Price is always a factor in any buying decision, especially where the performance of procurement professionals is evaluated based on money saved. Outsourcing contracts that save money and meet the goals of the business in more ways than one are the ones that really move the needle.

Here are two critical areas that will help create outsourcing contracts that focus on business needs and goals and pricing:

Spell it out: From terms to Service level agreements to detailed roles and responsibilities, make sure your outsourcing contracts have every line item listed and spelled out to the nth level of detail. Write the contract as if you won't be there to read it the minute it is written. Make it explicit for both, internal and external teams so that their roles & responsibilities are clearly defined. also make sure that the contract provides clear (early) termination clauses so that there are no loop holes should you wish to terminate the contract early.

Transition Period: The scope of work for the actual work is usually well understood by most. The area where most scope statements fall short is in defining the transition period roles and responsibilities and also the scope during the transition period. This invariably leads to finger pointing and lack of accountability about scope responsibilities.

Pricing is the primary variable when outsourcing although flexibility in agreeing to a price comes into play when other conditions and requirements are more favorable. So although you started down the path of outsourcing to save money, how much you save is based on what else you were able to negotiate with the supplier/s. Also, pricing will change year over year so that you may not find savings after the initial one or two year period. That's when the other negotiated terms and conditions become more important.

Price is the biggest factor in creating an outsourcing relationship. However optimizing outsourcing contracts to create a balance between overall benefit to the company in areas such as scope of work, SLA's and tranforming the company through innovation is perhaps even more important.

Some outsourcing relationships fail not because the vendor is not good or the deliverables are not met but because users are not happy with the results of outsourcing. These users create their own little processes or duplicate the work being done by the outsourcing team to take care of the issue inhouse.

In anything we do, we know that if users aren't satisfied to a majority extent, the entire effort becomes wasted. Many companies make technology outsourcing decisions without consultating their internal users. Remember, these are the same users who have to do their job and they need to do it with or without the help of the outsourced provider.

So does your company have an end User Satisfaction Survey which will help you determine if technology outsourcing is working for them?

If not, here is some high-level information that will help you create an end-user satisfaction survey. First determine the criteria which will be used for doing the evaluation. Obviously it needs to be well-defined so that it can be appropriately measured and understood. Some areas for what to evaluate may include:

• Ease of use: Is the software easy for the end user to use?
• Productivity: Is the software creating productivity or is it adding to the end-users' workload?
• Complete: Is theapplication in question complete - meaning does it fulfill all the needs of the tasks a user is supposed to do using it. Or was the software implemented in a rush and the remaining phased deployments never happened which made the application either partially usable or not used.

So then how to measure the feedback provided?

What works best is when you provide users the ability to answer the various questions using the "Agree, strongly agree, don't agree" type of scale.

Also be sure to include an area where users can give open-ended feedback where users have the ability to provide specific examples which can help fix a software problem quickly. It is important that users have the option of submitting the survey response anonymously so as to get high quality feedback.

You may wish to do a survey once or twice a year. Remember software development is done to help users do their job better to meet the needs of the business. To make your outsourcing decision sustainable, get feedback from users and listen to it. Othewise you'll have spent tons of money for nothing because users will find ways to do their job using temporary solutions which may become permanent over time.

We are seeing how organizations are identifying, sourcing, and managing technologies a bit differently now. Their goal is to drive innovation and growth. Along with increased efficiencies using innovative technology, companies are realizing enhanced value through lean practices and innovation. Vendor relationships are changing with the changing of vendor delivery models.

There is an increase in business risk which businesses also need to manage better. To do so, employees are identifying new tools that they need to connect with others. They are not always waiting on the vendor management team to procure these tools to do their job. This means that vendor management offices have to try harder to enable business success. To that end, sourcing teams have to work harder to become strategic partners to the internal team as well as with externalvendors. They must enable business and the business customers by themselves driving change with the organization.

Sourcing professionals MUST continue to improve their delivery models to the internal business team, form relationships with vendors that are more innovative and differentiated from the norm AND they must also show how they help the business create a competitive advantage.Sourcing teams must learn how to embrace new trends and keep themselves up to date on what's happening in the sourcing world.

Retaining a third-party Sourcing Advisory team can help sourcing professionals do all of the above and more. Sourcing advisors bring industry knowledge and know-how to help sourcing teams  enable business.

Selecting your vendors for the right reason is very important. Although the process is tedious and cumbersome, it is important to select vendors who meet the business requirements set forth by the internal customer. A Vendor Management Office's job is to select the right vendor and negotiate the best possible deal. So what are some best practices for managing vendors?

Well, the vendor's job is to dazzle you with their marketing and to make you believe that they are the ones who should get your business. The larger the project, the more their focus on impressing you to win your business. Therefore it is important to make sure that all discusions and decisions to select the vendor are based on their capability, their past performance, their experience and the best price that you can get.

Negotiate a contract that is thorough but flexible so as to allow minor adjustments when changing business needs demands it.

Be wary of restrictive or exclusive relationships. For example, limitations with other vendors or with future customers. In addition, contracts that have severe penalties for seemingly small incidents should be avoided. If the vendor asks for an extremely long term contract, you should ask for a shorter term with a renewal option. Keep in mind that mutually beneficial contracts make vendors into partners.

Vendor performance management should be a key metric for your organization. Everything that can and will go wrong, will. But the contract should include service level agreements and key performance metrics to track important business metrics like timely shipments, response times, etc. etc.
 
Finally, communication is the key to eliminating misunderstandings and addresssing issues before they become problems. Therefore keep an open communication channel between your team and the vendors. Make yourself accessible to vendors and ensure that they have the support they need to fulfil the contract to meet your needs.

Remember the saying? Don't fix what's not broken? Well, when it comes to Outsourcing, that saying certainly applies but only partially. That's because Outsourcing may not be needed to fix a broken process or methodogy at your company, but it may be needed to save operational costs. So although something is not broken, the need has changed where a lower-cost option may be necessary for your business to be viable.

Having said that, companies considering outsourcing still need to know what they should outsource and why they are considering outsourcing before they go about outsourcing. That's because knowing your goals will help determine the success or failure your outsourcing venture.

More than 50% of outsourcing projects are deemed a failure because they either never achieve what they set out to or because they weren't fully defined and given the correct care, before and after.

So here are the why, what, hows to keep in mind when considering outsourcing:

• The Why: Why are you outsourcing? Are you outsourcing to get speed to market? Or is it that you need scalability and additional expertise that is not currently available in-house? Is it because you need globalization? Or is it simply just a cost savings initiative?
  
  
• The What: Are you outsourcing a particular department? Or is it that you are only outsourcing certain tasks from within one department. Is it a complete outsourced business unit? Is it an additional line of business that you will begin offering prospective customers and instead of developing it in-house, you are outsourcing it and buying it just to resell? 
  
  
• The How: How will you handle the day to day management of the outsourced relationship? How will you ensure communication channels remain open and processes are followed? Do you have service level agreements (SLA's) to manage performance? Will supplier provide monthly reports?
   
  

Once these are understood, understand one more thing. Outsourcing negotiations are important but have you negotiated a good deal which helps your vendor remain viable and still allows you to meet your financial objectives? Remember, you don't want your vendor going out of business because you were a tough negotiator.
 
The above reasons make it almost imperative that you have a third-party Outsourcing Advisor to help you with your project. These Third-Party Outsourcing Advisors can help you not only create a good relationship but also manage it and provide oversight to it over the long-term.
 
Outsourcing Advisors create a more level playing field between the outsourcing client and the outsourcing vendor. They also focus on keeping your company's interests at the forefront while keeping both parties honest. 

Post contract negotiations, one of the key roles performed by a Vendor Management Office is managing vendor quality. If they aren't, the entire Vendor Management Office concept is in jeopardy of failure due to the lack of post-contract oversight. Here are some key strategies that we think every Vendor Management Office should have in place for managing vendor compliance:

1. Site visits: A no-brainer you say? You'd be surprised at how many vendors never get site visits from their clients. In actuality, the vendor management office should create a schedule for "mutual" visits whereby clients visit the vendor sites and the vendor is required to visit a client site on some regularly scheduled frequency.  Of course it is important to focus on the key vendors but visiting smaller vendors who may have strategic products or services should also be kept at the forefront.
   
   
2. Issue management: Vendors should know the channels to pursue to escalate issues that cannot be resolved at the day-to-day level. There may be billing issues, there may be fulfillment issues, and there may be long-term viability issues which may require the involvement of executive leadership. Vendors should have a means of communicating their concerns in writing to the VMO on a regular basis and request assistance in resolving issues that cannot be resolved at the operational level.
   
   
3. Vendor Scorecards: Scary? Shouldn't be. Vendor scorecards can be simple excel based, five question surveys or can be more elaborate with the ability to rank a vendor as A, B, C depending on the various criteria that are important to your organization. And the simpler the scorecard, the better chance of it being used effectively.So create scorecards that can easily be filled out by the stakeholders and that won't require a PhD to interprete and provide feedback to the vendor.
   
   
4. Outsource experts to manage quality: Let's face it, quality control is a whole another discipline and your internal team may not have the time, the training, or the resources to execute it. So, what to do? Well, hire people who are experts in managing vendor quality control. This can result in you saving money by making sure the quality control program is run effectively and problems are quickly highlighted and resolved before they create real damaging situations.

Vendor quality control management is an important role that a Vendor Management Office should be performing. If your Vendor Management Office is not performing a quality control role, its time they start doing so. Check out our advisory services to see how we can help you with your quality control management needs.

Thinking of setting up a Vendor Management Office (VMO)? Here are three key strategies to implement an effective Vendor Management Office

Create a 360 degree Communication Channel: Don't just focus on executive communication, get the entire team involved and engaged. No bottom-up or top-down communication only. Make it a 360 degree communication channel where everyone who has a role is involved actively.

Implement SLA's and KPI's: Service Level Agreements are important but so are Key Performance Indicators to track not just vendor performance but also outcomes of the contractual process, result, and any qualitative measures that align with the company's core values. Service Level Agreements should be measurable and achievable but not so stringent that they are difficult to achieve and create all around frustration.

Create streamlined processes:  Create simple processes that are comprehensive and logical yet also easy to follow. Don't create a paperwork nightmare, processes that require endless meetings after meetings or processes that have so many steps that the overal project goals get lost in the mounds of paperwork and approvals.

Learn how to negotiate effectively: Negotiation is an art. But when does negotiation become counterproductive or is ineffective? Create a competitive bidding process to get the best deal. Avoid single sourcing just because it's more convenient.

There's a lot of dialog about outsourcing and selecting outsourced partners but little if any dialog takes place around the need to retain an Outsourcing Advisor who can help with the entire Outsourcing setup and management. When companies decide to outsource, selecting an outsourcing advisory firm (like ours - :)) is critical to the success of the process.

So what does an outsourcing advisor do?

Well, outsourcing relationships are complex and especially when the team tasked with finding the right partner has never done this type of due diligence before. Vendors are of course going to want contracts put in place that are favorable to them. Companies sometimes don't even know the questions to ask when dealing with an outsourced vendor. That's when an independent third-party can help.

However choosing the right sourcing advisor may be difficult. Do you go for the big-dogs or do you go for a smaller company? Advantages and disadvantages of choosing the right sourcing advisor range from not being cost-effective, lacking experience, lacking depth of knowledge, or being such a big dog that your firm doesn't receive the adequate hand-holding necessary.

Here are some guidelines to follow when evaluating Sourcing Advisors:

• Big versus small: Big names may sound attractive but sometimes smaller firms, albeit one's with experience, can be a better choice. A big name advisor may charge you a lot of money and may not always fit your needs. A smaller boutique firm on the other hand may be more affordable and may work with you closer to help you achieve your goals. Smaller firms may not have the depth of knowledge though so do your due-diligenceand look at small and large firms to select the best fit for your company.
  
  
• Define your goals: You need to define your goals before you bring in a sourcing advisor so that your goals are the reason for the project and not the other way around. You may need to save money or you may want to focus on core internal skills, outsourcing simply to leverage external expertise or it may be a combination of those two and other goals. Whatever they may be, get them defined up front so that your goals are known to the advisor before you select one.
  
  
• Get the right individual assigned to your project: So it's not just important to hire the right firm. You need to also make sure that the person/persons assigned to you fit your needs and the "synergy" so to speak is there between them and your team. It's important to have chemistry between the advisor and the internal project team because without that, the team may end up at odds with the internal advisor making things rough when the external teams come into the picture.Most importantly, make sure that the company doesn't assign a rookie who has never led a project similar to yours. 

Continue reading the guidelines in our next week's blog.....choosing an Outsourcing Advisor Part II

Continuing the discussion on outsourcing governance, here are some more reasons why outsourcing governance is important for successful outsourcing relationships.

Saying No: Saying no is actually a more important job for the Outsourcing Governance team than saying yes. The Outsourcing Governance team needs to keep in mind that stakeholders may not always have a 360 degree vision or may not have the same motivation. Sometimes it's a simple matter of miscommunication or misunderstanding when too many people are involved in managing a project or a relationship. Whatever the case may be, governance teams must learn to say no when they are pressured by some stakeholders, or as expectations are unrealistic or demands are unreasonable. By keeping the viability of the entire project in mind, governance teams must learn to say no as often as necessary while convincing the stakeholders why they are saying no. The last thing that the governance team needs to do is say no and antagonize stakeholders which would truly jeopardize a project's success.

Supplier Relationships more important that Dry SLAs:  Yes, Service Level Agreements (SLAs) are very important. And SLA's must continuously be checked and enhanced to ensure that they meet the needs of the business. However when the governance team establishes a relationship with its suppliers that is based on trust and mutual respect, not to mention keeping in focus the shared goals of the organization, success is sure to come. Customer satisfaction cannot just be measured with SLA performance and that's why supplier relationships are more important than dry SLA's.

These and the key strategies shared in my earlier blog are important to creating a successful outsourcing relationship. If you are interested in learning how we can help you with your outsourcing governance, click here.

Strategic vendors are those vendors who've formed a "deep" relationship with an organization and where they not only support businesses but also come up with innovate ways to improve technology applications year over year.

Information Week has published a list of the top 10 IT strategic vendors whom "countless CIO's" have said, they can't live without.

1. IBM - the Big Blue. According to Information Week, "Today, IBM's range of services and products -- outsourcing, integration, consulting, software, systems, security -- still make it a one-stop business technology provider for the blue chip crowd". IBM's expertise is across almost every sector including healthcare, energy, law enforcement, retail, automotive, government, etc. You name it, IBM's got it.
   
   
2. SAP - Which one of us doesn't know the value of SAP's financial, manufacturing, and supply chain applications? Not surprising then that they ranked numbero dos on Information Week's list. We read that SAP recently went through some management shake-ups. Their CEO promises "renewing SAP's commitment to technical innovation" so let's see what happens there.
   
   
3. Microsoft. Hmmm....Number three? Even I was surprised. Come on, as much as the MAC taketh over, Microsoft reigns supreme so why are they number three? If no Microsoft, where would we all Windows lovers (and haters) be?
   
   
4. Oracle. Oracle is the number one database vendor which no one can argue. So their 4th position is quite understandable.
   
   
5. Cisco. I agree that it would be difficult to place Cisco any higher than five given what they offer which is unique but yet not so unique that no one else can do it.
   
   
6. Hewlett-Packard. Not sure I agree with Information Week that HP could have ranked higher. Again, looking at the vendors that take up spots one to five, I feel that HP's number six position makes sense. I also don't agree that HP is still known as a "PC & printer vendor". Hello!!! They bought EDS! That in itself shoud capatulate their position as the number one "technology provider" beyond printers.
   
   
7. Teradata. Interesting that this vendor is considered a "strategic vendor" and made it on the top 10 list. As much as I believe in "competitive intelligence data" and "data mining", I don't see how this company made the top 10 list.
   
   
8. VMware. Hmmm. According to Information Week "VMware still commands anywhere from 75% to 80% of the hottest enterprise software market, though Microsoft, Citrix, and Red Hat are hot on its heels". I guess, I can see their point.
   
   
9. EMC. Not sure why EMC got a separate mention (or perhaps why VMware did since EMC made it in the top 10 rankings). Storage the EMC way is very popular so their inclusion makes sense, just not their double inclusion even if VMware is considered a "separate company" by EMC.
   
   
10. Outsourcer de jour. Hmmm. Makes no sense that the list ends with a "who ever fits the CIO's bill"................

Do you agree with the top 9 vendor list put together by Information Week? Which important ones do you think they missed?