Finding a suitable partner by creating a competition

In order to create a competition it is necessary to establish which outsourcing service providers appear to be suitable partners and then make arrangements to contact some or all of them.

The established method of dealing with a range of potential suppliers of technology and knowledge systems is to send out Invitations to Tender (ITTs), or Requests for Proposals (RFPs).

Over the last decade or so an accepted methodology has developed for structuring these requests and this is normally adhered to when sending out outsourcing RFPs. Typically, the suppliers are asked to explain how their service will deal with each of the requirements specified. In creating the RFP, care is taken to structure the way the answers will be provided. In this way the writers hope that when they get the information requested, they will be able to compare each provider’s offering ’like with like’ and create a ’level playing field’ to facilitate future decision making.

In theory, the use of RFPs can overcome some of the initial problems faced by companies wishing to outsource. It should enable the potential outsourcer to give its own explanation, in as much detail as it thinks necessary, of its requirements and expectations from an outsourcing arrangement. This document may then be sent to a number of potential service providers, thus establishing an element of competition. The additional advantage is that the competing service providers should have all the information they need to create their bids without each sending their own fact-finding teams to repeatedly disrupt the potential client’s staff.

However, the RFP is a tool that must be used wisely if it is to produce the desired effect. It frequently happens that a great deal of effort is taken up in preparing an RFP, which then fails to produce the desired response from potential service providers. Very often this is due to two main causes – too much detail was included and the service providers were not approached correctly.

Clearly, it is important to get the right amount of information in the RFP and this must be set out in a way that maximizes the possibility of an accurate response. Unfortunately, it is often mistakenly assumed that the right amount of information is, quite simply, as much as possible. It is not unusual for an outsourcing RFP to take months to prepare, when it might well have been better prepared in just a few days.

Often, an over-detailed RFP stems from the desire to ensure that service providers have absolutely all the relevant information in one document, in order to prevent them all from visiting the site to talk to the staff and take up the potential client’s time. It is essential that the providers be given all relevant information. However, too often, the client’s staff resorts to taking paragraphs from existing reports and documents in order to ’beef’ up the document. As a consequence, RFPs sometimes contain extraneous information that confuses the potential bidders. The clients must not only remove all extraneous matter in developing the RFP, they must search for ways of getting the information over using as few words as possible whilst ensuring that the statements are not misunderstood.

It is in both parties’ best interests that the correct level of information is included in the RFP. For a single function outsourcing an adequate RFP might cover no more than 30 to 60 A4 pages with the description of each process taking up no more than two pages. It is only going to be possible to get an ’indicative’ bid in response, but this is the maximum anyone can expect from an initial proposal and an indicative bid should be sufficient for the client organization’s purposes at this early stage.

The poor approach problem stems from the fact that these RFPs are often sent to potential service providers with very little prior warning and preparation. The combined result of too much confusing detail and too little contact is that the service providers may actually be reluctant to respond to the RFPs.

What prospective outsourcers frequently fail to take into account is the amount of time and effort necessary to produce a bid in response to their overly-detailed RFPs. Major providers will have specialist staff dedicated to dealing with RFPs but even for them, more effort will be needed for responding to a one-off outsourcing RFP than to typical software ITT. For outsourcing service providers, the RFP may require too great an investment of time on the part of senior management and valuable staff to justify making a bid unless they have a reasonable expectation of success.

The provider needs to believe, firstly, that the prospective client is reasonably likely to actually carry through its stated intention to outsource and, secondly, that it is competing on a level playing field against an acceptable number of rivals. Providers generally seem happy with their chances if they are one of three rival bidders, but become doubtful about the odds if the RFP is sent to many more than that.

A wise potential outsourcer will do well to narrow down the choice of service providers in advance by researching the suitability of those in the marketplace. It should then approach the chosen few before sending out the RFPs in order to assure them of its intention to judge the bids fairly and, except in unforeseen circumstances, to go through with the outsourcing.

Experience shows that an excessively detailed RFP, representing a great deal of work for respondents competing against a large field of known competitors, will cause many service providers to either decline to bid or to prepare a far more simplified response than the client wished for.

Clients often fail to anticipate these problems because they have relied on their experience of producing invitations to tender (ITTs) for software suppliers and the like. In theory, software vendors will always be happy to receive an ITT; they get much of their business from this source and will have staff dedicated to the task of responding speedily and accurately to ITTs. In addition, almost all organizations setting up a project to assess their software requirements will, in the end, purchase new software from one source or another. A software vendor responding to an ITT that had been sent to a total of five companies would, therefore, assume that its chances of making the successful bid were a healthy 20 per cent.

It follows then that if the client has been careful enough to restrict the request to companies whose software ought to provide a ’fit’, then there should be a good response. To have a 20 per cent chance of obtaining a substantial contract and having the staff available to deal with such requests would appear to provide all the justification necessary to ensure that the software vendor will always respond eagerly and carefully. However, in practice, expectant software purchasers sometimes find that some vendors do not bid at all and others complete the templates in the easiest way open to them without going into the detail requested.

If a detailed RFP is sent to five potential outsourcing service providers with little or no prior contact, then they are almost certain to respond less favourably than their counterparts in the software industry. For a new IT outsourcing, each provider will probably estimate the chance of a contract ever being signed at a maximum of 75 per cent, but for non-IT areas the estimate may be as low as 40 per cent. In these circumstances, the provider can be excused for thinking that the statistical chance of success could be as little as 8 per cent even if they start on equal terms with the competition. Given this situation any provider who gets the RFP out of the blue will naturally be reluctant to respond. Not unnaturally, they assume that the potential client must be in discussions with at least one provider and consequently they have been included to make up the numbers.