEY
SCHEDULES
PREPARE RFP BID PACKAGE
& SCORING MODEL
MANAGE PROVIDER
SELECTION PROCESS
FACILITATE DUE
DILIGENCE
PREPARE NEGOTIATION
STRATEGY
NEGOTIATE FINAL
CONTRACT TO
EXECUTION
RFP RELEASE GATE CONTRACT APPROVAL GATE
FACILITATE RISK &
CHANGE MANAGEMENT
DEVELOP DETAILED
TRANSITION /EXECUTION
PLAN
VALIDATE CRITICAL
DELIVERBLES & MILESTNS
VERIFY PERFORMANCE
MEASURMENT & REPORTING
VERIFY FINANCIAL
PROCESSES & BILLING
DEFINE SERVICES
MGMT & GOVERNANCE
CONFIGURE
AvaSenseTM
SUPPORT
TOOL
PERFORM SERVICES
MGMT HEALTH
CHECKS
IMPLEMENTATION & TRANSITION SUPPORT SERVICES MANAGEMENT
CREATE INITIATIVE
PROGRAM OFFICE
MGT
CHKPT
Page 8Confidential - Not For Distribution
Strategic Advisorsfor the Global Economy
Outsourcing Vendor Selection Best Practices
Overview of Sourcing Strategy and Its Impact on
the Vendor Selection Process
Page 9Confidential - Not For Distribution
Sourcing Strategy OverviewGather Information & Strategy Drivers andConfirm Target Scenarios & Benefits
· Reduce cost
· Reduce operational risk and focus on core competencies
· Deliver services in new regions
· Speed up time to market
· Reduce geographical risk
· Transform how services are delivered
What are the key strategic drivers that will guide the sourcing strategy and ultimately the field of vendors that will participate in the vendor selection process? For example:
PHASE1:SOURCING STRATEGY
CONFIRM TARGET
SCENARIOS & BENEFITS
GATHER INOFRMATION
& STRATEGY DRIVERS
DEVELOP COMPARATIVE
FINANCIAL MODEL
ANALYZE OPERATIONS
MANAGEMENT &
TECHNOLOGY
ASSESS MARKET
MATURITY & SERVICES
FIT
COMPARE TARGET
SCENARIOS & ANALYZE
RISK
FINALIZE SERVICE
DELIVERY STRATEGY
DEVELOP SERVICE
STRATEGY ROADMAP
Based on the strategic drivers what service models are available and are there vendors in the marketplace that support each model? For example:
· Shared services
· Managed services
· SaaS, public cloud, private cloud services
· Single vendor/multiple vendors
Page 10Confidential - Not For Distribution
What is our cost baseline that will be used to compare vendor proposed costs? What is the potential market cost for each plausible sourcing scenario?
PHASE1:SOURCING STRATEGY
CONFIRM TARGET
SCENARIOS & BENEFITS
GATHER INOFRMATION
& STRATEGY DRIVERS
DEVELOP COMPARATIVE
FINANCIAL MODEL
ANALYZE OPERATIONS
MANAGEMENT &
TECHNOLOGY
ASSESS MARKET
MATURITY & SERVICES
FIT
COMPARE TARGET
SCENARIOS & ANALYZE
RISK
FINALIZE SERVICE
DELIVERY STRATEGY
DEVELOP SERVICE
STRATEGY ROADMAP
Sourcing Strategy Overview Develop Comparative Financial Model
Outsource Scenario Capital Year 1 Year 2 Year 3 Year 4 Year 5 5-Year Total
Total Vendor Charges 130,000$ 1,848,180$ 1,918,800$ 2,353,800$ 2,693,400$ 2,863,800$ 11,677,980$
Total Retained Operation Expenses -$ 2,895,792$ 3,000,000$ 3,100,000$ 3,300,000$ 3,500,000$ 15,795,792$
Vendor Management Function 92,409$ 95,940$ 117,690$ 134,670$ 143,190$ 583,899$
Total Expenses 4,836,381$ 5,014,740$ 5,571,490$ 6,128,070$ 6,506,990$ 28,057,671$
Income Taxes Paid (1,257,459)$ (523,832)$ (642,587)$ (735,298)$ (781,817)$ (3,940,994)$
Total Expenses (After-Tax) 3,578,922$ 1,490,908$ 1,828,903$ 2,092,772$ 2,225,173$ 11,216,677$
Operations Cash Flow for Argo (3,578,922)$ (1,490,908)$ (1,828,903)$ (2,092,772)$ (2,225,173)$ (11,216,677)$
Non-Cash Expenses
Depreciation 424,334$ 600,000$ 600,000$ 600,000$ 600,000$ 2,824,334$
Capital Paid 130,000$ 130,000$
Net Cash Flow (After-Tax) 130,000$ (3,154,588)$ (1,490,908)$ (1,828,903)$ (2,092,772)$ (2,225,173)$ (10,662,343)$
NPV ($9,525,413)
$7,487$6,706
$5,829
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
An
nu
al $000's
Current Cost Market Price Mkt w/Max
Offshore
Leverage
Cost / Pricing Scenarios
Cost / Pricing Comparison - Total
$26
$24
$22
$20
$18
$16
Client Base Case W/O Change
Stradling Projected Pricing
Service Provider “X” Pricing
Service Provider “Y” Pricing
Service Provider “Z” Pricing
2008 2009 2010 2011 2012
$ 22.4
$ 19.5
$ 20.2
$ 19.2
$ 18.3
$ 23.4
$ 19.8
$ 20.2
$ 16.2
$ 16.7
$ 24.5
$ 20.0
$ 17.8
$ 15.0
$ 15.4
$ 25.8
$ 20.3
$ 16.6
$ 14.2
$ 15.2
$ 27.1
$ 20.5
$ 16.2
$ 13.6
$ 15.5
ProjectedSavings
(25% - 37%)
Totals
$123.2
$100.1
$ 78.2
$ 91.0
$14
$28
$12
$ 81.1
Client Base Case
Range of
ActualSavings
(15% - 18%)
Outsource Scenario Capital Year 1 Year 2 Year 3 Year 4 Year 5 5-Year Total
Total Vendor Charges 130,000$ 1,848,180$ 1,918,800$ 2,353,800$ 2,693,400$ 2,863,800$ 11,677,980$
Total Retained Operation Expenses -$ 2,895,792$ 3,000,000$ 3,100,000$ 3,300,000$ 3,500,000$ 15,795,792$
Vendor Management Function 92,409$ 95,940$ 117,690$ 134,670$ 143,190$ 583,899$
Total Expenses 4,836,381$ 5,014,740$ 5,571,490$ 6,128,070$ 6,506,990$ 28,057,671$
Income Taxes Paid (1,257,459)$ (523,832)$ (642,587)$ (735,298)$ (781,817)$ (3,940,994)$
Total Expenses (After-Tax) 3,578,922$ 1,490,908$ 1,828,903$ 2,092,772$ 2,225,173$ 11,216,677$
Operations Cash Flow for Argo (3,578,922)$ (1,490,908)$ (1,828,903)$ (2,092,772)$ (2,225,173)$ (11,216,677)$
Non-Cash Expenses
Depreciation 424,334$ 600,000$ 600,000$ 600,000$ 600,000$ 2,824,334$
Capital Paid 130,000$ 130,000$
Net Cash Flow (After-Tax) 130,000$ (3,154,588)$ (1,490,908)$ (1,828,903)$ (2,092,772)$ (2,225,173)$ (10,662,343)$
NPV ($9,525,413)
$7,487$6,706
$5,829
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
An
nu
al $000's
Current Cost Market Price Mkt w/Max
Offshore
Leverage
Cost / Pricing Scenarios
Cost / Pricing Comparison - Total
$26
$24
$22
$20
$18
$16
Client Base Case W/O Change
Stradling Projected Pricing
Service Provider “X” Pricing
Service Provider “Y” Pricing
Service Provider “Z” Pricing
2008 2009 2010 2011 2012
$ 22.4
$ 19.5
$ 20.2
$ 19.2
$ 18.3
$ 23.4
$ 19.8
$ 20.2
$ 16.2
$ 16.7
$ 24.5
$ 20.0
$ 17.8
$ 15.0
$ 15.4
$ 25.8
$ 20.3
$ 16.6
$ 14.2
$ 15.2
$ 27.1
$ 20.5
$ 16.2
$ 13.6
$ 15.5
ProjectedSavings
(25% - 37%)
Totals
$123.2
$100.1
$ 78.2
$ 91.0
$14
$28
$12
$ 81.1
Client Base Case
Range of
ActualSavings
(15% - 18%)
Page 11Confidential - Not For Distribution
What is the baseline of our operational capabilities, management capabilities and technology? Where do we want to go, what is the gap, and what will be required of us and our vendor(s) to help us get there?
PHASE1:SOURCING STRATEGY
CONFIRM TARGET
SCENARIOS & BENEFITS
GATHER INOFRMATION
& STRATEGY DRIVERS
DEVELOP COMPARATIVE
FINANCIAL MODEL
ANALYZE OPERATIONS
MANAGEMENT &
TECHNOLOGY
ASSESS MARKET
MATURITY & SERVICES
FIT
COMPARE TARGET
SCENARIOS & ANALYZE
RISK
FINALIZE SERVICE
DELIVERY STRATEGY
DEVELOP SERVICE
STRATEGY ROADMAP
Sourcing Strategy Overview Analyze Operations Management & Technology
Incident Management
Problem Management
Availability Management
Configuration Management
Change Management
Release Management
IT Service Continuity Mngement
Service Desk
Capacity Management
Service Level Management
IT Financial Services Mgt.
Compliance RatingOperational Processes
Fails Meets Exceeds
Enterprise Database
Storage
Mainframe
Application Server
Application Server OS
Server Virtualization
Physical Environment
None 100%
Best Practice ComplianceElement
Data Center Architecture
Sourcing Program Management
Transition Management
Sourcing Mgt & Governance
Relationship Management
Performance Management
Delivery Demand Mgt
Contract Management
Finance Management
Compliance & Risk Management
License Management
Compliance RatingKey Deal Mgt Process
Fails Meets Exceeds
Page 12Confidential - Not For Distribution
Based on strategic drivers, sourcing scenarios and requirements, who are the most appropriate vendors available in the marketplace? It is often helpful to conduct informal vendor solution presentations with a select group of vendors prior to the RFP to assist in refining strategies, requirements and RFP participants.
Sourcing Strategy Overview Assess Market Maturity & Services Fit
PHASE1:SOURCING STRATEGY
CONFIRM TARGET
SCENARIOS & BENEFITS
GATHER INOFRMATION
& STRATEGY DRIVERS
DEVELOP COMPARATIVE
FINANCIAL MODEL
ANALYZE OPERATIONS
MANAGEMENT &
TECHNOLOGY
ASSESS MARKET
MATURITY & SERVICES
FIT
COMPARE TARGET
SCENARIOS & ANALYZE
RISK
FINALIZE SERVICE
DELIVERY STRATEGY
DEVELOP SERVICE
STRATEGY ROADMAP
113123Ranking
45 45 37 45 40 37 Weighted Score
61.061.060.061.055.052.0Total Score
3.04.04.04.05.03.03Business Process Outsourcing
5.05.05.05.03.05.01Offshore Applications (Development and Maintenance)
5.05.04.05.02.04.03Offshore IT Infrastructure
4.04.03.04.05.05.02Geographic Delivery Capabil ities (NA Only)
5.05.03.05.04.04.02Management Practices, Methodology, Quality
3.02.04.04.01.01.01Pricing and Resource Weighting
4.05.03.03.04.05.02Retention Rate / Resourcing
3.02.04.04.02.01.01Contract F lexibili ty
4.03.05.04.03.01.02Flexibility & Adaptability
4.05.03.04.05.05.01Contract Management Capabil ities
4.05.02.04.04.02.01Customer Satisfaction
5.04.02.04.05.05.01Financial Stabilit y
4.04.02.04.05.05.03Green Power Management Systems
3.03.03.03.03.03.03Green Data Center
5.05.03.04.04.03.01Strategic Plan & Vision
Selection Criteria*
Score SummaryHistoric Market Perspective
113123Ranking
45 45 37 45 40 37 Weighted Score
61.061.060.061.055.052.0Total Score
3.04.04.04.05.03.03Business Process Outsourcing
5.05.05.05.03.05.01Offshore Applications (Development and Maintenance)
5.05.04.05.02.04.03Offshore IT Infrastructure
4.04.03.04.05.05.02Geographic Delivery Capabil ities (NA Only)
5.05.03.05.04.04.02Management Practices, Methodology, Quality
3.02.04.04.01.01.01Pricing and Resource Weighting
4.05.03.03.04.05.02Retention Rate / Resourcing
3.02.04.04.02.01.01Contract F lexibili ty
4.03.05.04.03.01.02Flexibility & Adaptability
4.05.03.04.05.05.01Contract Management Capabil ities
4.05.02.04.04.02.01Customer Satisfaction
5.04.02.04.05.05.01Financial Stabilit y
4.04.02.04.05.05.03Green Power Management Systems
3.03.03.03.03.03.03Green Data Center
5.05.03.04.04.03.01Strategic Plan & Vision
Selection Criteria*
Score SummaryHistoric Market Perspective
Weig
hti
ng
Prov
ider
1
Pro
vid
er
2
Pro
vid
er
3
Pro
vid
er
4
Pro
vid
er
5
Pro
vid
er
5
Page 13Confidential - Not For Distribution
Based on strategic drivers, operational-management-technology impact, cost and risks what is the model we will go forward with? What will be our vendor selection approach, participating vendors and additional requirements to be addressed in the vendor selection process (e.g., risk mitigation requirements).
PHASE1:SOURCING STRATEGY
CONFIRM TARGET
SCENARIOS & BENEFITS
GATHER INOFRMATION
& STRATEGY DRIVERS
DEVELOP COMPARATIVE
FINANCIAL MODEL
ANALYZE OPERATIONS
MANAGEMENT &
TECHNOLOGY
ASSESS MARKET
MATURITY & SERVICES
FIT
COMPARE TARGET
SCENARIOS & ANALYZE
RISK
FINALIZE SERVICE
DELIVERY STRATEGY
DEVELOP SERVICE
STRATEGY ROADMAP
Sourcing Strategy Overview Compare Scenarios, Analyze Risks and Finalize Strategy
Sourcing Ability to Improve:
Servers
Network Desktop Help Desk
App Dev
App Maint
Comp & Benefits
Recruit Payroll Train Procure Accts Payable
1. Scalability
2. Cost (1)
3. Cost Variability
4. Service
5. Risk Profile
6. Meet Current Requirements
7. Future Requirements
Sourcing Ability to Improve:
Servers
Network Desktop Help Desk
App Dev
App Maint
Comp & Benefits
Recruit Payroll Train Procure Accts Payable
1. Scalability
2. Cost (1)
3. Cost Variability
4. Service
5. Risk Profile
6. Meet Current Requirements
7. Future Requirements
CategoryAvg Comp
(AC)
Wt % High
RiskAC*WHR%
Com 3.1 3% 3.2
Fin 3.4 15% 3.9
Legal 2.9 3% 3.0
Peo 3.3 13% 3.7
Perf 3.5 15% 4.0
Sec 2.8 0% 2.8
Tech 3.1 3% 3.2
Trans 3.4 13% 3.8
Lo Med Hi
1 5Le
ge
nd Lo Med Hi
1 5
Lo Med Hi
1 5Le
ge
nd
New Model – Scenario A
Status Quo
0
1
2
3
4
5
Legal Risk
Financial
Risk
Security Risk
Transition Risk
Communication
Risk
Performance Risk
Technology Risk
People Risk
New Model – Scenario B
Page 14Confidential - Not For Distribution
PHASE1:SOURCING STRATEGY
CONFIRM TARGET
SCENARIOS & BENEFITS
GATHER INOFRMATION
& STRATEGY DRIVERS
DEVELOP COMPARATIVE
FINANCIAL MODEL
ANALYZE OPERATIONS
MANAGEMENT &
TECHNOLOGY
ASSESS MARKET
MATURITY & SERVICES
FIT
COMPARE TARGET
SCENARIOS & ANALYZE
RISK
FINALIZE SERVICE
DELIVERY STRATEGY
DEVELOP SERVICE
STRATEGY ROADMAP
Sourcing Strategy Overview Develop Service Strategy Roadmap
What will be our roadmap for the vendor selection process and transition to vendor services? The RFP should contain key requirements from the roadmap and the vendors’ ability to meet these requirements should be part of the proposal evaluation criteria.
Page 15Confidential - Not For Distribution
Strategic Advisorsfor the Global Economy
Outsourcing Vendor Selection Steps and Best
Practices
Page 16Confidential - Not For Distribution
PHASE 2:SOURCING TRANSACTION EXECUTION
CONDUCT PROVIDER
MARKET SCAN
CONFIRM STRATEGY &
COLLECT BASELINE
REQS
PREPARE SOWs,
CONTRACT TERMS & KEY
SCHEDULES
PREPARE RFP BID PACKAGE
& SCORING MODEL
MANAGE PROVIDER
SELECTION PROCESS
FACILITATE DUE
DILIGENCE
PREPARE NEGOTIATION
STRATEGY
NEGOTIATE FINAL
CONTRACT TO
EXECUTION
RFP RELEASE GATE CONTRACT APPROVAL GATE
Lesson Learned: The RFP should contain a comprehensive, client developed global outsourcing contract for the vendors to respond to.
The contract should consist of all key contract documents (e.g., MSA, SOWs, SLAs, Incentives and Fee
Reductions Schedule, Relationship Management Schedule, Pricing Schedule). This approach helps to ensure that 1) all vendors are responding to the same baseline of services and other contractual requirements, 2)vendor proposals can be compared on an “apples to apples” basis and 3) there are no unexpected issues & pricing increases during contract finalization.
Vendor Selection Steps and Best PracticesPrepare SOWs, Contract Terms & Key Schedules
Germany
Ireland
United Kingdom
Portugal
Spain
United States
Country AgreementsLocal Terms and Conditions
Lists: Key Personnel, Etc.
Relationship Management
Change Management
Security
Pricing
Benchmarking
Performance-Based Mgmt.Fee Reductions
MSA Attachments
Exhibits
Credit Card Services
Expense Management SOW
Travel Management SOW
Statements of Work Schedules
Master Services AgreementGlobal Terms and Conditions
1Global Master Services Agreement
Schedules
Attachments
2 3 4
An SOW with roles and responsibilities matrices is required for each service area. Vendors will propose their solutions around these core service requirements.
Most vendors today operate on a global basis, therefore the MSA must addressed global terms and conditions.
Page 17Confidential - Not For Distribution
Lesson Learned: The RFP must clearly articulate the client’s outsourcing objectives and key requirements and must elicit vendor responses in a clear and structured manner.
In addition to the outsourcing contract, the RFP should contain the following key components designed to inform vendors of your underlying strategy and key requirements. The RFP should also extract detailed information regarding each vendor’s services solutions and pricing.
· Client information from the
sourcing strategy, including:
· Client Background
· Sourcing Strategy
Drivers
· Key Business,
Technical and Service
Requirements
PHASE 2:SOURCING TRANSACTION EXECUTION
CONDUCT PROVIDER
MARKET SCAN
CONFIRM STRATEGY &
COLLECT BASELINE
REQS
PREPARE SOWs,
CONTRACT TERMS & KEY
SCHEDULES
PREPARE RFP BID PACKAGE
& SCORING MODEL
MANAGE PROVIDER
SELECTION PROCESS
FACILITATE DUE
DILIGENCE
PREPARE NEGOTIATION
STRATEGY
NEGOTIATE FINAL
CONTRACT TO
EXECUTION
RFP RELEASE GATE CONTRACT APPROVAL GATE
Vendor Selection Steps and Best Practices Prepare RFP Bid Package & Scoring Model
· Proposal response template requesting:
· Provider background and direction
· Similar references
· Responses to questions and solution
descriptions for transition, risk
mitigation, technology, management,
operations and staffing approach
· Acceptance and exceptions to the
contract contained in the RFP
· Pricing proposal response template aligned to
the baseline structure
RFP Cover Letter
RFP Instructions
Provider Proposal Response Template
Pricing Instructions and Pricing Template
Master Services Agreement
Relationship Management Schedule
Statements of Work with Detailed Technology Appendices
Fee Reduction Schedule
Definitions
Benchmarking Procedures
HR Attachments
Assigned and Managed Contracts
SAS 70 Compliance Standards
Other Contract Documents
Initial Contract Agreement Is Included In RFP Bid Package
Page 18Confidential - Not For Distribution
PHASE 2:SOURCING TRANSACTION EXECUTION
CONDUCT PROVIDER
MARKET SCAN
CONFIRM STRATEGY &
COLLECT BASELINE
REQS
PREPARE SOWs,
CONTRACT TERMS & KEY
SCHEDULES
PREPARE RFP BID PACKAGE
& SCORING MODEL
MANAGE PROVIDER
SELECTION PROCESS
FACILITATE DUE
DILIGENCE
PREPARE NEGOTIATION
STRATEGY
NEGOTIATE FINAL
CONTRACT TO
EXECUTION
RFP RELEASE GATE CONTRACT APPROVAL GATE
Vendor Selection Steps and Best Practices Prepare RFP Bid Package & Scoring Model (cont’d)
Lesson Learned: Key stakeholders should be involved in defining proposal evaluation criteria using a model that aligns to the RFP.
Prepare a vendor evaluation and scoring model aligned to the RFP and its key components.
Avasant recommends using a weighted, hierarchical model that contains major criteria and sub elements. The evaluation criteria should also align to strategic objectives and service requirements developed as part of the sourcing strategy.
Key client stakeholders should participate in establishing evaluation criteria and weighting factors through a consensus-based process. This same group of key stakeholders should form the proposal evaluation and scoring team and should ultimately select the vendor based on a consensus decision process.
Offshore Provider 1
Offshore provider 2
Category Off
sh
ore
Off
sh
ore
P
rov
ide
r 1
Off
sh
ore
p
rov
ide
r 2
Ma
x %
A) BUSINESS
1) RFP Process Management Capability 2.8% 2.7% 5%
2) Provider Profile 0.5% 0.5% 1%
3) Relationship Management Services and Provider Staffing 7.8% 9.8% 15%
4) Human Resources Approach and Acceptance 6.0% 7.0% 10%
5) References - Business view 0.6% 0.6% 1%
6) Site visit - Business view 1.2% 1.8% 3%
Business Points: 18.9% 22.4% 35.0%
B) TECHNICAL
1) Application Maintenance and Support Services 10.8% 13.7% 18%
2) Alternative Approaches 4.8% 4.8% 8%
3) References - Technical view 0.8% 1.2% 2%
4) Site visit - Technical view 1.2% 1.2% 2%
Technical Points: 17.6% 20.9% 30.0%
C) COST
1) Pricing 5.4% 6.2% 10%
Cost Points: 5.4% 6.2% 10.0%
D) RISK
1) Conformance with Contract Requirements 6.0% 7.2% 12%
2) Transition 5.8% 7.5% 12%
3) Exit Plan 0.6% 0.6% 1%
Risk Points: 12.4% 15.3% 25.0%
TOTAL POINTS: 54.3% 64.7% 100%
Page 19Confidential - Not For Distribution
Lesson Learned: Interaction with vendor proposal teams throughout the selection process helps to improve vendor proposals and helps to gauge vendor commitment and corporate culture compatibility.
Following RFP release, Avasant recommends the following pre and post-proposal activities:
PHASE 2:SOURCING TRANSACTION EXECUTION
CONDUCT PROVIDER
MARKET SCAN
CONFIRM STRATEGY &
COLLECT BASELINE
REQS
PREPARE SOWs,
CONTRACT TERMS & KEY
SCHEDULES
PREPARE RFP BID PACKAGE
& SCORING MODEL
MANAGE PROVIDER
SELECTION PROCESS
FACILITATE DUE
DILIGENCE
PREPARE NEGOTIATION
STRATEGY
NEGOTIATE FINAL
CONTRACT TO
EXECUTION
RFP RELEASE GATE CONTRACT APPROVAL GATE
Vendor Selection Steps and Best Practices Manage Provider Selection Process
· Pre-proposal submittal:
· Vendor Introduction Meetings – Conduct informal introduction meetings between
the client’s RFP executive sponsors and the senior leadership team from each
vendor. This is the initial opportunity for the client to gauge vendor commitment to
the deal and it provides the vendor an opportunity to inquire about the client’s
overall vision for the future services relationship.
· One-on-one Q&A Sessions or Bidders Conference – Depending on procurement
rules, conduct one-on-one Q&A sessions with each vendor or conduct a bidder’s
conference for all participating vendors. These interactions again allow the client to
gauge vendor engagement and cultural compatibility potential.
Page 20Confidential - Not For Distribution
PHASE 2:SOURCING TRANSACTION EXECUTION
CONDUCT PROVIDER
MARKET SCAN
CONFIRM STRATEGY &
COLLECT BASELINE
REQS
PREPARE SOWs,
CONTRACT TERMS & KEY
SCHEDULES
PREPARE RFP BID PACKAGE
& SCORING MODEL
MANAGE PROVIDER
SELECTION PROCESS
FACILITATE DUE
DILIGENCE
PREPARE NEGOTIATION
STRATEGY
NEGOTIATE FINAL
CONTRACT TO
EXECUTION
RFP RELEASE GATE CONTRACT APPROVAL GATE
Vendor Selection Steps and Best Practices Manage Provider Selection Process (cont’d)
· Post-proposal submittal:
· Proposal Evaluation and Scoring –The proposal evaluation team should conduct
a consensus-based proposal scoring process supported by the pre-defined scoring
model.
· Vendor Presentations – Vendor presentations can be conducted to clarify vendor
proposals and they provide an additional opportunity to interact with proposed
delivery teams and to gauge commitment and cultural compatibility. The agenda of
the presentation should be planned for each vendor so that it is a focused
interaction and not a sales-based activity.
· Vendor Down Selection – Following proposal evaluation and scoring, and vendor
presentations, the evaluation team should have enough information to down-select
to the top two vendors. The top two vendors will move on to due diligence activities
and best and final offers.
Page 21Confidential - Not For Distribution
Lesson Learned: Due diligence is a key activity that is often underemphasized or treated superficially.
It is extremely important to perform due diligence activities on the finalist vendors as a part of the overall evaluation. The vendors will present a glowing account of their capabilities in their proposals so it is important to verify these capabilities with visits to each vendor facility that will be performing services for the client. A typical agenda for site visits should include review of the following:
· Management and operational processes with concrete examples
· Physical and logical security processes with concrete examples
· Provider support infrastructure and support facilities
· Technology used in the delivery of services
· Interviews with key executives
· Interviews and walkthroughs with service delivery managers
· Interview with proposed account executive
PHASE 2:SOURCING TRANSACTION EXECUTION
CONDUCT PROVIDER
MARKET SCAN
CONFIRM STRATEGY &
COLLECT BASELINE
REQS
PREPARE SOWs,
CONTRACT TERMS & KEY
SCHEDULES
PREPARE RFP BID PACKAGE
& SCORING MODEL
MANAGE PROVIDER
SELECTION PROCESS
FACILITATE DUE
DILIGENCE
PREPARE NEGOTIATION
STRATEGY
NEGOTIATE FINAL
CONTRACT TO
EXECUTION
RFP RELEASE GATE CONTRACT APPROVAL GATE
Vendor Selection Steps and Best Practices Facilitate Due Diligence
Page 22Confidential - Not For Distribution
PHASE 2:SOURCING TRANSACTION EXECUTION
CONDUCT PROVIDER
MARKET SCAN
CONFIRM STRATEGY &
COLLECT BASELINE
REQS
PREPARE SOWs,
CONTRACT TERMS & KEY
SCHEDULES
PREPARE RFP BID PACKAGE
& SCORING MODEL
MANAGE PROVIDER
SELECTION PROCESS
FACILITATE DUE
DILIGENCE
PREPARE NEGOTIATION
STRATEGY
NEGOTIATE FINAL
CONTRACT TO
EXECUTION
RFP RELEASE GATE CONTRACT APPROVAL GATE
Vendor Selection Steps and Best Practices Prepare Negotiations Strategy and Negotiate Contract to Execution
Lesson Learned: Managed competition throughout the vendor selection process improves vendor proposals and keeps vendors focused on client requirements.
Negotiations Strategy: The client team should prepare a negotiations strategy for each finalist vendor. The negotiations strategy will guide parallel negotiations discussions that focus on priority proposal issues.
Parallel Negotiations: Parallel negotiation discussions focus on clarifying priority issues such as vendor contract exceptions and proposed solutions and pricing. The objective is to reduce the number of contract issues and settle on service solutions prior to selection of the preferred vendor. The finalist parallel negotiations approach keeps vendors competitive and focused on meeting client requirements.
Best and Final Offers - Following parallel negotiations, each finalist vendor should provide a best and final offer (BAFO) proposal based on the initial proposal with updates and a reduced number of contract exceptions resulting from parallel negotiations.
BAFO Evaluation and Preferred Vendor Selection - After receiving BAFO responses from the finalists, the evaluation team should conduct a consensus-based BAFO scoring process to revise initial proposal scores to reflect the BAFO responses, findings of the site visits and customer reference calls. As before, the evaluation team should reach a single overall evaluation score resulting in the selection of the preferred vendor.
Page 23Confidential - Not For Distribution
PHASE 2:SOURCING TRANSACTION EXECUTION
CONDUCT PROVIDER
MARKET SCAN
CONFIRM STRATEGY &
COLLECT BASELINE
REQS
PREPARE SOWs,
CONTRACT TERMS & KEY
SCHEDULES
PREPARE RFP BID PACKAGE
& SCORING MODEL
MANAGE PROVIDER
SELECTION PROCESS
FACILITATE DUE
DILIGENCE
PREPARE NEGOTIATION
STRATEGY
NEGOTIATE FINAL
CONTRACT TO
EXECUTION
RFP RELEASE GATE CONTRACT APPROVAL GATE
Vendor Selection Steps and Best Practices Prepare Negotiations Strategy and Negotiate Contract to Execution (cont’d)
Lesson Learned: Including the outsourcing contract in the RFP, interaction with vendors, proposal clarification/pre-negotiation discussions and managed competition can significantly reduce the amount of final contract negotiations required.
Final Contract Negotiations: By the time the preferred vendor reaches this point only a small number of issues should remain to be negotiated.
If final contract negotiations break down, the runner up vendor can be quickly teed up as the BAFO proposal should be a completely plausible alternative.
Q&A
Page 24Confidential - Not For Distribution
Strategic Advisorsfor the Global Economy
Contact Information:
Henry Guapo
Voice: 818-314-5987
3601 N Aviation Boulevard, Suite 3000, Manhattan Beach,
CA 90266
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For more information contact us at: [email protected] or 516-279-6850 ext. 712
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The road show events will link buyers, providers and advisors of outsourcing services in collaborative, learning environments. Attendees will discover how innovation creates incentives that encourage providers to deliver value beyond price. They'll hear case studies from seasoned players navigating a maturing industry. They'll see how a geographically diversified portfolio of offshore, near-shore and domestic providers can help manage risk and aid in continuity planning.
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Outsourcing Institute Local 'Road Show' Events Los Angeles / Southern California & New York
"Executive Insights: Enhancing Results Through Innovation in Outsourcing"
Outsourcing Vendor Selection Best Practices
This webinar was hosted by Avasant in conjunction with The Outsourcing Institute.
Frank CasaleFounder, CEOThe Outsourcing Institute
Henry GuapoPartner, IT Sourcing Practice LeadAvasant
Thank you for joining