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By Richard H. Gamble
Time to find a new outsourcing provider?
Just call up the old RFP file on your computer, change a few details and email it to the standard list of providers. Then pick the one which comes back with the lowest price. No problem? Big problem.
Outsourcing veterans agree that the one-minute RFP is a time bomb that will lead to years of pain and poor performance. Conversely, every hour spent crafting a precise, focused, well-planned RFP will pay off in years of productivity gains, cost savings and quality improvements.
The biggest mistake companies make with their RFPs is not completing the preceding step — the needs assessment — points out Lew Houck, a senior principal at The Outsourcing Institute. “The RFP is essentially the organization, tabulation and communication of the assessment. Without a complete assessment, you can't prepare a good RFP.”
While the RFP becomes a document that is sent to potential service providers, smart managers consider the RFP not just a document but a process. “You don't get a good RFP by editing,” Houck insists. “You have to manage a complex business process.”
On the surface, that process involves communicating with potential providers until you find the right one. But, it's a lot deeper than that, Houck argues. “It's a consensus-building process that starts within an organization,” he explains.
The RFP document is the result of an internal process carried out by a cross-functional team that includes representatives of all the operating areas of the company that will be impacted. It includes support and sign-off by senior management. “It's the way you bring everyone together and get them all on the same page,” he summarizes.
While laying the groundwork for a good RFP takes participation, it also takes leadership, Houck adds. “This is no custodial activity you can 'shepherd' to a successful conclusion; it's something that has to be led. Someone has to take control and drive this process where it needs to go,” he points out.
Companies preparing an RFP face a critical choice up front, notes Naz Haider, an outsourcing governance expert at a Fortune 500 company: they can make it very structured and efficient, or they can make it flexible and collaborative. For his big projects, Haider likes an interactive RFP process.
“If you ask a lot of specific questions, you'll get a lot of specific answers,” he observes.
That may be best for something like outsourcing mail room operations or janitorial services, but outsourcing IT is another matter, he notes. “You need an RFP that invites feedback,” Haider explains. “You'll end up in working sessions with your top bidders, working together to develop a solution. The best mutually developed solution wins and becomes the final bid.”
There is no consensus about exactly what should go into a good RFP, but there is broad agreement that it must be tailored to the project and that it must be thorough. The RFP should document the scope of the project and include a comprehensive statement of the work to be performed and how you want the work performed, says Bob Rosetta, Managing Director and Chief Sourcing Officer-IT within the Strategic Technology Sourcing organization for J.P. Morgan Chase & Co.
To avoid disputes later, the RFP also should include service-level agreements and a copy of the contract that sets forth how you would govern the relationship. It's best to have the evaluation criteria determined in advance, weighted by the importance of the various factors. It's often wise to share the evaluation criteria with potential service providers in the RFP and let them know how they will be judged.
Certain vendor information is basic, says Art Prifti, principal of APC Technology: name, address, industry, years in business, and, if they're public, their financials. “After that, you want to drill down to their experience on projects like yours,” he says. “I'd want to know about their preferred architecture, development tools, methodologies, data bases. I'd want a high-level explanation of the implementation phases and timetable, the checkpoints, the change of control handoff, the life cycle expectations,” he explains.
The working relationship is also critical. “The best contract in the world is worthless if the relationship doesn't work,” Prifti insists, “so deal head-on with the relationship in the RFP. Ask the providers what the ideal relationship would look like from their perspective. “I'd want to find out just what they'd expect from me. I'd want to know the size of the project team they propose and names of who would be on it.
I'd want to settle on an escalation process for resolving problems that can't be anticipated.”
A good RFP also anticipates the contract. The more of the contractual negotiations you can preempt by having the provider present a proposal in terms that can be cut and pasted into a contract, the easier the negotiations will be, Houck notes.
The consensus falls apart when it comes to specifics like how much detail a good RFP should require. “Too many people seem to think that more is better,” advises Becky Vidal, president of St. Louis-based CBIZ Benefits and Insurance Services Inc. “They're afraid to leave out anything,” she notes. This makes it harder for the providers to respond and harder for the RFP issuer to wade through the responses to get the information that is useful, she adds.
Not everyone agrees that less is better. “The more specific they have to be, the move providers will get discouraged and quit,” says Prifti. “This is what you want. The RFP should provide a measure of self-selection. Let companies take themselves out of the running if they don't think they can do the job or present a winning bid.”
A successful RFP should narrow the potential providers down to a very short list, ideally just two providers, Rosetta says. “Even when you know the preferred provider, keep a second candidate in the picture in case you can't negotiate a satisfactory contract with number one. It's always to your advantage to keep the competitive mindset in the process as long as possible,” he adds.
And what if you are looking to outsource offshore? Is the RFP significantly different from the domestic process? Not very much. If offshore providers will be bidding, the RFP process is not radically different but needs to be even more thorough.
While U.S. companies usually present one RFP in English, it's important to recognize that offshore providers may take that language literally. One shirt manufacturer asked a Dominican provider for summer shirts with 'half sleeves.' Instead of standard short-sleeve shirts, they got shirts with sleeves exactly half the length of a long-sleeved shirt, not a fashionable outcome, Houck recalls.
Offshore or onshore, however, the RFP process is essentially the same, Rosetta insists, but you should resist the temptation to cut short due diligence just because the potential provider is distant. Plan to visit the potential partner, whether they are down the block or in India or China.
Don't decide before you send off the RFP whether a project will be outsourced offshore or domestically, Prifti suggests. Where the job winds up going is part of what the RFP should determine, he says. “Don't automatically assume sending work offshore will be cheaper,” he adds. “There are a lot of issues and hidden costs to bring into focus. Let the RFP help you sort that out.”
If the goal is a good contract, good governance and high-performance operating results, you certainly can't afford to take the RFP phase lightly. |
