It has been known now for more than a decade that the greatest successes with sourcing are anchored in the company that is considering sourcing doing its homework long before engaging with a potential supplier.
This is as true with picking “platform as a service”, “infrastructure as a service”, “software as a service” and other cloud solutions as it is in picking key systems integrators for multi-year endeavours or outsourcers for business processes or operations.
The successful deals are built on a firm knowledge of what is wanted and how success can be identified, not on finding the cheapest bid and then saying “make us better”.
Proper preparation — that knowledge base — is essential. Processes are “cleaned up” and reorganization takes place so that inter-company hand-offs are minimized and made smooth. Budgets are re-aligned, so that the financial elements correspond to the future transaction.
All of these steps — and more — are the preparation that is require to succeed: they, along with real skill in managing the relationship, are the keys to success.
So why do so few organizations undertake these “pre-steps”; why, instead, do they rush into dealing with vendors?
Most of the organizations I see would answer this by saying “the vendor’s sales rep got to one of our executives and now sourcing is on the table” — or, in the public sector, “the new politician wants us to outsource; it was part of his or her platform”.
What these really boil down to, unfortunately, is an unwillingness to lay the analysis and preplanning out on the table as something that should be a routine part of managing the organization — as routine as the annual budget and planning cycle, performance evaluation, portfolio revisions, and strategy sessions.
Why isn’t sourcing analysis undertaken, when the other items in category are?
I find that the reason is that managers are afraid to broach the subject.
They fear the best people leaving (in fear of being transferred into a “deal”); they fear the productivity drop while everyone worries about the future; they fear how their unionized workforce might react; and most of all they fear the inevitability of a sourcing analysis. Once they start to study it, they think, they will be committed to completing a deal.
Paradoxically, the answer to all of these fears is in making the analysis a routine part of the work to be done, as routine as all the other studies and analyses done in managing.
Looking at the question periodically, as opposed to in reaction to an event, means that no analysis needs to lead anywhere. The practice gained in doing these exercises, as well, improves the process over time: the improves the ability to negotiate better terms and a more productive relationship later.
Finally, as with undertaking periodic benchmarks, opportunities for self-improvement will be unearthed through the analyses, and these are gains the company can claim to justify the effort involved.
It is the capricious nature involved in keeping the potential for sourcing a deep secret that is the true cause of so many fears about it.
As has been repeatedly shown in public sector sourcing bids, the existing workforce often is able to beat out their commercial competition and win the bid via the RFP process — a process which they have often fought hard against before facing up to it.
If these sorts of gains are routinely possible — and that it what the evidence of the last decade and more shows (as opposed to a far lesser track record for sourcing deals themselves), doesn’t it make good business sense to put the fears to rest, involve the organization in the analysis, and claim the benefits from it rather than hide the potential to source until a deal is ready to be announced?
A final note. A heavily-unionized organization, in the early 1990s, knew that sourcing was an expected response to a known loss of revenues three years in the future. By facing up to this issue and doing the analysis to prepare for that day — using the skills and insights of all employees in the department, not just one or two managers “sworn to secrecy” — the group improved its performance so much that when the time came to ask for sourcing bids the group was “untouchable”: their service levels and actual cost of operation was now about 1/5 less than the most aggressive bid received. In other words, everyone saved their job by preparing to lose them.
This is a pattern I’ve seen again and again. It is worth putting sourcing analysis on the agenda of regular things to do.