ITO RFP COW TOO FAT

In this blog, I cover the important topic of tendering for IT Outsourcing (ITO) Services. Tendering (RFP, RFI, RFx) is the one domain of IT sourcing which has not moved in line with the changes in the market-place. The IT tendering process is important, but not critical to value maximisation. Why? Because most of the value lost in IT sourcing comes after the contract is signed.  According to The Corporate Executive Board Company (2009) 90% of ‘this loss occurs after the vendor has been chosen’. Since the tendering process only accounts for up to 10% of potential value, customers should ensure that their tendering process is smart, cheap, fast, better and greener than historical or traditional tendering models. What does this mean?

Smart – Do not re-invent the wheel. Most IT services, and indeed, all infrastructure related IT services are mature and so are the tendering processes. If you’re not sure on the best practice process, invest two hours Googling. You can readily download tender evaluation and process documentation. Ask the IT Service Providers to supply you with their standard T&Cs. If you believe your firm is special and has unique requirements you are insane. If you believe that you should dance with the service provider because accepting their boilerplate contact T&C’s gives them too much power in the relationship you are crazy. As I noted above, most of the value lost in IT sourcing comes after the contract is signed. IT Service Providers negotiate IT contracts on a weekly basis.  They are far more experienced and knowledgeable than any customer or legal team. Do not try to outplay them. Simply ensure your key requirements for the service elements are covered.

Do not worry about developing a complex and extensive tender response criteria before you start the tendering process. This is what I mean by COW. COW is an acronym for Criteria, Options, and Weighting (how much importance you assign to that criteria). COWs are always used by customers in all tenders to evaluate responses, with the end result producing a Score for each response. You should not spend considerable time in developing your COW as the responses from IT Service Providers will enable you to augment your COW. For example, in the Service Providers response they will invariably identify a novel option to meet your IT service requirement. You can then use this option in your COW. (COWS is a best practice decision matrix.)

Source for table: RFP Evaluation Centers, Inc

Also refer to the Value Stream Guru for more information on COWS.

Cheap – Make the entire tendering process as cheap as possible. For most IT infrastructure services, you should aim for a small percentage of the contact value. I considered stating an exact figure, but the figure is always skewed in small contracts and the percentage will reduce for larger contracts. With this in mind, I recommend capping the tender cost to ten percent or less of the annual service cost. For medium and larger outsourcing services you should invest in a web based supplier selection tool. This investment will cost less than $2,000 USD.

Fast - It is totally unacceptable in this era to waste many months tendering for the majority of IT services. The Cloud Service Model supports a faster tendering process. Using a Cloud Service you are simply three mouse clicks away from three quotes. You want to know what the T&C’s are then simply read it on their web page. Again, you are only three clicks away from obtaining the accompanying T&Cs. The duration of the tendering process is correlated to the cost. So the rule here is to keep it short. I recommend no more than four weeks for the majority of infrastructure services. For example, for on-site support you should know all of your company’s sites, so just get the quote and the concomitant T&C’s. For a Service Desk service, you should know your hours of coverage and call volumes. For monitoring and management of your servers and network, you should know how many servers (virtual or physical) you have and their location.

Better – To make your tendering process better ensure you have built flexibility into your contract. Again, cloud based services have led the way here. Most offer a one month service term. Some even offer a per hour cost model. The key here is to make the terms of any agreement short, no more than 12 months and make certain you have a one month or at the very least a 90 days no fault, no fee, exit clause. A lot of change can occur in 12 months and you want to ensure you can respond effectively to any changes and not be constrained by an out-of-date or misaligned IT services contract.

Greener – This dimension of sourcing business value is largely dependent on the above four value attributes. If you are smart and don’t waste hours on your computer/tablet inventing and printing a contract and its numerous drafts you are greener. If you keep your IT tendering process cheap and fast you are greener. Spending less time means less potential for waste; less meetings, less people, less noise. Using an external service provider is intrinsically greener as you are leveraging off an already existing set of services. For example, hosting your server room in a data centre will, at the very least, save your environmentals of air-conditioning and power.

Saving money is one of the non-negotiable rules of the tender process. And saving money can only occur after the contract is signed. So why waste time in realising the savings of your IT outsourcing initiatives. Make your sourcing COW lean and green. Remember that the time you spend in the tender process delays the realisation of the savings and value from your sourcing initiative. So keep your IT tendering process smart, cheap, fast, better and greener.

For more information, contact Ernie Zibert at ernie.zibert@gmail.com

Thanks goes to Mohandass Ayyappath for his insightful comments and editing.