Saturday, January 30, 2010

Defining Service Provider Selection Criteria

A few weeks ago, I listened as a client described a failed outsourcing project and the difficult situation they were in as a result. They had not defined their business needs and selection criteria carefully before determining which provider to negotiate with. Their selection was based upon personal relationships, past bad experiences, and some marketing hype. They ended up trying to strike a deal with a provider that not only could not meet their needs, but they didn't find that out until they were well into negotiations. They cancelled the transaction, which cost them hundreds of thousand of dollars in consulting and legal fees, and put themselves in a very precarious position operationally. I wish I could say that this situation is unusual, but unfortunately, I have seen it many times in my consulting career.

Determining selection criteria before deciding who you want to invite to the outsourcing negotiations table is not rocket science. In fact, it is such a seemingly mundane task, that most people just skip it. The problem is that in a company where outsourcing is being considered, there are multiple forces at work -- people making decisions based on internal, unspoken criteria or old prejudices, or perhaps making recommendations that will scuttle the deal for personal reasons. So taking the time to identify your goals and business needs, and the objective criteria by which your team will make a decision, can help take the decision out of the realm of the emotional and into the realm of practical, business decisions.

One way to approach this is to develop your selection criteria as a team, and then jointly rank and weight these so that you can assign value to each of the criteria you will use to evaluate the providers. For example, you may have both price and technical solution as part of your evaluation criteria, but which one is more important? Are you willing to pay more for a better technical solution or capabilities? Or is cost the most important criteria? You may have difficulty making these decisions, but it is far better to make these decisions up front before you embark on service provider identification.
Your business and sourcing strategy drives the selection criteria, which will drive the identification and selection of the provider. If you choose your list of providers before you have completed these strategy steps and have internal agreement, you will most likely find, in retrospect, that you have omitted some very good candidates, and included a few that clearly don’t match up.

Once you have your selection criteria identified, ranked and rated, you may want to identify any criteria that are minimum requirements or showstoppers. If there are criteria that the provider must meet in order to bid on your deal, you can save yourself time by making these criteria the first pass at selection. For example, if your company can only do business with companies that are based in a particular geography or that are of a certain size, then these criteria become an automatic disqualifier if they are not met.
You should investigate each of the companies on the potential provider list to ensure they meet your basic criteria before you engage with them. This is an activity you can have your internal team perform, or you can procure the services of an external advisor to help you with this activity. You don’t need to take a service provider through a proposal process to find out that it doesn’t meet the basic qualifications for selection.

While you are working on this initial task, it is important to take another kind of internal survey: are there any providers on there that your company, for whatever reason, cannot or will not do business with? This is sometimes a bit of a challenge, but the usual place to start here is with the executive committee. There may be some strong opinions on that team about who they want to do business with, but the real question to ask is -- if this provider gives us the best proposal is there anything that would prevent us from signing a deal with them? If you uncover anything significant and cannot get it resolved, it is best to omit this provider from your list. Neither you nor the provider have time to work on something that is futile.

1 comment:

  1. When I read this post, I thought, that is exactly what happened with a client we were on boarding when they went with my company in late 2006. They had not spent time listing out their technical requirements nor met as a team to do so prior to choosing their vendor. Literally, we would be in a meeting with them on location and they would be bringing up new requirements that we had not heard before and this is after a contract was signed. We were not the right vendor for them and we ended up parting ways. This was a disaster to my company. Not only is this circumstance bad for the customer, but, also the vendor especially if time and money was already invested. You try to make it work when it just can't and you wait too long to realize this. Both sides loose money and possibly jobs.

    Good post, thanks.