n my last column, I wrote about the second phase in the services globalization lifecycle: planning. The next phase in the lifecycle is the sourcing phase, the actual building of the organization’s global operations presence. The difference between a successful global sourcing experience and an unsuccessful one often lies in the planning process or choice of service provider. To make the optimal provider selection, an organization must follow five steps.
In my last column, I wrote about the second phase in the services globalization lifecycle: planning. The next phase in the lifecycle is the sourcing phase, the actual building of the organization’s global operations presence. The difference between a successful global sourcing experience and an unsuccessful one often lies in the planning process or choice of service provider. To make the optimal provider selection, an organization must follow five steps.
• Step 1: Select the right process to be sourced at the right time. Many companies select the supplier and let it drive what processes are sourced. The key here is to make a decision on what processes should be sourced based on maturity of the client, maturity of supplier, and ease of globalization. This enables the client to increase its maturity, showcase success, and enable faster adoption. This was covered in greater detail in the planning phase.
• Step 2: Visit the supplier on-site. Suppliers can make themselves look quite appealing on their web sites, in sales presentations, and over the phone. So, actually visiting the supplier (even in India or China) is a critical step in really understanding the differences between potential service providers. At the end of a successful visit, the organization should have a good understanding of the
supplier’s capabilities; the supplier’s reputation; the competitive landscape in the location; geographic factors that will affect the client-provider relationship; similar work done for other clients and how escalations occur; and common issues with operations, particularly transition.
• Step 3: Ask the right questions. Simply showing up at the supplier’s location is not sufficient; the client must be well-prepared to ask the kind of questions and review in detail areas that help the organization understand the capabilities and risks of each supplier. neoIT recommends using the Global Supplier Visit Checklist to make sure that all the right questions are asked.
• Step 4: Conduct due diligence. Although a client visit and carefully chosen list of questions are important, the selection process does not end there. Due diligence will help the client organization to an even deeper understanding of the service provider, including breadth and depth of domain knowledge; maturity of infrastructure and technology relative to client’s support requirements; business continuity and disaster recovery plans; data privacy, security, and confidentiality; project and program management skills; customer and partner satisfaction; management skills (geography, project size and type, experience); transition process and management; financial stability; HR environment; and flexibility.
In the earlier years of services globalization, client organizations relied on process-oriented quality management systems to assess suppliers’ ability to deliver. But even suppliers with process-oriented certifications were not always able to deliver on SLAs.
In contrast to those earlier assessment tools, neoIT’s quality assessment tool, neoQA, helps client organizations assess providers’ expertise and ability to deliver.
• Step 5: Negotiate and write the contract. When approaching contract negotiations, it’s important for the client to understand not only its own position but also that of the supplier. The client should create minimum acceptable levels of supplier capability, service delivery, deal flexibility, and deal economics—just as the supplier has maximum levels on all four factors. The difference between the client’s minimum acceptable level and the provider’s maximum level is the negotiation zone.
The actual contract with the service provider is an extremely important document; client organizations should work with a third-party advisor or attorney with experience in global sourcing during the contract negotiation and writing step.
In the end, the contract should cover the following areas: deal structure; risk management; price structure and protection; quality assurance; change management; personnel management; core resources; knowledge transfer; IP protection and access; regulatory and legal issues; and governance.
The sourcing phase—in this case, sourcing to a third-party provider—is the last of the pre-engagement lifecycle phases. Alternate sourcing phases are captive sourcing, joint venture, and BOT (Build, Operate, Transfer). Sourcing is where much of the work done in the knowledge and planning phases is put to use. The client organization can make the most of that hard work by following the five steps outlined here to engage the right service provider.